Microsoft Plays on the Small Screen
Microsoft Corp. first tried to get into the television business in the 1990s. That effort failed, but the experience hasn't stopped it from trying again with the help of heavyweights such as Steven Spielberg and former CBS Corp. film and entertainment boss Nancy Tellem. While the new plan might succeed, it illustrates why tech companies will have a hard time changing the way most Americans consume television.
Microsoft's latest foray into original content makes sense because its objectives are modest: Rather than trying to supplant existing television content, Microsoft merely wants to produce targeted and original programs for the young men who use its Xbox game consoles. Those people are already paying Microsoft for membership in Xbox Live Gold to play games online. Microsoft also plans on taking advantage of the Xbox's technological power and audience sophistication to experiment with interactive television programs.
Bundling that subscription with a few exclusive shows seems like a smart way to build customer loyalty and prevent people from switching to Sony Corp.'s cheaper PlayStation 4. This suggests that Microsoft's ambitions are similar to those of Amazon.com Inc., which offers exclusive video content to subscribers of its Amazon Prime service as an additional benefit to the free shipping. These services are nice supplements for people who already pay for cable television, but nothing more.
The challenge for companies with loftier goals is that the networks make more money by bundling their shows and distributing them through established networks than they could by selling content a la carte. In addition to being monopolists -- for instance, only HBO has ``Game of Thrones'' -- the status quo lets the networks reap large profits from consumers with the help of middlemen. Most people blame the low-margin cable companies for the rising cost of television even though the networks raise their prices by about 10 percent each year. This isn't a problem that can be solved by better technology.
Of course, the question is whether television actually needs fixing. The vast profits earned by the networks have encouraged the development of outstanding television shows that rival feature films in production values and narrative power. We also have no evidence that most consumers would prefer to pick and choose what to watch when they could just let the boob tube run on one channel after a long day.
People who can afford it seem to prefer a mix of options. According to data compiled by Bloomberg, the number of U.S. households with a television and the number of subscriptions for traditional pay-TV services have both increased by about 3 million people since 2007. Meanwhile, the number of Netflix Inc. digital subscribers in the U.S. has soared by about 12 million just since 2011, which suggests that Netflix's growth has come from people who want to supplement -- rather than replace -- the services offered by the cable, satellite and telecommunications companies.
The downside of all these supplementary services is that they make it harder for a single person to be able to access all the content currently being produced. As my colleague Kirsten Salyer pointed out, you'd need several distinct devices and perhaps a half a dozen separate subscriptions. There isn't any impetus that encourages consolidation because most of the new television studios are being backed by large technology companies that make the bulk of their money elsewhere. If Amazon and Microsoft -- and maybe Google Inc. and Apple Inc. -- want to keep making television shows at a small loss, it's hard to see what would lead them to stop.
(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter at @M_C_Klein.)
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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