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Microsoft Goes to Hollywood

Lights, camera, Microsoft (MSFT - Get Report).

The world's largest software company is going Hollywood, signing a partnership with Reveille, an independent production company, to develop original content for its struggling MSN service. The "multi-project deal," which The New York Times disclosed earlier Wednesday, calls for Reveille to develop entertainment programming that will first appear on the site originals.msn.com .

A comedy starring actor and comedian Tom Arnold about what the Times calls a "lovably flawed pilot for a commuter airline" is among the programs being considered, the Times says. The show "Under the Influence" will have musicians meet the people who most inspired them, according to the paper.

Reveille, whose shows include NBC's "The Biggest Loser" and MTV's "Date My Mom," will create programs that may be seen in other formats such as mobile devices and -- in an ironic twist -- television sets, Microsoft says. Terms of the deal were not disclosed.

Microsoft is hoping to tap into the growing demand for Web advertising and the surging popularity of online video programming thanks to the growth of high-speed Internet service. This content tends to attract younger audiences difficult to reach through television and other forms of traditional media.

"Advertisers are going to be attracted to it assuming it gets some sense of an audience," Michael Hayes, managing director of Initiative Interactive, an Interpublic Group (IPG) unit. "That remains to be seen."

Even if the programs are popular, they aren't likely to be enough to improve MSN's fortunes. The Microsoft service continues to lag behind Google (GOOG - Get Report) and Yahoo! (YHOO - Get Report) even though it spent more money on advertising last year than those two combined.  

The Hollywood push is a reversal of sorts for Redmond, Wash.-based Microsoft. In 1996 and 1997, the company poured about $100 million into developing shows for MSN that it subsequently dumped, the Times says. The failure of its previous effort prompted Microsoft to turn to partners for its current offerings.

Attracting an online audience is getting more and more difficult because of the explosion of content. Earlier this year, Yahoo! scaled back its ambitious plans to develop online programs. Time Warner's (TWX) AOL, which recognized the video trend early, is increasing its level of original content. AOL's coverage of the Live 8 concerts last year demonstrated to advertisers the Web's ability to deliver mass audiences.

Original content, particularly in video, keeps users online longer than they would stay otherwise. Companies figure that the chances of someone noticing their ads increase the longer someone stays on a Web site.  

But even if Microsoft can attract an audience for its programming, that only addresses part of its problem. MSN continues to trail both Google and Yahoo! in the search market.

Microsoft shocked Wall Street last week by unveiling its plans to boost capital spending this fiscal year by $2 billion. That will cover a range of projects including the launch of Vista, the new version of its flagship Windows system, Xbox 360 product costs, and accelerated hiring. Wall Street, though, seems most concerned about how much of that money will go for MSN.

Microsoft shares fell 72 cents to $23.29 before the close of trading on Wednesday.  

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