Microsoft to enhance interactive TV offerings

The two companies will work to extend Microsoft TV, the company's software for interactive TV services and applications, which is marketed to cable and satellite TV providers. Using NDS's technology, the Microsoft TV client software will potentially let a greater number of consumers access interactive applications and other features.

Under the terms of the deal, Microsoft and NDS, whose largest investor is media giant News Corp., will jointly develop and market a version of NDS's "middleware" to run on the Microsoft TV platform, according to Jas Saini, vice president of consumer devices for NDS.

"Middleware: What it allows you to do is run applications which are independent of the platform you run (them) on. It makes the application independent of the hardware," Saini said.

Microsoft's TV products are competing in a jammed market. The software maker, which enjoys dominance in the world of personal computers, is one of many players in the emerging interactive TV market.

These companies are all competing for a share of the expected e-commerce and services windfall. Forrester Research predicts that interactive TV services could generate as much as $7 billion in revenue from e-commerce and $2 billion in subscription revenue by 2004, while television-based online advertising is expected to generate $3.2 billion in the next five years.

One of the sticking points in the market is the continued reluctance on the part of cable operators, in particular, to introduce services such as email and Web access because they require the most advanced--and expensive--set-top boxes.

The deal with NDS should help Microsoft find business because the software can be used with existing equipment in Europe and Asia.

"Microsoft is partnering with NDS on technology that is Eurocentric, (in the sense that it) follows the DVB standard that predominates in Europe and elsewhere in the world," said Cynthia Brumfield, president of research firm Broadband Intelligence. "Microsoft is not likely to find the engineering talent in the U.S. capable of targeting those markets."

The Digital Video Broadcasting Project (DVB) is a European-based consortium that includes more than 250 broadcasters, manufacturers, network operators and regulatory bodies.

With the partnership, Microsoft's strategy echoes that of competitors such as Liberate Technologies and OpenTV. By adding technology that will let cable operators offer some services--such as video-on-demand and electronic program guides--on lower-cost boxes, cable operators will be able to make money on their investment more quickly. Microsoft also hopes that by offering technology for low-end boxes, cable operators will be more likely to also deploy the company's more advanced products in the same network.

Microsoft TV and the company's related service, the struggling WebTV, along with competing efforts based on Java, have been nearly eclipsed in anticipation of the introduction of AOL TV, the first television offering from America Online. AOL's recent bid to acquire Time Warner is only expected to heighten the competition.

If AOL TV is able to sign on a fraction of AOL's 21 million subscribers, the new service would immediately rank as the most popular. Microsoft and its partners have redoubled their efforts to attract customers for all of their television-based products, including giving away two months of WebTV service as a promotion and today's announcement.

"Almost immediately, they can deploy this solution because it runs on existing set-top boxes," Phil Goldman, general manager of the TV Platform group at Microsoft and one of the co-founders of WebTV, said in a conference call. "Now we can provide solutions for network operators who want to focus on basic set-tops, as well as those who want to do both advanced and basic (set-tops)."

One of the TV applications will likely be a type of digital video recording, similar to services from TiVo or Replay. While these services allow viewers to pause and play back television programming while it's being broadcast, Microsoft and NDS are working to create a service that would offer the same options before the shows air, NDS's Saini said.

"No one gives a damn about the middleware--it's all about the applications, and that's where we're going to cooperate," he said.

Microsoft's move will have the most immediate impact on its efforts outside of the United States. Microsoft and NDS announced the first customer for the plan, Globo Cabo, a Brazil cable provider with one million subscribers. So far, Sun Microsystem's Java has made more inroads in the European interactive TV market, and it has been chosen as a key component by the DVB project.

Another significant aspect to the deal is that Microsoft's relationship with NDS could give it a foot in the door for a satellite venture in the works at News Corp. Rupert Murdoch is reportedly moving to combine his disparate satellite operations, including BSkyB in the United Kingdom and StarTV in Asia, into one company and is seeking investors for the new operation. If Microsoft were to invest, the company would presumably have a leg up in supplying technology for the operation.

"News Corp. has said it is in discussions about taking a position in worldwide satellite platforms, and Microsoft is one of the companies discussions are being held with," said Abe Peled, CEO of NDS. "They would be a good partner in such a worldwide platform, but things are still in the discussion stage."