DANA POINT, Calif.--Microsoft is the new Hollywood. At least, in the same way that Netflix, Hulu, Amazon and others are trying to create original programming to draw paying subscribers. The company recently opened the Xbox Entertainment Studio in Santa Monica, with former CBS TV executive Nancy Tellem at the helm.

The Xbox started out as a gaming machine, but now the majority of the 76 million users worldwide spend more time viewing entertainment than playing game, said Yusuf Mehdi, senior vice president of Interactive Entertainment at Microsoft. Mehdi and Tellem were interview by All Things D's Peter Kafka at the Dive into Media conference Monday.

The user base has traditionally skewed male, but today 38 percent of Xbox users are women, Mehdi said, and 51 percent are people with children. Xbox users spend 87 hours per month on average engaged with the device, the Xbox accounted for 18 billion hours of entertainment in 2012.

Microsoft has 46 million global paying Xbox Live subscribers to entice into viewing the content produced by its entertainment studio. But the company also partners on the Xbox with more than 100 media partners, Mehdi said, including Netflix and Hulu. The challenge for Microsoft creating programming that is unique and differentiated from its competitors.

Tellem said her team of 150 people are looking to produce "hit" programming, including live events, reality shows, and scripted programming -- the same kind of premium content seen on regular TV, but with a twist.

The twist is pioneering interactive entertainment, creating the next iteration of TV beyond linear viewing, and a new relationship with consumers, Tellem said. She gave examples of live events, with friends remotely experiencing content together and interacting with the content on a second screen. Microsoft's original programming will target younger demographics initially. "Interactivity is a natural extension of what they do," she said.

Microsoft's interactive TV strategy relies on leveraging technologies such as Xbox 360 Kinect, which provides gesture and voice controls, and SmartGlass, which allows users to play video and other media from their mobile devices on their big-screen television via the Xbox 360.

According to the latest rumors, the next-generation Xbox 720will be a mandatory part of the console. Microsoft indicated that only about one-third of Xbox 360 consoles have Kinect sensors.

Beyond the Xbox 360, Mehdi views the Xbox as a convergence device, where, for example, people could play a sports game, watch a game, engage in fantasy sports and trash talk with friends. That's the Microsoft vision -- winning the "living room" war with one, highly interactive Xbox packed with original entertainment and gaming content; fueled by advertisers, distributors, and a multitude of partners; and hundreds of millions of subscribers with multiyear contracts.