Microsoft Is Closing Its Entertainment Studios, But Narrow Focus Is Likely Better For Xbox

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Microsoft let the ax begin to fall today, announcing 18,000 in job cuts to come over the course of the next year, a move Wall Street has so far applauded. A big part of that is going to be ex-Nokia staff, but Microsoft is also shuttering its nascent Xbox Entertainment Studios, according to an email memo unearthed by ZDNet’s Mary Jo Foley. The email talks about how Xbox Entertainment Studios will be closed in an effort to streamline the Xbox unit, and in truth, the XES experiment was probably ill-fated from the start.

Note first that Microsoft is concerned with getting back to its “core,” according to CEO Satya Nadella, and that’s a big motivator behind the decision to close down a big chunk of Nokia’s operations, and behind narrowing the focus of the Xbox business as well. In his original memo foreshadowing this move, Nadella talked about Xbox and how it had to regain its focus on gaming, and how it could help Microsoft’s mobile business because so much of mobile is built on the mobile user’s affinity for gaming.

Microsoft isn’t killing everything – the Atari documentary it created and its Halo series are going to continue as originally planned. But otherwise, the slate appears wiped clean. This is definitely a move designed to signal that Xbox head Phil Spencer is all about focusing and building the core of Microsoft in keeping with the wishes of his boss.

Bringing premium content to the Xbox ecosystem wasn’t hard to understand from a strategy perspective. Microsoft already has a healthy base of subscription customers on hand with its Xbox Live service that it could have provided in-house shows to. Provided what the company developed was well received, the material might have helped grow Live’s customer base, and potentially shore up its churn.

Original content is a flag that just about ever tech company seems to want to fly these days; AOL and Yahoo are engaging in building their own shows, films and programming, buoyed perhaps by the success of cable networks like HBO and streaming companies like Netflix, and by the studio model that has sprung up around YouTube. The lure is clear: own the content and you absolutely own the advertising revenue and any spin-off revenue potential, too. There are licensing deals, product placement opportunities, and a whole host of possible lines of business that extend beyond basic display and video ads with original content.

Amazon, via its Amazon Studios play, has executed a similar effort under its Prime aegis. However, Apple, Google, and now Microsoft each appear content to provide software and hardware platforms, but not use their own resources to directly create content they could lock inside their own ecosystems. And that’s probably for the best; while building an own-content business has plenty of potential in terms of drawing in new revenue opportunities and more dedicated business, it’s not something you can run as a hobby or side project.

Microsoft can also still seek out originals, but it will now place the brunt of the actual content creation on external partners, which is likely what it should’ve done from the start.