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Microsoft partners on interactive TV project

The software giant, Thomson and DirecTV announce they are teaming to launch an all-in-one interactive TV set-top box and service.

Microsoft, Thomson and DirecTV today announced they are teaming to launch an all-in-one interactive TV set-top box and service.

The three companies, which had separate, pre-existing relationships among themselves, will launch a new set-top box from Thomson's RCA featuring DirecTV satellite service and a new version of WebTV from Microsoft, Ultimate TV.

The new product reflects the growing interest in interactive television as a marketing and e-commerce profit center, as the Internet moves off PCs and onto nontraditional information appliances like Web pads, wireless handheld computers, cell phones and TV set-top boxes.

The device will include a hard drive capable of recording up to 30 hours of video, as well as two satellite TV decoders, which will enable picture-in-picture viewing and the ability to tape one show while watching another. Outfitted with a dial-up 56-kbps modem, the RCA box will compete with digital video recorders from TiVo and Replay Networks and satellite provider Echostar.

"It really allows the consumer to watch what they want when they want to watch it," said Dave Spomer, vice president of digital decoder product management for Thomson and RCA.

Microsoft is clearly responding to growing competitive pressure. The market is growing increasingly crowded with entries from start-ups like TiVo and Replay, which pioneered the digital video recording market, as well as with the upcoming launch of AOLTV.

Microsoft has had a couple of false starts with its TV strategy, and its WebTV business has largely stagnated in terms of subscriber growth and new features. It was acquired by the software giant in 1997. WebTV had repositioned itself, moving away from its core audience of new Internet users interested in the low-cost Web access device and embracing so-called enhanced or personal TV services, which include more lucrative e-commerce and advertising opportunities.

Representatives for the service said the business now comprises both segments, but the Ultimate TV package is clearly targeted at the latter.

"What we've got is two distinct market opportunities," said Rob Schoeben, director of marketing for WebTV. "There's a larger opportunity in TV households who want better television over time. There's a lot that can be done there."

The Ultimate TV service is being positioned as more integrated with traditional PC Internet access, unlike WebTV, which is offered as a PC replacement, Schoeben said. The new service will not be integrated with Microsoft's Hotmail Web-based email or MSN online service, however. The company is working on tighter integration between the services, he said.

Today's announcement provides another layer to the many complex relationships and alliances peppering the interactive TV landscape. Microsoft is already an investor in Thomson, which is primarily owned by Hughes. Hughes also owns DirecTV, which is also a partner of AOL and a partner in the launch of AOLTV, which will be Microsoft's primary competitor.

"DirecTV has always been about delivering choices to our customers," said Brad Beale, senior vice president of advanced products and new media for DirecTV. "We distribute services branded around our partners' brands."

The three companies have visions of extending the Ultimate TV service on the RCA DirecTV box as technology improves, Beale said. The box is fitted with USB ports, which will allow it to be upgraded with a DSL modem for high-speed Internet access or other peripherals.

Eventually, new digital music and gaming opportunities may be pursued as well. Thomson executives have said previously that the company is developing a product that would use a hard drive to act as both a digital video recorder and digital music jukebox.

"This is the coming-out party, not the end game," Beale said.