Crucial TV test for Microsoft

Comcast trials will provide a big clue about the software giant's prospects for cable success.

After years of finding only static, Microsoft is hoping that its TV software effort is starting to get a decent reception.

The software maker has spent years working on the software and invested billions of dollars in cable companies, but has seen only modest returns.

Now, thanks to a deal with Comcast, the largest cable TV provider in the United States, Microsoft hopes its fortunes are changing. On Monday, the two companies are expected to announce details about how their efforts are proceeding at a press conference on Microsoft's campus in Redmond, Wash.

"This is hugely important to the future of Microsoft TV," Forrester Research analyst Josh Bernoff said, commenting on Microsoft's cable push in general. "If Microsoft TV becomes successful at Comcast, it will rapidly spread through the rest of the cable industry in the U.S. If it isn't successful, then they have spent 10 years for nothing."

Representatives of Microsoft and Comcast declined to comment before Monday's announcement.

Microsoft has long eyed the TV market as a way to move beyond its PC roots, but its efforts have so far met only limited success.

Its vision has morphed over the years, from an ambitious attempt to bring PC-like functions onto the television to a more prosaic effort to improve video delivery. These days, it is focused on low-profile improvements in basic cable functions--for example, facilitating digital video recording on cable set-top boxes and showing program schedules.

The company spent several hundred million dollars to acquire WebTV in 1997 and later invested $1 billion in Comcast and $5 billion in AT&T, when Ma Bell was purchasing cable company Media One.

The software has gradually gained some momentum, with Microsoft signing a few deals in Mexico. In the United States, though, its adoption has largely been limited to some small-scale trials.

Earlier this year, Comcast announced a deal to use Microsoft's software on up to 5 million set-top boxes. New details from that partnership are expected Monday. Industry publication CableFax reported that Microsoft will announce that Comcast is testing its software in the Seattle area.

Too much, too early
The software giant readily admits that its early efforts in the TV market came too early and were too ambitious.

"We got involved in TV-related software way too early, and we spent $500 (million) or $600 million before its time," Chairman Bill Gates said during a speech in Berkeley, Calif., last month.

For many years, much of the effort by Microsoft and others was on so-called interactive television--merging TV with e-mail, Web surfing and e-commerce. Cable companies saw it as a way to fend off satellite services, and technology companies were tempted by the possibility of a cut of the sales.

Microsoft also pursued the satellite market with a pricey service for DirecTV customers called UltimateTV, which combined WebTV and digital video recording with satellite service. The hardware, though, cost hundreds of dollars, and monthly service fees topped $100, in some cases.

Not long after it launched UltimateTV, Microsoft stopped pitching the service and began trying to refocus its efforts on the mainstream cable market rather than push a feature-rich product that would require expensive new hardware.

Although Microsoft was hurt by the slow pace at which both cable and satellite companies adopted new technology, the company has also benefited to some degree as once-strong competition has faded. Some start-ups folded altogether, while other players, such as Liberate Technologies, have fallen on hard times.

"The cable operators moved so slowly that most companies ended up pulling way back. And in particular, Liberate now is in a very difficult financial state because of

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