Next TV Summit: Westlake: Microsoft Chose to Join Pay-TV Ops, Not Fight Them

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San Francisco -- Microsoft at one point evaluated putting together a multichannel-video offering that would compete with cable and satellite TV operators -- but concluded it would be tough to succeed against entrenched players, said Blair Westlake, corporate vice president of the company’s Media & Entertainment Group.

“We looked at it… There was a little bit of, if you can’t truly improve on something that is already offered you go through the analysis of, ‘Do you do it?’” Westlake said at the Multichannel News/B&C Next TV Summit here Thursday. The U.S. has 100 million pay-TV households, and it’s a huge challenge to convert “tens of millions of people and persuade them to move from one subscription service to another.”

“We look at a lot of things,” Westlake added, reasoning that it’s better to explore all available options “instead of having to look back and say, we should have done something.”

Around the time Microsoft was looking at becoming a “virtual MSO,” the pay-TV industry started developing the concept of TV Everywhere to extend programming to non-TV devices. Westlake, who heads the group at Microsoft responsible for business development and content licensing for various services and devices including Xbox 360, Windows PCs and Windows Phones, said TV Everywhere presented a better opportunity for Microsoft than building a TV programming bundle from scratch.

“It was a figurative ‘a-ha’ moment when we said, ‘They’re going to offer [TV Everywhere] to their subscribers, it’s going to be really compelling,’” he said.

Last fall, Microsoft announced deals with Comcast and Verizon Communications’ FiOS to provide access to programming via the Xbox. Comcast’s Xfinity app for Xbox delivers a selection of VOD content, and the FiOS service delivers 26 live TV channels to Xbox Live subscribers.

By extending pay TV programming to other devices, operators not only provide a new way to retain and attract subscribers but also have the opportunity to sell faster bandwidth speeds, Westlake noted.

At the same time, Microsoft is expanding its investment in producing original content. The software giant this week announced it has hired Nancy Tellem, former president of CBS Network Television Entertainment Group, as entertainment and digital media president to oversee the launch of a new production studio in Los Angeles.

“In many respects, we have for all practical purposes the same content that any other platform has,” Westlake said. “That content is ubiquitous… You don’t have to be in the business to know that having something that is nowhere else is going to drive viewership, drive potential subscriptions and drive potential advertising revenue.”

Earlier in 2012, the number of hours spent by Xbox Live subscribers on nongaming content exceeded multiplayer. Currently, the average subscriber consumes a little more than an hour of video per day on average, according to Westlake.

Westlake said that the 2007 deal Microsoft cut with Netflix to offer streaming video on the Xbox “represented a tipping point in the distribution of online video.” The deal gave Netflix “air under their wings” and resulted in an increase in Xbox Live subscribers.

Microsoft has sold more than 50 million Xbox consoles worldwide, and counts more than 30 million Xbox Live customers.

Before joining Microsoft in 2004, Westlake was a media-industry consultant who worked with companies including Comcast and NBCUniversal. Prior to that, and was corporate executive vice president of Gemstar-TV Guide International and was chairman of Universal Studios’ Television and Networks Group.

Westlake was interviewed by Los Angeles Times reporter Dawn Chmielewski.