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Microsoft, Yahoo see future in television

Dina Bass, Cliff Edwards and Claire Suddath
Apr 7, 2014 03:54 PM
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 starting in June. Led by former CBS Corp. executive Nancy Tellem, whom 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.

But the software leader will face competition from an Internet giant – Yahoo.

The Sunnyvale company is currently shopping around for four original television series that it will start airing later this year, the Wall Street Journal reported. That step comes just five months after Katie Couric’s move to the website and is part of the company’s broader push into original video, which has even included reports of overtures to YouTube’s top producers.

Television is unfamiliar ground for Microsoft, which has zero experience in original TV programming and is wading into a crowded field where Netflix of Los Gatos and Amazon.com 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 recently named head of the Xbox business.

Changing landscape

The moves by Yahoo and Microsoft are just part of a larger erosion of the traditional TV audience.

The shrinking started in 2011 when Nielsen reported that the number of U.S. homes with television sets dropped for the first time in 20 years. As a result, the number of people who watched traditional TV programming, via broadcast or cable, started to decline as well. So far the decline has been slight but in a few years will probably pick up speed.

Last year, 86 percent of Americans had cable – down from 88 percent three years before. The premium cable channels have been hit the hardest: 32 percent of people subscribed to HBO, Showtime or Starz last year, down from 38 percent in 2012, according to NPD group. Meanwhile, the number of Netflix subscribers rose 24 percent, to 31.1 million people.

Yahoo’s shows will theoretically be ad-supported and available to people for free online, aligning it more closely with YouTube than, say, Netflix’s subscription-driven strategy. Also, Yahoo is looking for 10-episode comedy series with a per-episode cost that’s less than “a few million dollars,” as the Journal put it – or about the price of a regular network sitcom. That’s a deft move on Yahoo’s part: Audiences already have plenty of novelistic dramas, but what they can’t get online (as original content, anyway) is a new half-hour comedy.

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 company last month added an activist investor from ValueAct Holdings 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.

Growing competition

Microsoft remains committed to the effort, Spencer said. 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 approved more than two dozen, while Amazon recently 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.”

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 soccer 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.

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.

Audience focus

“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 approving shows that can be combined with the interactive components to encourage users to engage across consoles, phones and tablets.

Dina Bass, Cliff Edwards and Claire Suddath are Bloomberg writers. E-mail: dbass2@bloomberg.net, cedwards28@bloomberg.net, csuddath@bloomberg.net

– Drsandyr