When Microsoft Corporation (NASDAQ:MSFT) announced plans to back more than a dozen new original programs and documentaries via its Xbox Live network, it raised questions about Mr. Softy's long-term strategy. Are the days of Microsoft's obsession over the mechanics of the PC market finally over?
Host Ellen Bowman puts this question to Fool analysts Nathan Alderman and Tim Beyers in this week's episode of 1-Up on Wall Street, The Motley Fool's Web show in which we talk about the big-money names behind your favorite movies, toys, video games, comics, and more.
Nathan says it's an ambitious slate that rivals what Hulu and Netflix already have. What's clear is that the effort isn't, by itself, aimed at winning more buyers of Xbox devices since Microsoft makes little profit on each console sold.
Instead, Nathan says, the bet may be that the Xbox and its associated original programming will get customers more interested in associated products, such as Windows Phone and Skype communications. All three products exist within the confines of the Entertainment and Devices Group, which sports the lowest profit margins among all of Microsoft's six reporting segments.
Tim notes the programming announcements come as networks and other would-be TV moguls were participating in "upfronts" -- presentations to Madison Avenue executives aimed at selling time slots for ad-supported television shows. We've no indication of Microsoft plans to include ads with its originals, but Tim says the timing is interesting and the strategy wouldn't be unprecedented. Hulu places ads in its much of its programming, and earns a premium per subscriber as a result.
Either way, Tim and Nathan say investors would do well to keep a close eye on results in the Entertainment and Devices division in succeeding quarters. If margins expand as revenue grows, we'll know that Microsoft's strategy is working.
Now it's your turn to weigh in using the comments box below. Do you like Microsoft's plan to fund a slew of Xbox Originals? Why or why not? Click the video to watch as Ellen puts Nathan and Tim on the spot, and then be sure to follow us on Twitter for more segments and regular geek news updates!
Ellen Bowman and Tim Beyers own shares of Netflix. Nathan Alderman didn't own shares in any of the companies mentioned in this article at the time of publication. The Motley Fool recommends Netflix and Yahoo! and owns shares of Microsoft and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.