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Tech Industry

Giant stakes in cable

Microsoft stands to gain a lot from investments in the cable industry and may be laying the groundwork for a foray into the satellite industry as well.

Microsoft (MSFT) has a long list of things it stands to gain from investments in the cable industry, and the software giant may be getting ready to lay the groundwork for a hedge bet with the satellite industry as well.

Microsoft has identified cable operators as the most likely vehicle for See related stories: Microsoft unfazed by scrutiny the fast delivery of information to American homes. This high-speed delivery, Microsoft's executives believe, will lead consumers to adopt a "Web lifestyle," and Microsoft wants to be at the forefront of this potentially huge new market for software development.

So today's report that Microsoft may be planning a $1 billion investment in US West's cable operations comes as no surprise, even as previous reports had the Redmond, Washington, company ready to make a similar investment in Tele-Communications Incorporated.

An investment in either cable company would build on Microsoft's $1 billion stake in Comcast in June and its purchase of WebTV, which delivers Internet access to TVs via set-top boxes.

Microsoft also is looking for new platforms for its operating systems, particularly its slimmed-down version of Windows, Windows CE. Moreover, the software giant is searching for more venues for its broad content offerings, such as MSNBC and Slate magazine.

If its recent business deals are any indication, Microsoft apparently is unfazed by the fact that the Justice Department is charging the company with antitrust-related violations. The software giant continues to look for new markets in which to expand its already highly profitable business. (See related coverage)

What Microsoft hopes to gain from spurring the development of broadband cable networks is influence over the operating systems these networks will have to adopt, analysts said.

But entering the traditionally independent cable operator market has proven more difficult than anticipated. Even Brian Roberts, president of Comcast, found himself reassuring fellow cable operators after Microsoft invested in his company. "We are neither legally nor morally committed to having only the Microsoft set-top product," he said at a cable industry trade show last month. "We want an open system."

Tom Aust, global telecommunications analyst at Citicorp Securities, believes that Microsoft will benefit from electronic commerce once the high-speed connections are in See related special report: Microsoft under scrutiny place. The software company already has positioned itself on the Internet by way of its Expedia travel site and CarPoint auto site, as well as its Sidewalk city guides.

But will Microsoft be able to influence the standards for the next-generation set-top boxes through its investments in Comcast and possibly US West? Microsoft is betting that it can, and the decision to invest in Comcast and US West, rather than TCI, may be an indication of the company's confidence.

Comcast was in need of Microsoft's cash and is a small enough company for Microsoft to gain real influence in exchange for its $1 billion investment. The cable operator also had invested significantly in broadband networks before Microsoft's involvement.

TCI, although technologically advanced, is significantly larger, and Microsoft CEO Bill Gates would gain much less influence for his $1 billion. "Trying to have influence on TCI is more difficult," Aust said. "Its chairman, John Malone, is too determined and wily to let Gates in."

On the other hand, US West's cable concern, MediaOne, has developed a modern network and a technologically adept management. It also needs the money and is small enough for Microsoft to be a significant shareholder.

But if Gates's wagers that the future lies in cable broadband fails, those bets are hedged with WebTV. If cable operators don't move forward with high-speed networks, Microsoft can pursue WebTV across a number of different platforms, according to Aust.

If they do move forward quickly, Microsoft will be able to foist the evolving WebTV standards onto cable operators. WebTV will be a platform for influencing the outcome, Aust said.

Moreover, if cable turns out to be a bust, digital broadcast satellite is another area where Microsoft has done some hedging. Last year, the software giant became a digital satellite service licensee with DirecTV and Thomson Consumer Electronics. At a developers' conference earlier this year, DirecTV said it wanted to be the first direct broadcast satellite company to deliver video, audio, and data via the PC or TV.

Participants at the conference received the tools required to develop content for the new platform, which included a software development kit for Microsoft's broadcast architecture.