Microsoft will shut down the Xbox Entertainment Studios, ending an ambitious foray into original video programming.
The Santa Monica studio will be shuttered as Microsoft focuses on strengthening its core video game business. The majority of the Xbox Entertainment's 200 employees work in southern California and Vancouver, though the company refuses today to say how many will lose their jobs. The cuts are part of Microsoft's company-wide restructuring announced on Thursday morning, which will see the elimination of 18,000 jobs in the next 12 months.
Chief Executive Satya Nadella signaled the change in a lengthy memo to Microsoft staff that expressed support for the Xbox and its importance to the company — but omitted any reference to original television programming.
"The single biggest digital life category, measured in both time and money spent, in a mobile-first world is gaming," Nadella wrote a week ago. "We are fortunate to have Xbox in our family to go after this opportunity with unique and bold innovation. Microsoft will continue to vigorously innovate and delight gamers with Xbox."
More from Re/code:
Ahead of Q2 Report, IBM Reflects on Ginni Rometty's Busy Year So Far
New York State Unveils Proposal to Regulate Bitcoin Companies
Microsoft Ending its Short-Lived Tenure as Android Phone Maker
Absent was any mention of Xbox Entertainment Studios, a division it created when it hired longtime CBS entertainment president Nancy Tellem in September 2012. Her mandate at the time was to make entertainment content that could only be found on the Xbox Live online platform.
Xbox Entertainment Studios fit with Microsoft's plan to dominate the living room through its game console. But the unit has struggled to deliver on its promise.
Sources paint a picture of a disorganized studio that struggled to close deals and lacked a fully fleshed-out business model. This inability to execute has turned off potential studio partners, they say, complicating the process of securing premium content.
The studio became a casualty of shifting corporate priorities that came with Microsoft's executive shuffle. Tellem had been hired by CEO Steve Ballmer, who less than a year later announced he would leave the company. Don Mattrick, who oversaw the Xbox division, similarly departed.
In recent months, Microsoft has focused its attention on bolstering sluggish sales of the Xbox One console, which has lagged behind the rival Sony PlayStation 4 game system. The company dropped the price to entice gamers and sales of the Xbox One doubled in June, as compared with the prior month.
Microsoft has moved away from positioning the Xbox One as an all-in-one entertainment system — a message that appeared to alienate gamers who are the most likely first buyers of a new game system. At this year's E3 game industry trade show in Los Angeles, it was all about the games.
That raised questions about the fate of the Xbox Entertainment Studios, which merited nary a mention at the high-profile industry event. One of its first original shows, the soccer-themed reality show "Every Street United," debuted June 15 to little notice.
Xbox Entertainment Studios will gradually wind down, with the studio continuing work on projects that are currently in production, according to a person familiar with the situation who was not authorized to speak publicly about the matter.
The high-profile "Halo" series, based on Microsoft's popular game, is expected to continue.
Phil Spencer, the head of Microsoft Studios, issued a statement, confirming that the studio will close in the coming months. He said executives Tellem, Jordan Levin and other members of the team will remain to work on original programs that are already in production, such as the upcoming documentary series "Signal to Noise" whose first installment takes on the rise and fall of gaming icon Atari, and "Halo: Nightfall." The "Halo" television series will continue as planned.
"Xbox will continue to support and deliver interactive sports content like 'NFL on Xbox,' and we will continue to enhance our entertainment offering on console by innovating the TV experience through the monthly console updates," Spencer said. "Additionally, our app partnerships with world-class content providers bringing entertainment, sports and TV content to Xbox customers around the world are not impacted by this organizational change."
Here is the memo:
I hope you have had a chance to read today's mails from Satya. I wanted to take a moment to share a few thoughts on what this means for our team and some of the changes we are making as a result.
In last week's mail outlining some of the steps towards creating the culture and organization to bring our ambitions to life, Satya called out the strategic importance of Xbox as a strong consumer brand, a creative center for gaming and a leader in bold innovation. Every member of Team Xbox should be incredibly proud of the impact and reach your work has within the walls of Microsoft, with our developer community and most importantly, with consumers.
Microsoft is the productivity and platform company for a mobile-first and cloud-first world, and games are the single biggest digital life category in a mobile-first world. Success in this category, by growing a robust Xbox business, brings additional value to Microsoft. I have stated this before, but for Xbox to be successful, we must remain committed to being a consumer-driven organization with the mission of meeting the high expectations of a passionate fan base, to create the best games and to drive technical innovation.
As part of the planned reduction to our overall workforce announced today and in light of our organization's mission, we plan to streamline a handful of portfolio and engineering development efforts across Xbox. One such plan is that, in the coming months, we expect to close Xbox Entertainment Studios. I would like to take this opportunity to recognize the accomplishments from the entire team in XES. They have built an impressive slate of original programming and pioneered interactive entertainment on Xbox, such as the innovative reality series 'Every Street United' that succeeded in uniting audiences around the globe during the recent World Cup. I am pleased that Nancy, Jordan and members of the XES team remain committed to new, original programming already in production like the upcoming documentary series 'Signal to Noise' whose first installment takes on the rise and fall of gaming icon Atari and of course, the upcoming game franchise series 'Halo: Nightfall,' and the 'Halo' Television series which will continue as planned with 343 Industries. Xbox will continue to support and deliver interactive sports content like 'NFL on Xbox,' and we will continue to enhance our entertainment offering on console by innovating the TV experience through the monthly console updates. Additionally, our app partnerships with world-class content providers bringing entertainment, sports and TV content to Xbox customers around the world are not impacted by this organizational change in any way and remain an important component of our Xbox strategy.
Change is never easy, but I believe the changes announced today help us better align with our long-term goals. We have an incredible opportunity ahead of us to define what the next generation of gaming looks like for the growing Xbox community. I have a great deal of confidence in this team and know that with clarity of focus on our mission and our customers we can accomplish great things together. We already have.
Thank you again for all you do for Xbox.
—By Dawn Chmielewski, Re/code.net.
CNBC's parent NBC Universal is an investor in Re/code's parent Revere Digital, and the companies have a content-sharing arrangement.