Can Microsoft's Original Shows for Xbox Compete With Netflix and Amazon?

The Xbox One maker is joining the increasingly crowded original content space, but the move might not be as risky as it seems.

Apr 30, 2014 at 9:52AM

The crowded field of companies creating television-like content to be marketed on channels outside the traditional broadcast networks and cable outlets has yet another new player.

While Microsoft (NASDAQ:MSFT) said it would deliver television-style programs and introduced Xbox Entertainment Studios when it announced the Xbox One in May 2013, the company has yet to deliver any original programming. That changes in June when Microsoft launches its first originals across the Xbox One, Xbox 360, and other Microsoft devices.

The first show to be offered is an eight-episode series called Every Street United, about searching for gifted and undiscovered soccer players. The series will culminate in a four-on-four soccer street game in Rio de Janeiro during the 2014 World Cup. Xbox will also be the exclusive online broadcasting partner for the Bonnaroo festival June 13-15. The broadcasts will include live performances, as well as interactive features. 

"We are developing premium, original content for the Xbox community, which is an audience we are incredibly respectful of," said Nancy Tellem, president of Xbox Entertainment Studios. "We believe Xbox Originals should embrace the way our fans think about traditional TV." Tellem's creative vision involves year-round, high-quality programs based on subjects gamers care about, with interactive features tailored to each show.

That sounds great but Microsoft is entering a space that already contains countless traditional outlets creating high-quality originals as well as digital rivals including Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) with Yahoo (NASDAQ: YHOO) just announcing its first two original series with plans for at least two more.

What is Microsoft doing?

Xbox Entertainment Studios has two projects in the works based on Microsoft's Halo gaming franchise with Steven Spielberg and Ridley Scott each involved with one. No premier dates have been announced, but the company offered more details about the rest of its initial slate. Early offerings will include a comedy sketch series featuring Sarah Silverman, a stop-motion show involving Seth Green and the creators of Robot Chicken, and a robot drama Humans to be developed and broadcast in partnership with England's Channel 4.

The company is careful to say that it's not necessarily going for broad appeal, instead looking for series that fit its user base of gamers. 

"We aren't trying to find something that's going to be accepted by the largest common denominator, which is what a lot of people in the business look for," Tellem told Bloomberg . "We're focused on what we feel our audience on our platform wants."

Why is Microsoft doing it?

Microsoft not only wants to get people to buy Xbox One it wants people to turn over control of their living rooms to the device. In this regard the company is not only competing with Sony's (NYSE: SNE) PlayStation 4 game console, but also devices including Amazon's Fire TV, Google's (NASDAQ: GOOG) Chromecast, Apple (NASDAQ: AAPL) TV, Roku players, and others. Being the device attached to the main TV in the house is potentially lucrative. Microsoft not only can sell apps, video rentals, and games, it also charges for membership to its Xbox Live service with a Gold package costing $9.99 a month or $59.99 a year if you pay for the year upfront. 

You need an Xbox Live account to use popular apps like Netflix on an Xbox (Sony has a paid network too, but joining is not required to use Netflix and other similar services). Microsoft does not exactly shout this fact from the rooftop in its marketing and many customers who intend to use the device as an entertainment center likely learn about the need to subscribe when it's already too late to buy another device. Even better for Microsoft -- if a paying Xbox Live member doesn't already have a Netflix account and signs up through Xbox, Microsoft gets a cut of the subscription fees. It's a pretty sweet deal for Microsoft.

Microsoft is cagey about how many Xbox Live members it has, but it reported it had 46 million paying subscribers as of October 2013. That's a huge user base driving revenue to Microsoft and the company should be making every effort to keep people paying. Having a show (or shows) that people become invested in not only keeps them as subscribers, it keeps those customers feeling like the subscription is a value. HBO has used this model for years. You might only watch Girls or True Blood, but as long as the only place you can watch those shows in a timely fashion is HBO you're unlikely to cancel.

Is original content a draw?

Of the many companies creating high-quality TV-like original content for digital services, Netflix is the clear success story -- House of CardsOrange is the New Black, and Arrested Development were hits that created buzz and likely brought in new subscribers while keeping existing ones happy. Amazon -- which has committed much less money to originals -- has garnered some publicity but its shows have not generated much in the way of buzz. Similarly YouTube and Hulu -- which offer some premium original content -- haven't had anything that breaks out the way top Netflix shows have.

That does not mean Microsoft is silly to try. It's not crazy to think that the audience that plays Halo would be interested in shows based in the game's world and Silverman might appeal to the same crowd. And while those shows are preaching to the converted -- hard-core gamers are not likely to drop their Xbox Live subscriptions -- the series could also appeal to a group beyond the core constituency (sort of in the way the Battlestar Galactica reboot was watched by more the just the core sci-fi audience). With names like Spielberg involved it's certainly possible that a breakout is in the mix, potentially driving Xbox One sales and Xbox Live subscriptions while making users more willing to make the Xbox One the center of their home entertainment universe.

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Daniel Kline is long Microsoft. He owns an Xbox 360 but has not paid for Xbox Live. The Motley Fool recommends, Apple, Google (C shares), Netflix, and Yahoo!.\ The Motley Fool owns shares of, Apple, Google (C shares), 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.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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