Are Video Games The Future Of Television? Microsoft Certainly Hopes So

No, there’s no new Xbox 720 information yet, and the company still hasn’t announced a new version of the Xbox 360 since the $99 bundle debuted last May. Instead, the Redmond-based consumer electronic company is expanding its existing video game and home entertainment hardware into a new area entirely: television production. The company announced on Tuesday that it is hiring Nancy Tellem, the former CBS executive ranked the third most powerful woman in Hollywood by The Hollywood Reporter in 2009, to lead the company’s new venture into original TV-style programming to premier through the Xbox 360 itself.

The entertainment icon will serve as president of the company’s entertainment and digital media division based in Los Angeles, California, from which she will be launching a production studio for the tech company as “part of the continued evolution of Xbox from a gaming console to the hub of every household’s entertainment experience,” Tellem said in a statement. The new content produced in-house by Microsoft will include both traditional TV-like programming and more interactive content than is available now through the Xbox 360’s video-playing apps like Netflix and Hulu.

Developing unique content that is not exclusively suited to video games or other gamer activities sheds light on Microsoft’s ultimate goal to establish the 360 as the dominant entertainment hub for households.

“The Xbox is already a consumer favorite, and we now have a tremendous opportunity to transform it into the center of all things entertainment — from games, music and fitness to news, sports, live events, television series and movies — so consumers have one destination for all their entertainment needs,” Tellman continued. “I look forward to building a studio team that embraces the challenges of creating true interactive content that the Xbox platform supports and to work with talent to create content that will change the way entertainment content is experienced and delivered.”

The transition to television-style programming makes sense for tech developers like Microsoft struggling to separate themselves from the pack and invent newly persuasive business models as the cost consumers are willing to pay for game content dives ever downward towards free. The price of $60 packaged videogames seems ever steeper compared to popular titles like “Angry Birds.”

But an even greater possibilities this gives to developers like Microsoft is the change to eke out even more sales from any given consumer. Forbes noted after a simple number-crunching that the $99 Xbox 360 bundle costs $81.80 more than its pricier-at-the-time-of-purchase counterparts. The company doesn’t make the same sales numbers immediately with a subscription-based model certainly, but the hefty contract fees prevent consumers from leaving the service earlier than its two-year lifespan.

A number of game developers are also experimenting with shorter episodic content because the consumers find the cost, both in terms of time invested and money spent, more appealing. “The Walking Dead,” a new game based on the popular comic book and television series of the same name, is being released this year in episodic chunks that each cost $5 and run about two to three hours. So far, the series has been so popular and critically acclaimed that its developer has already confirmed plans for a “second season.”

“Core gamers” and other purists may find the change disconcerting, but the evolution of gaming hardware into broad-based home entertainment platforms now seems inevitable. Competition between Microsoft and Sony Corp. (NYSE: SNE) in the future may not between who can boast the most powerful and cost-efficient hardware, but who offers the best programming.

Tellman will report to Phil Spencer, Corporate Vice President of Microsoft Studios. The company said that it will introduce "2-way TV experiences" this month as well from Sesame Workshop and National Geographic, programs which were previously announced to be paired with the Xbox 360’s recent motion-controlled technology, the Kinect.

Microsoft share prices dropped in late afternoon trading, closing at $31.05.