Is Microsoft Preempting Apple With Xbox Live Content Addition?

| About: Microsoft Corporation (MSFT)

By Paul Quintaro

While Netflix’s (NASDAQ: NFLX) stock has taken a significant beating this year, there has been no shortage of interest in the content streaming space.

Last week, reports indicated that Microsoft (NASDAQ: MSFT) was considering hiring a TV network executive to help the company implement exclusive programing for its Xbox Live service.

Microsoft is planning to introduce a TV service for Xbox Live that would bring more entertainment content to its users.

Xbox Live is the online, subscription-based service for Microsoft’s Xbox video game console. When initially introduced, Xbox Live was designed to help gamers facilitate multi-player games against others across the globe.

Yet, Microsoft has expanded the service, turning it into a sort of entertainment gateway, with options such as online movie rentals.

With the hiring of a former TV exec, Microsoft may be pursuing a strategy of offering original content for its service. This may represent a fairly ambitious undertaking, but could have the potential to pay off in the future.

Still, is it likely to be profitable?

The Xbox gaming console already carries a price tag of at least $200 (more luxurious models carry higher price tags) and its Xbox Live service has a subscription fee on top of that.

While existing subscribers to Xbox may enjoy the original content, non-users may find the cost too steep to consider purchasing just for the content, no matter how amazing it may be.

Microsoft does have a history of taking short-term losses for longer-term profit.

Its original Xbox console, released a decade ago, was arguably a failure, as it fell far behind rival Sony’s (NYSE: SNE) PlayStation 2 and cost Microsoft countless dollars in development.

Yet, it may have only been the first leg in a larger strategy. As Microsoft used the lessons learned from the Xbox in its Xbox 360, which has thus far been a tremendously successful console.

Adding original content, then, may just be another example of Microsoft taking a big picture view—looking further down the line in anticipation of market forces in the future.

In recent months, speculation has intensified over the role of streaming content in the entertainment industry, specifically whether or not it could ultimately replace traditional cable media.

Apple (NASDAQ: AAPL) is widely anticipated to be preparing to launch a TV model, perhaps sometime in 2012. Although the specifics are not known, some have speculated that it would feature a built-in, content streaming service.

So, while Microsoft’s potential move to create original content may initially be a failure, it could simply be part of a big-picture strategy that could pay off for the company down the line.

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