In closing Xbox Entertainment Studios, Microsoft shatters faith with advertisers

On July 17th, Microsoft announced that they would be closing the door on nearly 18,000 employees -- the largest round of layoffs in company history. The announcement also meant that several major Microsoft projects would be shuttered as well, including the much-hyped Xbox Entertainment Studios, their flagship video entertainment service which promised to bring original content like Halo: Nightfall in an attempt to match Netflix's industry domination. And while thousands of fans were left in mourning, wondering what could have been if Microsoft had followed through on its vision of video content, the decision had a much larger impact: degradation of trust between Microsoft and its core advertisers. 

Steve Carbone, head of digital and analytics at MediaCom Communications, said it best: "It puts us in a difficult space because we have been pushing Xbox’s program. It really makes us wonder if the commitment is there." And other major advertisers expressed concern, too. A seemingly snap decision by Microsoft, who had just months ago been heavily promoting their Xbox Entertainment Studios service, wore down trust between the company and its advertisers who were left in the dark just as long as the general public. We can't forget the Halo: Nightfall television series, a logical followup to the massively successful live-action 'Forward Unto Dawn', or for the hardcore hip hop heads, an autobiographical documentary starring Nas. Not only massively appealing to viewers, but to advertisers as well, who saw the potential in Microsoft's video endeavors and put everything they had behind the concept. With the closure of the studio, advertisers won't go to bed thinking about the potential for success with Microsoft: they'll go to bed wondering if they'll be hung out to dry in the future.

If Microsoft loses any advertising partners because of its brash decision-making in regards to Xbox Entertainment Studios, it won't affect them financially in the long run; other advertisers will pop up in their place, looking to score a decent partnership with the multinational megacorporation. But having the reputation of being flaky and noncommittal is something that you don't want under any circumstances, especially in the technology industry. A few more hasty decisions like this in the future, and Microsoft may find that they have a reputation they can't get rid of.

Source: Wall Street JournalImage via Shutterstock Xbox media briefing at E3

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It's a bit sad since I get what Microsoft was trying to do. It made sense in theory to have a whole home entertainment platform and not just a gaming one, not really sure why it played out so poorly. I don't buy the "PS4 was $100 cheaper" theory since the Xbox One would give more for the value to compensate, and there are competitors who can easily even sell gear for premium prices with no problems at all. I *think* the problem here was that Microsoft didn't communicate the idea well enough to the consumers. They've honestly thought (and still think?) Xbox One is just a game console. Of course, in that case, it's very hard to compete with a simpler concept that really *is* just that.

The market for a cheaper device is always bigger than the market for a more expensive one. That is one of the reasons the Mac has such a small market share, and Windows PCs, which are on average much cheaper, has a far larger market share. I believe the Xbox One should be better target marketed at different segments, based on price and configuration. Target the Xbox One without Kinect appropriately to the price conscious segment; target the Xbox One with Kinect pushing games and entertainment to the premium gamer; and also target the Xbox One with Kinect to families, extoling its entertainment capabilities.

What about Microsoft "shattering faith" with consumers? Why is the console even called the "Xbox One" anymore?

Who cares what parasitic advertisers think about anything at all? The younger generations are blocking their ads, cutting the cord to 500 channels of advertising with trash shows as filler, and watching their content commercial-free.

Advertisers need to find a new approach that works WITH content providers of all stripes, like going back to SPONSORED events, shows, etc.

Yes advertising to young people isn't working, which is why Facebook & Google (both ad companies) are worth so much today. Young people are consuming more ads today than ever before and they're giving them thumbs up likes to boot. If what you're saying is true then Google should dump YouTube ASAP.

Young people cut the cord because a cable bundle is obscenely expensive and forces the purchase of content that is not desired. Young people are choosing to not watch TV because it is schedule based, not custom tailored to interests, not on-demand, and offers no avenue for feedback/response/remix. Xbox Live and Xbox are not subject to the limitations of traditional cable/network TV broadcasting. Under proper guidance Xbox with its massive living room footprint is uniquely poised to dominate the way the next generation consumes video.

