Westlake: Microsoft negotiating more deals with multichannel providers for Xbox

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Blair Westlake, Corporate Vice President, Microsoft Media & Entertainment Group

Blair Westlake, Microsoft

Westlake

Microsoft (Nasdaq: MSFT) is beginning to allow millions TV viewers with an Xbox gaming console to use its Kinect cameras' voice and motion controls to interact with both programming and advertising. Comcast (Nasdaq: CMCSA), Verizon (NYSE: VZ) and AT&T (NYSE: T) offer subscribers apps that can deliver live programming to the Xbox, and Microsoft says it is talking to other multichannel providers about offering subscribers similar apps. FierceCable caught up recently with Blair Westlake, who oversees the software giant's talks with distributors, programmers and advertisers as corporate VP of Microsoft's Media & Entertainment Group. Westlake discusses Microsoft's Xbox strategy, and explains how programmers such as Children's Television Workshop are using the Xbox to offer viewers an interactive version of Sesame Street.

FierceCable: You've announced Xbox apps with Comcast and Verizon FiOS. Are there other pay TV providers that you would expect to launch Xbox apps soon?

Blair Westlake: We offer through AT&T U-verse as well. The first three in terms of sequential players to get involved with this on the MVPD [multichannel video programming distributor]  side were BSkyB, Canal Plus and Foxtel in Australia. It hasn't been limited to the U.S. There are a number of other MVPDs that we are in discussions with. Each has a different idea on how they want to do it. Where they're lighting up TV Everywhere – each is doing it not too dissimilar, but certainly not in the same fashion.

FC: Could you explain some of the rights issues that Microsoft and the MSOs face in distributing video through the Xbox? Verizon is only offering about 20 networks that you can access through the Xbox app.

BW: It's actually 26. That number is going to be growing over the course of this year. In the case of MVPD apps, the rights are between the MVPD and the programmer We don't get involved in those discussion because it has to do with the carriage between those two, and we're out of the mix there. I think there are a combination of things that come into play. There are rights issues that they [MVPDs] have to deal with . In some cases that's the go, no go on a program service lighting up. As you can see in our announcement with WatchESPN, these are increasing by the day in terms of channels that are being offered. There is generally a view, if you can wait until the next carriage agreement is up for negotiation, they typically sweep all of the discussions together in one set of meetings and negotiations.

FC: How much potential is there for Microsoft to strike deals with programmers to offer networks directly to Xbox owners who wouldn't have to rely on a cable or satellite subscription?

BW: We made a conscious decision to work with the various MVPDs, both in in the U.S. and throughout the world, as opposed to going in and becoming a virtual MSO. We made that decision because TV Everywhere had been introduced four years ago – it was announced. One-hundred million households in the U.S. already had that relationship in place with one of the various MVPDs, and it was working.

FC: Is the virtual MSO idea a concept that Microsoft could still pursue?

BW: At this point we're set with the approach we're taking. I can't speculate about what we might do, but right now we're proceeding down this path, and it's working well and we plan to stay the course.

FC: Is the Xbox a device that could replace cable set-tops?

BW: I think it depends on how it is being used. We're simply being used in place of a set-top box in those homes that are now authenticating.  But I suppose everyone has a different interpretation of the expression "in lieu of." We know for example, in the UK, a vast number of our subscribers that are using the Xbox there and are subscribers of BSkyB -- because the number of television households with more than one television hooked up is much smaller than it is here – a sizeable number of the households that are using the service are using Xbox in lieu of a Sky set-top box. But if you mean literally replacing – I'm not sure I know the answer to that.

FC: We ran a story recently about The Whistle, which has developed sports programming for kids that will be available through the Xbox. Is the Xbox a good outlet for programmers that would have difficulty obtaining distribution on cable or satellite platforms?

BW: As opposed to a few years ago, where the sole means of distribution of a program service was through an MVPD, over the top now enables a niche service to be delivered through an Xbox. We're connected to more television sets via broadband than any device in the world. For one of the services to be able to reach one of those households,  it's very appealing for them.

We've got 200,000 plus movies and TV shows now and 17 million songs through our Xbox music service. Consumers want and expect access to as much content that they can get their hands on – far greater amounts available to them today compared to three or four years ago. That's become the expectation of the consumer, and when they turn on the Xbox, they're looking to connect to any one of those services. It delivers.

FC: Could you explain Microsoft NUads? Is there a potential for Microsoft to work with cable programmers to enhance a traditional 30-second spot that would be seen in cable or satellite homes?

BW: As my group is getting these various deals done for these program services, the individual apps as well as the MVPD apps – one of the things that is coming up is just that. We'd like to find a way -- I guess the analogy would be the equivalent of a local avail -- where the program service says to us, "You go out and sell the advertising using the NUad technology." Canoe Ventures was striving for this, and we've hit the mark here. The Xbox is Nielsen measured, which is extremely appealing to the advertising world that that's counted. That is definitely something that we're getting an expression of interest in, and expect it to grow. Interest has increased over just the last few months as there is more and more visibility around NUads.

FC: Would the idea be that if I'm watching ESPN, the subscriber with an Xbox would see a different version of an ad?

BW: In the simplest form, in one approach, you and I would see the same ad, but if I'm on my Xbox with Kinect, I could double click into the ad. For example if I'm watching a car ad, I could ask for more information about the car, or I could buy it, where you would see a pure linear version of that ad. It's the same ad, but I have the augmented ability to go down a level or two or three or four.

As it becomes more robust and developed, you may be given certain opt in choices. I'll use myself as an example. I could go through and answer 15 questions … and because I don't have children that wear diapers, I wouldn't see diaper ads, I wouldn't see baby food, I wouldn't see high chair ads. I would be opted out. Ideally the ads that I do see, that the advertiser has decided and opted to use NUad technology, if I saw an SUV, I could see more detail about the SUV and find out what dealership in Bellvue offered that car, and maybe a special.

FC: It looks like Microsoft could compete with cable MSOs on enhancing local advertising?

BW: I don't consider it to be competing if that party, or MVPD service has turned over that avail to us. The reason they do it is it's a higher CPM. So that's the way I would look at it, as collaborative. We can't sell an avail that isn't ours to start with.

FC: Are you talking to TV programming producers about incorporating Kinect technology into their programs that would rely on motion and voice controls?

BW: We are, and when I testified before the Senate Commerce Committee about the future of online video in April, I called out in my opening remarks what we've done with Sesame Street. We collaborated with Children's Television Workshop. We had folks on the set when they were shooting the 2012-13 season, and we worked with them since. About 50 percent more content was shot so that it could incorporate the Kinect capability. For example the one that I've seen is the child can stand in front of their television set, and in a segment they actually see themselves on the television standing in a standing mirror that is on the program. They are actually able to throw a pretend ball, or a coconut, at the TV and the coconut appears and drops in the box. That's real. That's a few months from being introduced. It's one of many ways that you could do it.