Microsoft Goes Hollywood in Amazon-Like Programming Push

April 7 (Bloomberg) –- Microsoft's Xbox team is betting big on television. Xbox Entertainment Studios has committed to six original TV shows, including a "Halo" series from Stephen Spielberg. There are also more than a dozen projects in development. Why is Microsoft doing this? Bloomberg's Jon Erlichman got a peek inside LA-based Xbox Entertainment Studios. (Source: Bloomberg)

Microsoft Corp. is going Hollywood with a cast including comedians Sarah Silverman and Seth Green, aspiring World Cup players and eerily human robots.

All are involved in shows that Microsoft’s new Xbox television studio plans to roll out globally starting in June. Helmed by former CBS Corp. honcho Nancy Tellem, who Microsoft hired 19 months ago to build a TV powerhouse from the ground up, the studio now has six series lined up -- including a science-fiction thriller called “Humans” about humanoid robot workers -- and more than a dozen projects in development.

It’s unfamiliar ground for the world’s largest software maker, which has zero experience in original TV programming and is wading into a crowded field where Netflix Inc. and Amazon.com Inc. have generated hits such as “House of Cards.” Yet Microsoft is betting on the new studio to produce shows that will attract consumers to its Xbox game console, lure subscribers to its Xbox Live online service and eventually anchor a consumer home entertainment network that will tie the company’s devices together.

“TV, as the highest-reach form of entertainment you can find, is a critical part” of wooing consumers to Microsoft, said Phil Spencer, who was last week named head of the Xbox business.

Photographer: Patrick T. Fallon/Bloomberg

A visitor's shadow falls on a logo as he plays on an Xbox One video games consoles during the Microsoft Corp. midnight launch event in Los Angeles. Close

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A visitor's shadow falls on a logo as he plays on an Xbox One video games consoles during the Microsoft Corp. midnight launch event in Los Angeles.

Consumer Vision?

Microsoft is pushing ahead with the original shows even as new Chief Executive Officer Satya Nadella has yet to fully articulate his plans for the company’s consumer business. The Redmond, Washington-based software maker last month added an activist investor from ValueAct Holdings LP to its board who wants the company to shift its focus away from expensive consumer initiatives. The two top executives who began the programming effort -- former Xbox chief Don Mattrick and CEO Steve Ballmer -- are also gone.

Microsoft remains committed to the effort, Spencer said in an interview. Still, success for the Xbox television studio may be elusive as companies fight for consumers’ attention. Netflix released its first original show in 2012 and has now greenlit more than two dozen, while Amazon last week announced a $99 box for watching Web-delivered shows called Fire TV. Sony Corp.’s entertainment studio has said it will produce an original series, a drama called “Powers,” for the PlayStation Network.

“This is not an easy business,” said Tellem, who oversaw network entertainment at CBS between 1998 and 2009 when shows such as “CSI” and “Survivor” became hits. “There’s a huge failure rate. You have to get up to the plate a lot. Hopefully we can have a higher batting average than most, but it’s a long process.”

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Nancy Tellem, president of entertainment at Microsoft Corp., listens during an interview at the Microsoft Entertainment Studios in Santa Monica, California, on March 27, 2014. Close

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Nancy Tellem, president of entertainment at Microsoft Corp., listens during an interview at the Microsoft Entertainment Studios in Santa Monica, California, on March 27, 2014.

Silverman, Green

One way Tellem, who was also part of the team that debuted “Friends” and “ER,” plans to distinguish Microsoft is by adding interactive aspects to each show to make use of Xbox technology. Her first offerings are a street football reality show called “Every Street United” timed for the World Cup, as well as robot thriller “Humans” based on a Swedish series.

For “Every Street United,” users can unlock extra scenes and will have mini-games that can be played in each scene. “Humans” will offer ways to follow what happens to characters outside the show’s plot.

The studio will also produce a comedy sketch show with Silverman and Michael Cera’s JASH comedy collective and a stop-motion show with Green’s Stoopid Buddy Stoodios, which makes the Emmy-winning “Robot Chicken.” In addition, Microsoft has ordered a pilot for unscripted series “Fearless,” in which Australian Navy bomb clearance diver Paul de Gelder, who lost several limbs to a shark attack, aids people who try to make the world a better place.

Sugar Man

The studio will also do a live broadcast of the Bonnaroo music festival in July, with backstage interviews using Microsoft’s Skype software. A documentary series from producers of the Oscar-winning “Searching for Sugar Man” will follow.

Some of the shows, like “Every Street United,” will be offered for free on the Xbox One and 360 consoles. Tellem said the company is working out the business model for other programs. Microsoft may also strike partnership deals to distribute some of the content outside of Xbox, she said.

Unlike the critically-lauded titles Netflix chooses by number-crunching its subscribers’ favorite actors and genres, Tellem said Microsoft’s marching orders are to focus on its gamer audience, typically males between 18 to 34 years old.

Common Denominator

“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,” she said. “We’re focused on what we feel our audience on our platform wants.”

The company is taking the unusual step of only greenlighting shows that can be combined with the interactive components to encourage users to engage across consoles, phones and tablets. By hiring a team of young Hollywood executives and pairing them with software engineers, Microsoft wants to finally crack a code that the entertainment and game industries have had trouble doing alone.

“Building a TV studio is just as hard as a building a game studio -- every piece of content is a potential hit,” said Brian Blau, an analyst at Gartner Inc. “Every piece of content is a potential miss and until you have a number of hits under your belt, you aren’t a player.”

Microsoft also needs to spur Xbox One sales, which have lagged those of Sony’s PlayStation 4 in recent months. Michael Pachter, an analyst at Wedbush Securities Inc., calculates each Xbox sold is worth $1,000 to Microsoft between games, shows and the online service. Xbox had sales of $7 billion in the fiscal year ended June 30, 2013.

Tellem’s Road

Tellem was at Warner Bros. before joining CBS in 1997. When Microsoft hired her in September 2012, she was supposed to be helping the company to find the right candidate for the job. Instead, she took it herself.

Since Microsoft initially didn’t have a Hollywood office, she worked out of space borrowed from her husband, top sports agent Arn Tellem, who has represented basketball player Kobe Bryant. Today her team is housed in a 21,000-square-foot office in Santa Monica overlooking the Pacific Ocean and decorated with pricey art from musician Moby and artist Scott Foldesi, which are from Microsoft’s collection. Tellem said she chose Santa Monica to differentiate from the Hollywood and Studio City operations of other TV companies.

Her team includes Elan Lee, chief design officer for the studio, who is working on how to merge passive TV watching with social and interactive activities. In February, Tellem also hired former Warner Bros. colleague Jordan Levin, who co-founded the WB Network and turned it into a destination for younger audiences with shows such as “Gilmore Girls.”

Melding Technology

Lee’s team is developing a common set of interactive capabilities for the shows like social networking tools, a reward system and opportunities to purchase things like soundtracks. The group is committed to designing at least one interactive feature tailored to each show.

The studio is also working on a way to save a social commentary stream along with live events. That lets viewers who watch a big game or show finale a few hours late to see the key tweets or Facebook posts that captured the action. Other ideas include an experimental way to scan the viewer’s face and place them in a show’s crowd scene.

“We’re going to try a lot of different things and not everything is going to work,” said Levin, who serves as executive vice president of the studio. “We’re trying different business models, we’re trying different forms of interactivity, we’re trying a very broad portfolio of content.”

To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net; Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Pui-Wing Tam at ptam13@bloomberg.net Pui-Wing Tam

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