I'm not privy to MS' books, but I believe MS should make an effort to keep its Xbox Entertainment Studios, since it is producing such highly differentiated work. Many users of Xbox are more into the entertainment aspect of it, and if MS neglects this aspect of Xbox, its competitors can eclipse MS from the entertainment angle. Having renewed focus on Xbox is great, I just believe the renewed focus should be on entertainment as well as games, with management applying pressure to have the division make money ASAP in both areas.

I believe Xbox should have groups focused on its game consoles, a Roku type set top box that can be connected up to Kinect, and apps for Windows and Windows Phone. These groups should be largely independent, though work in a coordinated fashion, and while the console group could spend a great deal to time on games, the other groups could spend most of their time on entertainment, and each group could focus on marketing their products to different audiences. I don't see why Xbox cannot support different efforts at the same time, each pursuing revenue in their own way, though with some coordination of efforts, with the use of common content.

"Shatters faith..."; "brash decision-making..."; "hasty decisions..."

Breathless much?

I read the source article, and the discussion was a lot more balanced, with the authors pointing out the Ms. Tellem has had a very difficult time making headway with content development.

To me, it sounds like Nadella and Elop made a decisive call, and one that was certainly carefully considered in discussions with Phil Spencer, who is known to be refocusing Xbox efforts on gamers (where it always belonged).

More like the targets of those advertisers don't want to be advertised at. What has been the insistence, almost from day one? Banishment of paywalls/adwalls. Now that Microsoft is complying, it is getting beat up for it. Are you advertisers, or users?

Make up your minds.

Personally, I've lost faith in Xbox all together. Microsoft just doesn't seem committed to it at all outside of Major Nelson.

Dot Matrix said,
Personally, I've lost faith in Xbox all together. Microsoft just doesn't seem committed to it at all outside of Major Nelson.

That sounds like a character from the Simpsons.

Who hasn't Microsoft left hung out to dry over the past few years? Customers who bought into Windows Mobile and then Windows Phone 7 after that, Smartphone OEM's with their acquisition of Nokia and release of Lumia, PC OEM's with the constantly shrinking demand for Windows based PC's, Xbox One customers who spent money on the "essential" Kinect, MSN Music, Zune, Vista etc...

If Microsoft isn't careful they will find themselves without any friends left

Sonne said,
Who hasn't Microsoft left hung out to dry over the past few years? Customers who bought into Windows Mobile and then Windows Phone 7 after that, Smartphone OEM's with their acquisition of Nokia and release of Lumia, PC OEM's with the constantly shrinking demand for Windows based PC's, Xbox One customers who spent money on the "essential" Kinect, MSN Music, Zune, Vista etc...

If Microsoft isn't careful they will find themselves without any friends left

Wait a minute there, regardless of my opinion on your other points this one takes the biscuit.....

"PC OEM's with the constantly shrinking demand for Windows based PC's

So your saying that (as a point to your leaving people out to dry comment) Microsoft is leaving OEMs out to dry by (this is how I took your comment) purposefully shrinking demand for pc systems?

Wow!

"

duddit2 said,

Wait a minute there, regardless of my opinion on your other points this one takes the biscuit.....

"PC OEM's with the constantly shrinking demand for Windows based PC's

So your saying that (as a point to your leaving people out to dry comment) Microsoft is leaving OEMs out to dry by (this is how I took your comment) purposefully shrinking demand for pc systems?

Wow!

"

I'm more saying that in a market dominated by MS, the responsibility of keeping that market from shrinking lies on their shoulders...OEM's can't really do much for market demand in desktop computing aside from build hardware to meet the demand, Microsoft has to generate that demand with software that people want to buy and use, be it in the enterprise or at home.

Sonne said,
Who hasn't Microsoft left hung out to dry over the past few years? Customers who bought into Windows Mobile and then Windows Phone 7 after that, Smartphone OEM's with their acquisition of Nokia and release of Lumia, PC OEM's with the constantly shrinking demand for Windows based PC's, Xbox One customers who spent money on the "essential" Kinect, MSN Music, Zune, Vista etc...

If Microsoft isn't careful they will find themselves without any friends left

Windows Mobile was DOA, and you know it. After the advent of the iPhone, and iOS, WM was a relic. WP7 was a stepping stone MS needed to take to get to where they are now.

Honestly,

If you paid more attention, you would have seen most of this coming.

