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Microsoft Corporation (MSFT) Entering the Video Streaming Fray

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As part of Microsoft Corporation (NASDAQ:MSFT)’s plan to transform the Xbox into an entertainment platform, the company is poised to enter the video streaming fray. Microsoft Corporation (NASDAQ:MSFT) has hired Nancy Tellem to head up its original content efforts.

Microsoft Corporation (NASDAQ: MSFT)

Tellem, who has been referred to as one of the most powerful women in entertainment, once served as the President of CBS Corporation (NYSE:CBS). During her tenure with the company, she helped steer the network to first place by acquiring marketable, mainstream content.

Tellem will be responsible for creating original video content as well as interactive video for the Xbox 360 game console, according to a New York Times report. Tellem will help Microsoft Corporation (NASDAQ:MSFT) create a new production studio. She has not revealed her specific plans for Xbox Live or any other Microsoft service / device, but an announcement is expected to come later this year.

In this article I will dig deeper into current stature of Microsoft’s entertainment business. I will also focus on how billions of advertising dollars will be redistributed among various players in the entertainment game.

Microsoft Venturing into Premium Content Creation for Xbox

“All I’ll say about our current and future investment is [that it is] about doing things that are big and premium,” said Yusuf Mehdi, head of Microsoft’s interactive entertainment business. “Other people will try some lower-end things; what we will do is things that are big and beautiful.”

The goal, Mehdi said, is to have premium content, voice control, and to be able to do things that users have never done before.

On the premium content front, Microsoft is dabbling in producing original material.

Microsoft-created content is likely to be part of the company’s existing paid Xbox Live subscription service.

Microsoft now has a 125-person studio in Santa Monica devoted to making content for the Xbox.

On the distribution front, the company isn’t looking to compete with cable TV and satellite, but instead intends to be a good partner with those companies.

Original video content could take full advantage of Microsoft’s NU ads technology, which uses the Kinect motion sensing controls that allow viewers to interact with commercials.

Microsoft Corporation (NASDAQ:MSFT)’s video streaming business will directly compete with Netflix, Inc. (NASDAQ:NFLX), Redbox and Amazon.com, Inc. (NASDAQ:AMZN)’s Prime, along with many other small and medium streaming video companies. Netflix was the first to make a big splash with original content, producing original TV shows. Amazon is also forging ahead with original content, having set up its own lineup of TV programs that will exclusively be available through the company’s Prime streaming video service.

Microsoft Corporation (NASDAQ:MSFT) seems keenly aware that consumers are willing to pay top dollar for quality original shows that can’t be seen elsewhere. Adding its own batch of original shows to Xbox might persuade more people to continue using the Xbox for their video watching rather than other set-top boxes (Apple TV, Roku, Boxee, Google Inc (NASDAQ:GOOG) TV, etc.). For Microsoft Corporation (NASDAQ:MSFT) it’s like reinventing TV with the Xbox gaming console.

Microsoft’s Entertainment and Devices Division Performance

Microsoft’s EDD revenue decreased, primarily due to lower Xbox 360 platform revenue. EDD operating income increased, due mainly to lower cost of revenue and sales and marketing expenses. Cost of revenue decreased $544 million or 19%, mainly due to decreased sales of Xbox 360 consoles, offset in part by increased royalties on Xbox LIVE content and video games.

Microsoft Corporation (NASDAQ:MSFT) is looking to boost its EDD revenue by introducing original video content that will be viewed on Xbox. Apart from billions of dollars from ad revenue, Microsoft will earn additional revenue from increased sales of Xbox consoles and Xbox Live subscription fee.

Apple Inc. (NASDAQ:AAPL) and Google Ready to Join the Entertainment Bandwagon

Microsoft Corporation (NASDAQ:MSFT) has launched Xbox Music few months ago. With competition gradually building up in the streaming media industry, Xbox Music will perfectly complement the video content for Xbox for tapping more subscribers.

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