Some in Hollywood may have been surprised by Microsoft’s announcement that Xbox Entertainment Studios, its much-touted experiment in new kinds of interactive TV programming and headed by former CBS President Nancy Tellem, would be shut down. But really, didn’t we see this coming? Here are five reasons why the announcement was, ultimately, long in coming but not long in shock value, at least to veteran watchers of the uneasy, evolving boundary between Hollywood and Silicon Valley:

Deadline tech column David Bloom Shuffle the Deck. Of course, the greatest “sin” committed by Tellem and her crew is being an organizational outlier when the new guy took over. XES was launched two years ago under longtime Microsoft CEO Steve Ballmer, who ran the company for 14 years before retiring in February.

The new CEO, cloud-computing specialist Satya Nadella, had no particular organizational connection with Xbox before taking over. And indeed, in announcing 18,000 layoffs last week (which particularly hit Microsoft’s recently acquired Nokia mobile divisions), Nadella signaled his company focus would be in the cloud, and on mobile. And without buy-in from the company’s new chief, XES was vulnerable — a common situation in Hollywood, where entertainment properties are routinely marooned when their institutional champions depart.

Nancy Tellem mug shotInterestingly, this isn’t the first time Tellem was on the wrong end of a Microsoft restructuring. I’m told that nearly a decade ago, when she was still running CBS, the network and Microsoft were at the point of exchanging contracts over creation of an online alternate-reality game based on one of the network’s crime franchises. Such a project would have been a cutting-edge transmedia project, and pretty cool for both sides. Then Tellem’s people got a call from Microsoft that the project was dead. The reason: Microsoft had reorganized operations, and there wasn’t any place in the new org chart to put the project.

Interactive vs. Active. Microsoft started XES because it wanted content that would change notions of what TV could be, with interactive components that only were possible with the gee-whiz capabilities of the its next-generation game console, the Xbox One. XES was designed to be one of the differentiators, helping sell more machines to a wider audience than just hard-core gamers. Such content would help cinch consumers’ notions of the Xbox One as a do-everything entertainment device, not just a  newer, fancier game machine.

On the flip side, I’m told that the very experienced and talented TV people at XES basically wanted to make more great TV that happened to live on Xbox’s online service. Producers in town that I know told me last winter the RFPs floating around then didn’t say much about interactivity. They signaled instead that XES was open to proposals in a wide array of TV genres. Focusing on what you know, rather than creating a whole new thing with uncertain prospects, makes a lot of sense, particularly if there was mounting pressure to get more shows made fast.

Hollywood certainly knows how long it can take to develop a good show, particularly given the heavy competition these days for good properties. But it was taking a long time to get anything made. Only a series focused on street soccer around the world managed to get up and going, timed to the World Cup. Everything else was taking a while. Now, nearly all the programming projects are down the drain, except for a tech-related show and a live-action series tied to the big Halo franchise. Which leads us to…

The Company You Keep. News of the Halo TV series, more than 11 years after the game debuted (and changed the console wars), didn’t exactly set hearts racing. That the project was being made with Steven Spielberg didn’t do much for younger gamers, either. One source with long ties in the game business quoted his children’s reaction: “Steven Spielberg? He made Lincoln, right?” Ouch.

Medal of Honor playstation coverIt’s true that Spielberg has long roots in gamer culture. He’s been a frequent attendee of the big E3 videogame conference. And back in its early days, DreamWorks SKG owned a game studio called DreamWorks Interactive. Thanks to Spielberg’s inspiration from Saving Private Ryanthe interactive unit had a big critical and commercial hit called Medal Of Honor, a WWII-set shooter that debuted in 1999. Which is to say, it came out when many current gamers were in preschool, or not even born. A couple of years after its debut, both DreamWorks Interactive and the Medal of Honor franchise were sold to Electronic Arts, which published a dozen sequels before mothballing the declining franchise. So while Spielberg remains a Hollywood powerhouse, a greatly respected filmmaker and a very busy TV mogul, his gamer cred aged out long ago.

Titanfall game image Electronic ArtsAnd even Halo isn’t what it was. At this year’s E3, Microsoft said it would launch a remastered collection of the first four Halo titles later this year ahead of the newest Halo next year. But Halo 5 wasn’t even a launch title, leaving to EA the challenge of redeeming the struggling console with its own sci-fi shooter, the March release Titanfall, the best of an otherwise mediocre library of initial exclusive games.

Yes, we’re all still looking forward to Halo 5, trust me, but that Halo TV show? It’s been done, by Burnie Burns and Rooster Teeth, and has been available for the past decade on the Internet and later, after the platform launched, on YouTube. It’s called Red Vs. Blue: The Blood Gulch Chronicles, and it’s fantastic. 

That botched launch

Xbox beyond the box logoThis one isn’t the fault of anyone at XES, but it’s hard not to see it as a contributing factor to its demise. Simply put, Microsoft botched the multibillion-dollar launch of the Xbox One from the start, then kept doubling down on the missteps as it and arch-competitor Sony raced to near-simultaneous debuts last November of their next-gen consoles. The Xbox One has yet to recover fully.

First, Microsoft announced policies that gamers perceived as anti-consumer, on issues such as used games, before backing off in the face of punishing Sony derision and gamer hostility.

Then there was the price. Microsoft announced a $499 price, including nifty (to the point of kinda creepy) Kinect sensors. Sony’s PS4 was an equally powerful machine (minus the sensor package) for $100 less. Eventually, Microsoft had to offer a $399 version of the One minus the Kinect.

Then the head of the Xbox unit, Don Mattrick, left to become CEO of struggling mobile game maker Zynga. All this happened in the space of less than three months, with a launch still four months away. By the time November arrived, production challenges led the company to pull back its global launch ambitions, temporarily ceding some territories to Sony.

Xbox Entertainment Studios logoSince the launch, Sony consistently has led Microsoft (and Nintendo) on console sales, though Microsoft has reported recently that sales are picking up noticeably (even if it didn’t release hard numbers). But a botched launch meant Xbox execs had to focus on the console’s core capabilities and audience. That inevitably marginalized prospects for the entertainment unit.

Silence Is Not Golden

In 2013, the rollout of the Xbox One and Microsoft’s subsequent E3 media extravaganza focused substantially on its entertainment capabilities and content. A year later, there was virtually no mention of XES programs to come. As I wrote then, it was games, games, games. For anyone paying attention, it certainly seemed a worrisome (and clearly not misplaced) harbinger of troubles to come.

But that silence also spoke to a bigger challenge: Microsoft bet big on its new console to be a do-everything entertainment machine that also played cool, stunningly beautiful games. It turned out not nearly enough consumers were willing to spend a lot of money for more entertainment that, by the way, hadn’t really materialized anyway. But gamers, especially given a strong title like Titanfall, will still buy a cool and capable new game console, whether it has additional entertainment functions or not. And that left XES on the outside, looking in.