1. Windows mobile: very obvious it wasn't going to survive long term with the advent of the iPhone.
2. WP7: Yes, it sucks that it was dropped but again there were signs hinting to that outcome and WP7 was supported for several more years. Let's be serious as well, very few people keep there phones beyond 2 years.
3. Acquisition of Nokia: do I really need to explain this. If I do, I should stop here and give up.
4. PC OEM's: That ship is sinking, has been sinking, will die. As a captain, you should stay on that ship. As a corporation, you can't afford to be that stupid!
5. Kinect: wait and see, I honestly don't know what's happening here. I wish Microsoft just stuck to their guns with their initial idea for Xbox One but they have too many people to please.
6. Zune: evolved
7. Vista: I don't see where this comes in to play here
8. Just a heads up. Just in case you missed this one, WP8 and RT might be merging so plan your future tech accordingly.

blueboy75 said,

8. Just a heads up. Just in case you missed this one, WP8 and RT might be merging so plan your future tech accordingly.

Its been years since I've used any Windows based hardware or tech at home or for business, aside from fixing family and friends Windows problems, and WP8 & RT market shares are non-existent so my future looks quite bright being Windows free

I didn't get the whole studio concept at first. Seemed to be out of left field. There are a lot of neat things they could have done with the studio, but I don't know how many would stick, and if any would drive a single Xbox One sale.

Now if they would just fix Xbox Music and make it include all the cool features the Zune software had, I'd be happy.

simplezz said,
It's a sound decision to curtail all these distractions and focus energies on core disciplines.

No it isn't. Is Microsoft running low on cash? How is it that Yahoo, Sony, Hulu, Amazon, Netflix have the resources and stamina to commit to producing their own original programming for their networks, but Microsoft which is flush with cash and endless resources needs to play it safe? Everyone knows how important these exclusive content deals are to the future value of these services. The major networks and cable TV infrastructure is collapsing. This is a once in a lifetime gold rush that Xbox has decided to abandon. Microsoft who has all the advantages to exploit this gold rush with its 80 million Xbox consoles and 50 million Xbox Live accounts is uniquely poised to grab a dominant position in the future of television as a major online network. Interactive Game Shows, interactive educational programming, instant result reality shows, interactive fitness and music programming and so much more could be delivered through Xbox. This missed opportunity just leaves the door wide open to Amazon, Apple, Netflix, Youtube to make other boxes instead of Xbox the center of their living room and to become the new media networks of the next century.

I don't think so.

Even though I enjoy Netflix, I really don't understand how they make money. Someone needs to explain that as they seem to be surviving based on the stock value which is way to high, same for Amazon. None the less, eventhough I was hoping Microsoft would join in, I can honestly say it's not necessary. Netflix and Amazon are doing a fine job bringing new ways to view media and the tides are beginning to change. If Microsoft needed to drop one thing out of their array of services, supplying television is probably it. Let's face it, in the near future if not now, every user will have an Amazon, Netflix, and Hulu account along with whatever else comes along (HBO). Adding Microsoft to that bunch won't make a hell of a difference. Let them focus on the technology and make deals to support media from the other providers.

Unfortunately what they're doing seems to change in 180 degrees from year to year and sometimes month to month. They are looking like a very flaky company that is extremely unsure of itself from moment to moment. Last year this was a major focus of Xbox One unveil. 3 months ago they announced Xbox Originals for the first time and did a huge promotion for the ET cartridge dig. 2 weeks ago they were heavily promoting Xbox Originals presence at Comic Con. Now they say forget about all that, leaving their consumers/content creators/ad buyers all scratching their heads and wondering what is wrong with Microsoft that it has become so unreliable and untrustworthy. The company appears crazy, manic in its wild swings from one direction to the other. This applies to the direction of Windows and the Nokia buyout as well. Internally you can blame the last guy, but externally to all the people depending on you the company as a whole looks absolutely crazy and directionless.

"If Microsoft loses any advertising partners because of its brash decision-making in regards to Xbox Entertainment Studios, it won't affect them financially in the long run; other advertisers will pop up in their place, looking to score a decent partnership with the multinational megacorporation."

Advertisers will be falling over themselves to get a piece of that pie. That is all.