The Tik-ing of Microsoft’s video clock

Among the five largest U.S. companies, only one lacks a direct-to-consumer video service. That could change, and soon.

Press reports naming Microsoft as a lead candidate to buy TikTok’s U.S. operations, possibly in a partnership with Walmart Inc., signal that Microsoft perceives it’s missing an important piece of the consumer business portfolio.

Although Microsoft Corp.’s Xbox videogame platform remains a popular device for streaming video, the Redmond, WA-based company doesn’t program an original video service in the mold of Apple’s Apple TV+, Amazon’s Prime Video, Alphabet’s YouTube or Facebook’s Watch. That’s ironic considering Microsoft was way ahead of its peers in experimenting with video back in the late 1990s, when WebTV – a now-defunct vessel for sending Internet content to TV sets – predated even Google’s 2006 acquisition of YouTube.

Microsoft stood on the sidelines not just when YouTube was up for grabs, but as other tech titans like Amazon seized on premium video content as an avenue to elevate multi-billion-dollar aspects of their businesses. If there has been an epochal drift in the television industry, it is the belief that the rightful role of premium video content is not as a profit center, but as a vehicle to prop up, differentiate and bring to prominence seemingly unrelated parts of the tech portfolio.

For example, Amazon uses video (and music) to cement the bonds between the company’s merchandising operation and the millions of members who buy goods shipped in cardboard boxes. It’s harder to discontinue a $119/year Prime membership if you’re hooked on Amazon’s original series “Bosch.” Apple wants to sell more iPhones, and sees original video as an efficient way to make upgrading them more appealing – and to speed up replacement cycles that can mean billions of dollars in “found” revenue annually. As for Facebook, it wants to yield longer usage sessions than typo-laden political screeds or photos of tonight’s dinner can sustain, and realizes video is a way to achieve that. Only Alphabet does video more or less the old-fashioned way, positioning it as a moneymaker in its own right. (So does Netflix, but it was not a tech company to begin with.)

Microsoft, too, probably sees video as a path to success elsewhere. Controlling TikTok, the wildly popular short-form video app, could bring Microsoft some of the same sorts of benefits video confers on Microsoft’s tech rivals. With quarterly revenue now surpassing $17 billion, the company has a large consumer business made up of software subscriptions and hardware lines, hasn’t given up on the oft-overlooked Internet search engine Bing, and may want a deeper role in the consumer social media scene than the business-focused LinkedIn provides. TikTok, with its 100 million U.S. users, can be viewed from a distance as a scaled vehicle for marketing products and services – a realization that Microsoft and Walmart probably share. Who needs TV commercials or banner ads when a you can immediately connect with millions of enthusiastic fans?

Also worth mentioning is that Walmart has earned its video merit badge, too. Its April 2020 sale of the 15-year-old Vudu streaming video company to Comcast’s Fandango temporarily took the large retailer out of the game, but does not erase Walmart’s institutional knowledge of video and the role it can play (see Amazon) in helping to ring the cash registers.

Next? The departure in August of TikTok’s short-lived U.S. CEO, former Disney executive Kevin Mayer, is a reminder that nothing is certain around TikTok given the service’s shaky standing in an unsettled U.S. political environment. Whether a Microsoft-Walmart tandem could gain approval to buy and own TikTok is questionable. But uncertainty apparently hasn’t stopped Microsoft from trying. If nothing else, the interest from Redmond signals anew that video means something very different to the world’s tech giants than it means to traditionalists like NBCU or Fox or ViacomCBS. As the media impresario Barry Diller observed in a February 2019 Recode interview, the foundational economics for television and moviemaking have changed. “Amazon’s business model has nothing to do with anything anybody who’s been in the entertainment business has lived with their whole lives,” Diller said. That’s undoubtedly true, and a Microsoft plunge into the business will only hasten the transformation.

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