Online video has yet to create premium content. YouTube, Netflix, Hulu have all tried, but none has achieved the mass appeal and big-budget scale of a CBS. Last year Microsoft hired Nancy Tellem from “America’s Most-Watched Network” to do just that, and Tellem is hoping to premiere Xbox Entertainment Studios’ first series in the next year.

“Our focus is to transition [Microsoft’s Xbox] to an entertainment device,” Tellem said Monday at All Things D’s D: Dive Into Media in Laguna Niguel, Calif.

That push is already underway. Last March, Microsoft announced the Xbox Live subscribers use the console more for entertainment than gaming, and Yusuf Mehdi, svp of Microsoft's interactive entertainment business, said on Monday that the service's 46 million subscribers consumed 18 billion hours of entertainment in 2012. But none of that entertainment was developed by Microsoft. Mehdi acknowledged that Netflix contributes a dominant share of the entertainment viewed on Xboxes, filled out by the device’s more than 100 other content partners.

As Netflix and YouTube among others turn out original, premium series like House of Cards, the bar is raised for Tellem’s 150-plus employees. But Tellem considers Xbox to have a leg up on the competition. When she worked in traditional media, she said, “we had all these ideas where it was ‘wouldn’t it be great if…’ On Xbox we can do it,” she said.

To that end, Tellem outlined a couple of examples that would take advantage of Xbox’s voice-and-gesture-enabled Kinect or its second-screen SmartGlass app.

A hypothetical game show series could get viewers to participate in real time, and a hypothetical scripted series could run a secondary plotline on second-screen devices alongside the script playing out on the Xbox.

“We’re looking at a variety of types of content. Both premium, aligned with HBO and Showtime quality," she said. "Then, of course we’re looking at alternative, reality, live events." She saw episodes ranging from as short as 10 minutes to an hour and a half, multiiple episodes being produced, and using Xbox’s interactive capabilities, be it the voice-and-gesture-enabled Kinect or the second-screen SmartGlass app.

In addition to producing content internally, Tellem said she was also looking at partnering with "traditional media partners, studios and creatives."

Premium content is costly, and Tellem said that people would have to pay to access it. What that transaction would look like is a bit cloudy, however. Tellem suggested that the price could be bundled into the 46 million Xbox Live subscribers’ existing subscriptions ($5 a month or $60 for 12 months) before Mehdi jumped in to say, “we haven’t decided how to package it.”

“We’re looking at all sorts of different [business] models,” Tellem later said on stage, pointing to the aforementioned subscription model as well as an ad-supported model that could bank on Xbox’s interactive NuAds units as well as the Internet-connected device’s ability to target ads to users a la online and mobile advertising. Tellem is also evaluating traditional ways to distribute content.