This morning’s announcement by Microsoft Chief Executive Officer Satya Nadella of one of the largest layoffs in tech history, a plan to cut 18,000 jobs, triggered a whirlwind of speculation about the future of the fledgling Xbox Entertainment Studios. In a memo, Phil Spencer, head of Microsoft’s Xbox division and Microsoft Studios, just confirmed that the company will close the Entertainment Studios in the coming months. Nancy Tellem, Jordan Levin and some of the XES team will stay on for some time to shepherd original programming already in production, including the documentary series about technology Signal to Noise and the Halo game franchise extensions, digital feature Halo: Nightfall and the Halo TV series, which will continue as planned with Microsoft’s 343 Industries and Amblin. Xbox also will continue to support and deliver interactive sports content like ‘NFL on Xbox.’ XBox’s app partnerships are not impacted.

The demise of Xbox Entertainment Studios underscores how hard it is for tech companies, especially of the scale of Microsoft, to get into the content business. The decision appears sudden as just a couple of months ago, Xbox Entertainment Studios unveiled a very extensive first development slate, which included dramas, live-action and animated comedies, unscripted and event series. Levin was brought in as EVP in charge of development only six months ago.

Xbox One videogame console and controllerIt has been a slow going for the studio the past two years, after Microsoft brought in Tellem, a veteran CBS executive, in September 2012 to crack the entertainment area. Microsoft is a big company where wheels turn slowly, and there didn’t seem to be a strong commitment to the new venture at the top. The company heavily touted its entrance into original programming when it unveiled its next-generation videogame console, the Xbox One, in spring 2013. At that unveiling event, Tellem announced the Halo series with Steven Spielberg executive producing. That project and a number of others faced a lot of hurdles in the deal-making process as the company was creating a new business template for entertainment programming. Meanwhile, XBox rival Sony stepped into the scripted arena for its Sony Playstation Network just a couple of months ago, with its first series, Powers, slated to debut by the end of the year.

XES’ future already seemed a little cloudier after E3 in June, when all the talk about entertainment offerings that had been part of the previous year’s rollout disappeared during Microsoft’s big media presentation. It was games, games, games and nary a mention of XES products to come.

XES also faced a challenge because of the stumbling launch of the Xbox One. The $499 console was stuffed with whiz-bang interactive technologies, but priced $100 more than the competing Sony PS4. Several other Microsoft missteps on policies that gamers considered anti-consumer, a lack of exclusive game titles (other than Titanfall) and the departure of Xbox unit head Don Mattrick months before the One hit store shelves in November didn’t help either. As a result, Sony’s PS4, which launched at almost the same time as the Xbox One, has already built a sizable lead  in sales and consumer momentum nine months in.

Earlier this spring, Microsoft began offering a $399 version of the Xbox One minus the Kinect sensor technologies so it could directly compete on price with the PS4. But now the interactive programming promised with so much fanfare 15 months ago will largely not materialize, and the Xbox team will have to figure out how else to make their machine of interest to an audience beyond hard-core gamers.

Here is Spencer’s memo:

“I hope you have had a chance to read today’s mails from Satya. I wanted to take a moment to share a few thoughts on what this means for our team and some of the changes we are making as a result.

In last week’s mail outlining some of the steps towards creating the culture and organization to bring our ambitions to life, Satya called out the strategic importance of Xbox as a strong consumer brand, a creative center for gaming and a leader in bold innovation. Every member of Team Xbox should be incredibly proud of the impact and reach your work has within the walls of Microsoft, with our developer community and most importantly, with consumers.

Microsoft is the productivity and platform company for a mobile-first and cloud-first world, and games are the single biggest digital life category in a mobile-first world. Success in this category, by growing a robust Xbox business, brings additional value to Microsoft. I have stated this before, but for Xbox to be successful, we must remain committed to being a consumer-driven organization with the mission of meeting the high expectations of a passionate fan base, to create the best games and to drive technical innovation.

As part of the planned reduction to our overall workforce announced today and in light of our organization’s mission, we plan to streamline a handful of portfolio and engineering development efforts across Xbox. One such plan is that, in the coming months, we expect to close Xbox Entertainment Studios. I would like to take this opportunity to recognize the accomplishments from the entire team in XES. They have built an impressive slate of original programming and pioneered interactive entertainment on Xbox, such as the innovative reality series ‘Every Street United’ that succeeded in uniting audiences around the globe during the recent World Cup. I am pleased that Nancy, Jordan and members of the XES team remain committed to new, original programming already in production like the upcoming documentary series ‘Signal to Noise’ whose first installment takes on the rise and fall of gaming icon Atari and of course, the upcoming game franchise series ‘Halo: Nightfall,’ and the ‘Halo’ Television series which will continue as planned with 343 Industries. Xbox will continue to support and deliver interactive sports content like ‘NFL on Xbox,’ and we will continue to enhance our entertainment offering on console by innovating the TV experience through the monthly console updates. Additionally, our app partnerships with world-class content providers bringing entertainment, sports and TV content to Xbox customers around the world are not impacted by this organizational change in any way and remain an important component of our Xbox strategy.

Change is never easy, but I believe the changes announced today help us better align with our long-term goals. We have an incredible opportunity ahead of us to define what the next generation of gaming looks like for the growing Xbox community. I have a great deal of confidence in this team and know that with clarity of focus on our mission and our customers we can accomplish great things together. We already have.