Microsoft changes channel on TV plans

After spending billions of dollars and the better part of a decade trying to make inroads in the high-stakes world of television, Microsoft is changing the channel on its plan to connect TVs to the Internet and push software into consumers' living rooms.

The new focus is on delivering interactive digital TV applications (IDTV) that financially troubled cable companies can both afford and easily use to differentiate themselves from satellite companies offering rival digital services, while at the same time supporting Microsoft's long-term strategy of becoming the premier content gateway to the home.

Though MS TV Advanced software, designed for a new generation of set-top TV boxes that never made it to market, has failed to capture any big customers, Microsoft is putting the finishing touches on new software for the installed base of "thin client" set-top boxes that have been deployed by cable companies.

The Interactive Programming Guide (IPG), released last year and designed to make it easier for TV watchers to find shows and customize their viewing, was the first shot in a salvo of new software from the company's MS TV unit. New services are slated to be trialed and unveiled late in the second quarter, according to cable industry executives and sources briefed by Microsoft.

"I'm interested in the software because of the revenue that can be derived from the new services," said Neal Schnog, president of Uvision LLC and a director of Willamette Broadband LLC, two tiny Oregon cable companies that have started deploying IPG. Later this year, the companies will be rolling out services including video-on-demand navigation tools and the ability to add video-on-demand subscribers.

Upcoming software, to be incorporated into the MS TV thin-client client platform with IPG, is designed to enable operators to offer features including multiplayer trivia games and local-content management of instant info services for local news, sports and weather, according to sources familiar with Microsoft's plans.

The new product line represents a change in direction for Microsoft. For all its R&D, marketing might and the approximately $10 billion spent on stakes in cable companies, the Microsoft TV product family has been bested in the market for cable television software by rivals with far fewer resources.

Now, bowing to market reality, a humbled Microsoft is trying again. MS TV software will be tested by cable giant Comcast in the second quarter, in addition to software from Microsoft's financially ailing rival, Liberate Technologies Inc., according to cable company executives.

"If Microsoft succeeded in a deal with a big company like Comcast, it would send shock waves through the industry," said Jim Brancheau, an analyst with Gartner Inc. Such a deal would signal that Microsoft's perseverance has started to pay off, Brancheau said.

Microsoft went on an investment spree in the late 90s, snapping up $5 billion worth of AT&T Corp. and $1 billion in Comcast, as well as varying amounts in companies outside the U.S., including Globo Cabo SA in Brazil, United Pan-Europe Communications NV (UPC) in the Netherlands, NTL Group Ltd. and Telewest Communications PLC in the U.K., and TV Cabo Portugal SA. While some of these companies tested Microsoft's software, only Globo Cabo and TV Cabo ended up actually deploying the technology.

The IDG News Service is a Network World affiliate.