3 Reasons Why Time Warner Should Acquire Xbox Entertainment Studios

After months of hype for new, original content, Microsoft MSFT announced that it would shut down its entertainment division.

The Hollywood Reporter last week revealed that Microsoft might sell Xbox Entertainment Studios to another entity instead. Time Warner TWX is reportedly one of the first companies Microsoft spoke to about the possible sale.

Not everyone is buying into the rumor. Albert Fried & Company analyst Rich Tullo told Benzinga that there is a possibility that Microsoft will simply "close it down, take a couple hundred million-dollar tax break," and put that cash back into the company.

"That's possible," said Tullo. "More possible."

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When Microsoft CEO Satya Nadella announced that the studio would be closed, he made no mention of a possible sale. If that has changed, there are a few reasons why Time Warner would want take control of the company.

1. Big Licenses Right Out Of The Box

Xbox Entertainment Studios comes with licenses (and content that is already in production) for a number of notable properties, including "Halo." Microsoft has collectively sold more than 50 million copies of the various "Halo" games, and a new sequel is headed to Xbox One in the distant future.

It is not hard to fathom what a well-made "Halo" film could do for Time Warner. It may not be as big as "Harry Potter" or "Batman", but it could still provide the company with millions of dollars in additional revenue.

2. Top Talent

Acclaimed director Steven Spielberg will produce one of the two "Halo" series. The other, a Web-based series, is coming from Ridley Scott.

Though it is not yet known if their involvement will change now that the studio will be closed or sold, Microsoft has indicated that the "Halo" series are still on track. Thus, by buying Xbox Entertainment Studios, Time Warner would instantly gain access to a couple of projects being made by some of Hollywood's most notable producers.

Xbox Entertainment Studios may also come with Nancy Tellem, a former CBS executive who has been referred to as one of the most powerful women in entertainment. Tellem was hired to run that division. Now that Microsoft is headed in another direction, she may be happy to move back to a more traditional entertainment company.

3. Video Game Tie-Ins

Time Warner's video game division, Warner Bros. Interactive Entertainment, controls a number of key properties, including the "Lego" series and "Mortal Kombat".

There are numerous ways that Time Warner could utilize these properties -- and its relationship with Microsoft -- to bolster their success. New "Mortal Kombat" movies are one possibility, but there may be a greater opportunity to bring its movie franchises to Xbox game consoles. Warner Bros. is already doing that, but aside from the "Batman" franchise, the company hasn't produced many hits.

Even without a buyout, Warner Bros. could still license Xbox properties individually. This could be fruitful as well; in exchange for the "Halo" license, Warner Bros. could develop a major game -- "Batman Vs. Superman", perhaps -- exclusively for Xbox One.

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.