Microsoft’s (MSFT) XES Shutdown Prompts Trust Issues With Advertisers

Microsoft (MSFT)’s plans to shut down its 2-year-old Xbox Entertainment Studios [XES] as part of its wide-restructuring plan, which will see 18,000 people laid off over the next year, has shocked and angered several top advertisers who are questioning the company’s commitment to advertising.

“As part of the planned reduction to our overall workforce…and in light of the Xbox vision to focus more on games and gamers, we plan to streamline a handful of portfolio and engineering development efforts across Xbox. One such plan is that we will expect to close Xbox Entertainment Studios in the coming months,” a Microsoft spokeswoman said in a statement.

Steve Carbone, managing director and head of digital and analytics at MediaCom, told the Wall Street Journal that Microsoft’s abandonment of making original entertainment content that could only be found on the Xbox Live online platform “makes top ad buyers feel like the rug has been pulled out from under them.”

“Unfortunately it does feel like that,” said Carbone. “It puts us in a difficult space because we have been pushing Xbox’s program.”

Vik Kathuria, Global CMO at digital advertising agency Razorfish LLC, said the move felt short sighted, given Xbox’s potential. “It’s insane given that’s where the media business is headed…With one end focusing on programmatic and the other on original high-end content. Confidence will be hard to earn back after this.”

While Microsoft originally emphasized its strategy to develop custom content as core to its Xbox expansion plans, its E3 presentation focused exclusively on gaming and gaming content/experiences. The change in strategy suggests Microsoft’s commitment to bringing live TV through creation of a system which would instantly switch across your games and entertainment is no longer there.

Xbox Entertainment Studios will be closing within months. There’s no word yet from Redmond how many job cuts this involves.

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