Halo: Nightfall illustrates the value of original video content on Xbox

Why Ending Original Video Content on Xbox is a Big Mistake

The grand experiment to sell systems with original video content has come to an end at Microsoft, and with it is a lost opportunity to stand out among consumers. Xbox Entertainment Studios was more than a video content company – it was an inexpensive competitive advantage that Microsoft could use to differentiate Xbox.

Original Video Content by Xbox Entertainment Studios

Xbox Entertainment Studios was tasked with producing a range of original video content for Xbox, but the group’s mandate was shut down amidst restructuring at Microsoft.

The traditional playbook used by console manufacturers to differentiate their systems is a now standard catalog: exclusive games, cheaper pricing and exclusive functionality. Unfortunately, all of those options are incredibly expensive. Building or buying game development studios, locking in exclusive titles from third-parties , or offering exclusive functionality that will make a console more expensive are all costly options for competing.

With Xbox Entertainment Studios, Microsoft was going to make Xbox stand out with a new move in this playbook – exclusive TV shows.

Using Original Video Content to Sell Video Game Consoles

Halo: Nightfall illustrates the value of original video content on Xbox
The still in-progress Halo: Nightfall television series was to be the first of many exclusive original video content programs for Xbox.

Bankrolling exclusive TV shows can be a cheaper option to make a system stand out than funding exclusive AAA games, and Microsoft’s original plan to release a portfolio of ad-supported television shows available only on Xbox could have been a major differentiator for the system.

After abandoning Kinect from the standard retail copy of Xbox One, there is little left to differentiate Xbox One from PlayStation 4 except a selection of exclusive games and DLC-first content for each system. Both consoles are now the same price, lack built-in camera/VR functionality, and play the same popular AAA games like Destiny and Assassin’s Creed.

A console with a few exclusive hit TV shows would stand out in an undifferentiated console market.  Further, the right content would help a console penetrate a more casual consumer market by generating interest among a consumer category more excited by a Family Guy spin-off series than another Gears of War sequel.

How Much Does it Cost to Make a Hit Video Game?

Game Development Cost (in millions)
Halo MMO (Cancelled) $90 (source)
Defiance $70 (source)
Metal Gear Solid 4: Guns of the Patriots $70 (source)
Watch Dogs $68 (source)
Crysis 3 $66 (source)
Tom Clancy’s Ghost Recon: Future Soldier $65 (source)
Grand Turismo 5 $60 (source)
Rift $60-$70 (source)
Halo: Reach $55 (source)
DC Universe Online $50 (source)
Homefront $50 (source)
God of War 3 $44 (source)
Borderlands 2 $30-$35 (source)
Beyond: Two Souls $27 (source)

System selling games are expensive, and even if Microsoft worked diligently to keep development costs low, a budget of $30mm seems conservative (We’ll ignore the $90 million Microsoft was planning on spending on a Halo MMO). For the cost of one system-selling game, what type of video content could Microsoft have?

The answer can be found in Yahoo’s own strategy to become a relevant web portal again.  Yahoo is purchasing comedy programming for $1mm an episode. Microsoft could have three TV shows, with ten episodes a season, for the price of one low-cost high tier video game. By picking the right content, Microsoft could affordable build a unique brand for the Xbox that PlayStation could not match.

For $1mm an episode, Microsoft could also lock-in exclusive streaming rights for TV’s biggest existing shows, as Netflix does today for the hit show Mad Men – paying $1mm for exclusive streaming rights per episode. Xbox could be the only place to stream the best shows on television – clearly a system seller to a large set of the population.

Or, Microsoft could swing for the fences, and instead of paying $60 million for a game the caliber of Grand Turismo 5, the company could pay the going rate for exclusive AAA shows, akin to House of Cards and Breaking Bad, which currently cost $3 million an episode.

How Much Does Original Video Content Cost?

TV Series Cost per Episode (in millions)
Mad Men (streaming rights only) $1 (source)
House of Cards $3 (source)
Breaking Bad $3 (source)
Orange is the New Black $4 (source)
Hemlock Grove $4 (source)
Game of Thrones $6 (source)

 

Ending Original Video Content is a Missed Opportunity

Success in the video game industry is often earned by doing the unthinkable, and by excelling in areas that one’s competitors are not even competing. The arms race for exclusive AAA video games is a costly battle that only escalates in price with each console cycle as game budgets expand. Television shows are a less pricey way to stand out.

The precedent of competing through bold new means is already established in the history of video games.  CONSULGAMER is currently reading Console Wars, a book profiling the battle between Sega Genesis and Super Nintendo. Despite a smaller marketing budget, Sega succeeded with Genesis by spending marketing dollars differently, and spending in surprising ways that caught the attention of Sega’s target market. While Nintendo could buy more TV ads, Sega generated attention with Sonic-themed hot air balloons and the world’s first same-day game launch.  If Microsoft launched a series of television shows that spoke to Xbox’s audience, the company could stand out above Sony in a way another exclusive AAA game could not. The potential for Xbox to succeed with more mainstream gamers, who are less excited for more AAA games, could be even greater with good video content.

Original Video Content May Still Matter

While Microsoft is no longer moving forward with their studio (although they may sell the remnants of it to Warner Brothers), Xbox is still seeing some exclusive content. A Halo television series will still premiere on Xbox and Showtime, and the company is still underway with an exclusive documentary .

While Sony’s public plans for original video content is still largely unannounced, the company revealed at E3 that they are moving forward with Powers, a series based off a Brian Michael Bendis comic. More content is expected, although unannounced.  With Microsoft’s efforts out of the picture, now may be the time for Sony to double down on exclusive video content.

Original video content for PlayStation 4
Sony spent five minutes of the company’s E3 press release touting Powers, the first of potentially many exclusive original video content for PlayStation platforms.

A Note About Our Cost Figures

The costs above cover development costs only, and not marketing, which we will leave out of this discussion due to the differences in marketing TV shows and video games. The development cost totals are also mainly from the prior generation of consoles, given limitations on the availability of public information on the costs of game development.

Our video content numbers may also be on the high end, as the costs to create an episode of a proven hit TV show are often higher than creating brand new and unproven IP.  For the case of this article, we are using published figures for proven TV-shows as a discussion point. In reality, the cost to create new TV series will likely be less costly than the numbers above, furthering our case for the value of  original video content on consoles.

Additional sources for this article include Mic.com, Kotaku and Wikipedia.

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Video game data and analysis from a consultant