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Microsoft in Venture to Develop Internet TV

Posted on: Wednesday, 31 August 2005, 00:00 CDT

The dream of bringing an abundance of digital TV programs and video to living rooms via the Internet edged forward Monday as Microsoft and Scientific-Atlanta, a major TV set-top device maker, announced an agreement to work together.

Microsoft would provide the software operating system and Scientific-Atlanta would make the set-top boxes that would let people access and control all their digital content -- video, photos, music -- from one place. The two companies' technologies would support the rollout of Internet-based TV by telecom giant SBC.

The alliance is an important step for SBC, which plans to deliver its version of IPTV, or Internet Protocol TV, to select markets by year's end or early 2006. SBC, the Baby Bell telecom giant, is devoting $4 billion to its IPTV rollout.

SBC is, in fact, acting a bit like a corporate matchmaker, said Maribel Lopez, IPTV analyst for Forrester Research.

"The telecom providers are playing a large hand in dictating who should partner together," she said. "It makes sense they want all those players working together."

The new digital technology will not replace TVs, observed Tim Bajarin, an analyst with market researcher Creative Strategies. Rather, IPTV boxes will sit atop or near the TVs and allow people to access digital video as well as control or move it to TVs or PCs around the house. For instance, a person watching a video in one room can continue viewing it from another room without missing a beat.

The technology could someday let people program their digital video recorders through their mobile phones or laptops, even if they are traveling around the world, said Ed Graczyk, marketing director for Microsoft TV.

"We refer to it as next-generation TV," he said.

IPTV will allow telecommunications companies, such as SBC and Verizon, to offer a "triple play" -- services for voice, video and data. Cable companies are interested in the technology, though they have not been as aggressive as their rivals in the telecommunications industry, analysts said.

Not only will IPTV allow providers to offer more material, but the technology also enables them to market niche content, such as a program on restoring antique automobiles or Vietnamese movies, Lopez said.

The number of global IPTV subscribers is expected to grow from about 2 million in 2004 to more than 25 million in 2008 when subscriber revenue is expected to be about $7.2 billion, according to Multimedia Research Group.

Microsoft is hoping the new digital entertainment technology would provide another avenue for growth as it seeks to diversify beyond its mature Windows operating system.

Microsoft is working with SBC and Verizon on their IPTV products. In addition to Scientific-Atlanta, Microsoft also is working with Motorola, the other major TV set-top manufacturer.

Microsoft is just now putting the final touches on its first version of IPTV software.

But IPTV's development faces significant hurdles. Numerous companies must seamlessly link their technologies together. "A lot of what we and our partners are doing is getting all of the pieces of the puzzle together in time to support these deployments," Graczyk said.

Another key component needed for mass adoption is broadband upgrades to allow for a faster delivery of video, he added.

"We are still trying to figure out what the consumer wants, not only in services, but in hardware," Bajarin said. "When you think about a product for the living room, it's been hard to see what people want it to do. We are still in the early stages."

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