Xbox Shops Entertainment Studio to Warner Bros.

Halo Nightfall Still - H 2014
343 Industries

Halo Nightfall Still - H 2014

Microsoft's TV production arm might not be gone for good

Microsoft may have decided to shutter its nascent Xbox Entertainment Studios but it’s not necessarily game over for the Santa Monica studio.

Sources tell The Hollywood Reporter that XES is shopping for a new home and has had preliminary talks with Warner Bros. about possibly becoming a stand-alone entity based at the studio. In that scenario, Warners would look to merge XES with Machinima, the video game-centric YouTube network in which it owns a stake.

A Warner Bros. spokeswoman said that the studio is “constantly having preliminary discussions regarding business opportunities with numerous companies at any given time. A conversation is just that — a conversation.”

Reps for XES and Machinima declined comment.

Sources caution that the talks are still preliminary and an agreement with Warners is unlikely, but a deal with any buyer would breathe new life into XES following Xbox head Phil Spencer’s July announcement that Microsoft will shut down the studio amid company-wide layoffs of up to 18,000 people. The closure is part of new CEO Satya Nadella’s effort to refocus the Redmond, Wash., tech giant on its core businesses, including video gaming.

At the time, Spencer said that studio chief Nancy Tellem would remain at the company with exec vp Jordan Levin and some other members of the XES team to shepherd existing projects — including the Steven Spielberg-produced Halo series, documentary franchise Signal to Noise and digital series Halo: Nightfall, which is set to be released in November.

XES was founded in 2012 under former CEO Steve Ballmer. He hired CBS veteran Tellem to build out teams in Santa Monica and Vancouver to create buzzy, interactive projects that would appeal to the Xbox demographic. But the studio was slow to launch. Despite a robust slate of development projects, it had debuted just two shows — soccer reality series Every Street United and a Bonnaroo live stream — by the time Spencer announced its closure. Meanwhile, the studio has faced competition from new entrants including Sony’s PlayStation Network, which will premiere the drama Powers this winter.

Given that XES still has several projects in the pipeline and a team of experienced development executives, it makes sense that the studio would look for a strategic partner.

A deal would also give Warner Bros. a robust pipeline of digital projects and comes as traditional Hollywood studios have shown increased interest in digital content creators. Disney acquired YouTube network Maker Studios in March for $500 million plus incentives, and DreamWorks Animation bought tween-focused AwesomenessTV in 2013.

Warner Bros. has previously shown interest in online content, leading an $18 million investment in Machinima in March. The digital media firm, which had more than 15 million unique visitors in June according to comScore, would be a natural companion for XES given that they have similar core demographics: primarily video game-playing young men.

Machinima, which operates the top entertainment app on the Xbox One platform, has also worked with Xbox before to distribute the live-action digital series Halo 4: Forward Unto Dawn. Although Machinima already produces original content, XES would provide it with the infrastructure for big-budget projects.

Of course, it wouldn’t pay off to produce expensive content with an eye for only digital distribution, but it’s likely that any traditional studio willing to make a deal with XES would look for alternatives similar to the one XES is currently negotiating to bring Halo to Showtime.