It's Too Late to Kill Netflix, Microsoft

Microsoft's push into original content is not enough to unseat Netflix.

Apr 28, 2014 at 6:00PM

Microsoft's (NASDAQ:MSFT) push into original video content has been a slow process, but we're finally getting there. The software giant announced this morning that several shows will be coming to Xbox 360, Xbox One, and other Microsoft devices starting in June.

Don't expect to do a lot of binge viewing at first. Microsoft's getting out of the gate slowly in June with a reality series on street soccer. It will also stream the 13th annual Bonnaroo music and arts festival live during its mid-June weekend. A documentary detailing Atari's demise from the viewpoint of its biggest financial blunder -- overestimating the success of its E.T. video game to the point where it had to bury millions of unsold cartridges in a New Mexico landfill -- will air later this year.  The more magnetic scripted shows won't be out until at least next year.

Microsoft seemed to be making a splash into original video programming when it hired seasoned TV exec Nancy Tellem to be its president of entertainment and digital. The move was so significant that Netflix (NASDAQ:NFLX) CEO Reed Hastings resigned from Microsoft's board of directors just two weeks later. Hastings never called out the hire as the reason for his departure, but it was pretty clear. Microsoft was moving into original video programming to take its Xbox Live platform to the next level, and it was going to be a conflict of interest for Hastings.

Microsoft feels it has a captive audience, particularly when it comes to gamers. It's losing ground in the latest generation of consoles with the PS4 outselling the Xbox One, but it still watches over 48 million Xbox Live subscribers who likely want to do more than merely play games with their fellow die-hard players. Netflix coincidentally enough now has more than 48 million streaming accounts worldwide, but at least we know that its audience is there solely for the video.

It's going to be hard for anyone to catch up to Netflix. It has $7.1 billion in streaming content obligations, and even a company as rich as Microsoft isn't going to tie up that kind of money on its fledgling video platform. 

There are also conflicts of interest within Xbox Originals. On one hand it has Steven Spielberg aboard as executive producer of a live-action series based on Microsoft's successful Halo gaming franchise. On the other it's taking a jab at Atari at the expense of Spielberg's E.T. merchandising efforts. Taking a shot at a gaming pioneer also seems slightly inappropriate at a time when its own Xbox One is losing ground to the PS4.

Naturally, this all goes away if Xbox Originals puts out at least one hit. If it's able to have exclusive rights to at least one show that gains momentum, it will be a difference-maker. Unfortunately, it's not easy to just set up shop here. Hulu and Amazon Prime Instant Video have rolled out original shows with recognizable stars, but they've yet to approach the kind of buzz that Netflix generates with House of Cards or Orange Is the New Black. Microsoft is too late, and it's not coming with enough ammo to make a difference right away.

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Rick Munarriz owns shares of Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of Microsoft and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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