• by Thom Forbes  @tforbes, July 18, 2014

In anticipation of an overhaul of its infamously siloed culture, Microsoft CEO Satya Nadella yesterday announced an anticipated “restructuring” that will begin by laying off up to 18,000 workers over the next year — 14% of its staff — mostly from the mobile phone and tablet area that swelled with its acquisition of Nokia.

“Our workforce reductions are mainly driven by two outcomes: work simplification as well as Nokia Devices and Services integration synergies and strategic alignment,” Nadella wrote in an email to employees dated 5 a.m. PT. About 12,500 “professional and factory workers” will be let go. 

But, the Wall Street Journal’sMike Shields tells us, what has the marketing world most atwitter is the dismantling of the Xbox Entertainment Studios division, which has about 200 employees producing original programming. Writing under a hed that asserts “Microsoft Faces Trust Issues With Advertisers,” Shields blogs that the company “has shocked and angered several top ad buyers, causing some to once again question the company’s commitment to advertising.”

Shields continues that “the decision to essentially get out of the original content business, first reported by Re/code, comes just a few months after Xbox Studio head Nancy Tellem and her just-hired number 2 Jordan Levin courted hundreds of media agency executives during a NewFronts presentation in New York.”

Adweek’s Garett Sloane adds that Stephen Kim, Microsoft's VP of agency accounts, told buyers at New Fronts: "Our commitment to advertising is clear." 

Re/code’s Dawn Chmielewski pointed out that Nadella’s lengthy and widely reported memo to staff last week — re: “Starting FY15 - Bold Ambition & Our Core” — proclaimed that Microsoft “will continue to vigorously innovate and delight gamers with Xbox” but “omitted any reference to original television programming.”

“It’s not clear what went wrong, or even if something did,” writesTime’s Matt Peckham. “My guess would be that Nadella viewed the studio’s standalone existence in the company hierarchy as too far outside his reimagined (or, you could argue, doubled-down-on) wheelhouse, that wheelhouse being ‘a productivity and platform company for the mobile-first and cloud-first world.’”

Tellem, a former CBS TV Studio head, and EVP Levin, who had been WB Network CEO, “will stay on board and ‘remain committed to new, original programming already in production,’ Xbox division head Phil Spencer wrote in an e-mail to employees Thursday,” Mike Snider writes in USA Today.

“That includes ‘Signal to Noise,’ a documentary series that in its first installment looks at the history of Atari, a Steven Spielberg executive-produced TV series based on the ‘Halo’ video games and a ‘Halo’ digital series produced by ‘Blade Runner’ director Ridley Scott's production team,” Snider reports.

A source tellsAd Age’s Tim Peterson “Microsoft's advertising team will continue to sell ads against the shows already in production … and the company will continue to try to increase its hold on the living room beyond gaming.”

That includes delivering interactive sports content such as “NFL on Xbox,” Spencer said in his memo to staff. 

“Other than Halo-related concepts, this was a unit that never got off the ground, largely because it didn't know what its mission was,” Forrester analyst James McQuivey notes, reports Adweek’s Sloane. “It's interesting that this is happening at the same time that everyone else, including Yahoo!, is now committing to original content production wholeheartedly.”

The shutdown “makes sense,” Digital World Research analyst P.J. McNealy tells Snider. "It is extremely difficult, especially for a company like Microsoft that doesn't have a core competency in [TV and movie-styled production], to make it a strength. The ‘Halo’ series is a natural fit for TV and longer-form video, but the other pieces may not have been as good a fit.”

At the end of his email yesterday, Nadella invited employees to his “monthly Q&A event” today and thanked them for their “support as we start to take steps forward in evolving our organization and culture.”

That “bold and ambitious” undertaking, as Nadella has promised, will also include an unspecified loss of positions in its advertising-sales businesses and marketing operations, sources tell the Wall Street Journal’s Shira Ovide in the paper’s main article about yesterday’s developments.

Reports Ovide: “‘You can go on and on about strategy change,’ Mr. Nadella said on Monday at a Fortune magazine technology conference. ‘Unless and until we really, really change culturally, no renewal happens. So I'm very much focused on it.’”