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Microsoft offers free WebTV service to MSN subscribers

The company has quietly begun offering free WebTV to new MSN subscribers, hoping to lure more customers for the interactive TV service, the company confirms.

Microsoft has quietly begun offering free WebTV to new MSN subscribers, hoping to lure more customers for the interactive TV service, the company confirmed.

New subscribers to Microsoft's MSN online service are eligible to receive a new WebTV Plus TV set-top box and wireless keyboard for free. The WebTV Plus box has an estimated retail price of $199, and the keyboard retails for $49. Subscribers would then use MSN as their primary Internet service provider, using MSN to access the WebTV service.

Meta Group says the problem with WebTV is not Microsoft's technology or its marketing of this interactive TV service. The problem is television's low resolution.

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The move is the latest by the Microsoft interactive TV subsidiary to jump-start its membership numbers, which have hovered around 1 million for the past year. WebTV, which pioneered Internet access through the television, faces growing competition from the looming threat of AOLTV, as well as from digital video recorders like TiVo and Replay.

Microsoft TV, the software maker's server software for interactive television, has not fared much better. After signing key agreements with European cable provider UPC and AT&T, Microsoft is rumored to be months behind in shipping its TV server software and in danger of losing momentum to Liberate Technology. Liberate recently signed an agreement with UPC, and sources say it is negotiating with AT&T.

Since its acquisition by Microsoft in 1997, WebTV has explored new ways to package its service, including focusing on interactive TV broadcasting while at the same time targeting a higher-end audience. This strategy has met with mixed results, especially as the core audience of WebTV subscribers is heavily skewed toward first-time users and non-PC owners.

Microsoft has experimented with integrating MSN's features into the TV service. A recent WebTV upgrade included MSN Messenger, and WebTV executives have previously said that the service will eventually include other Microsoft services like MSN Hotmail.

"It's something that will be natural for us to do," said a WebTV representative. "We're planning on doing more in the future. We're both companies of Microsoft."

Some sources close to WebTV believe the promotion is part of WebTV's effort to assure some of its licensees, which include Philips Electronics and Sony, that it and Microsoft are committed to marketing the WebTV service and driving sales of the set-top boxes by absorbing some of the service costs.

By proving Microsoft's commitment to marketing and promotions, the thinking goes, WebTV can convince these licensees to not only stay on board, but to sign up to manufacture upcoming products, sources say.

Microsoft has traditionally subsidized some of the manufacturing costs of the boxes in an effort to appease manufacturers. Although WebTV set-top boxes sell for less than $200, they can cost much more to manufacture. Microsoft typically absorbs that difference.

WebTV has tried similar promotions previously and is running a special that gives rebates of up to $250 to new WebTV customers who purchase three years of the service. Earlier this year, MSN offered six months' free trial to new customers.

Both the MSN and WebTV promotions end Sept. 30.