Satellite TV snubbing Microsoft

With the era of high-definition television drawing closer, Microsoft's bid to provide one of the market's core video technology standards is having trouble getting into orbit.

In recent weeks, announcements have come from major satellite television companies including DirecTV that they will be using a rival technology, developed through traditional standards organizations, instead of Microsoft's competing video format, for their upcoming high-definition services.

Even Voom, the satellite HDTV company Microsoft earlier touted as a supporter, recently said it would use the rival MPEG-4 AVC video format, or "codec," beginning early in 2005.

The satellite companies' moves, triggered by an increasing need for greater bandwidth, by no means count Microsoft out in other potentially larger markets such as cable television and online video. But the decisions by DirecTV and others show that the familiarity of the MPEG standard could be a difficult hurdle to clear.

"They really needed to start looking at some advanced video formats, because they needed that efficiency," Yankee Group analyst Adi Kashar said. "But some of the telephone companies seem to be making the opposite choice."

Indeed, the satellite television companies have been among the first large media companies to settle as a group on which technology they will use as they begin to offer high-definition video. But cable television, telephone, Internet video and other companies are all ultimately moving toward replacing today's familiar video with a supercrisp digital successor, offering potentially high stakes for companies that can provide the technological foundations.

Microsoft is one of those companies, and it has veered sharply away from its traditional practices in hopes of capturing a piece of that market. Its Windows Media technology, like the MPEG AVC video standard, allows companies to shrink massive high-definition video files into smaller packages, so that more video can be sent over the same amount of wireless or broadband bandwidth.

In 2003, Microsoft submitted its Windows Media 9 video format to the Society of Motion Picture and Television Engineers standard-setting organization for ratification as a high-definition video standard. In anticipation of that, two separate DVD groups have included Microsoft's technology as part of their next-generation disc standards.

The overture to standards bodies was aimed in large part at reassuring broadcasters and large media companies, which are used to working with standard, instead of proprietary, formats.

But for now, a growing and influential portion of the satellite industry seems set on MPEG 4.

Voom, a relatively small player, announced late last year that it would use MPEG 4 for its broadcasts beginning in mid-2005. Echostar Communications said at the recent Consumer Electronics Show in Las Vegas that it would make a push into high-definition video with its Dish Network beginning this fall, also using MPEG 4. (Cablevision, Voom's parent, said late Thursday that it would sell Voom's Rainbow 1 satellite and some other assets to Echostar for $200 million. It plans to continue service through an unspecified transition period. Echostar said it is assessing how to use the satellite to augment its Dish service.)

The News Corp.-owned DirecTV announced at the same show that it was moving to MPEG 4, providing a demonstration of the technology over a satellite transmission. The company said it would ultimately replace the high-definition set-top boxes previously purchased by its customers, but it has not said whether it would pay part or all of those costs.

A low-orbit silver lining for Microsoft has come from Sirius Satellite Radio, which said earlier this month that it would use the company's video technology for its just-announced video service.

The picture looks somewhat different on the ground, although it remains fuzzy. Cable companies have yet to indicate which direction they're going, but at least one phone company--giant SBC Communications--is already working closely with Microsoft to develop video services over its high-speed Internet lines. That could tip the scales toward company's video codec, but an SBC representative said the phone company was still deciding between Microsoft and MPEG.

Microsoft also has deals with BellSouth, Telecom Italia and a handful of other telecommunications providers around the world. But these deals largely focus on the ability to deliver video using Internet technology rather than the underlying video format. A smaller number of companies, including U.S. Digital Television, have said they would use the VC-1 video format.

Analysts say it will be easier for firms that don't have any historic investment or stake in the MPEG standards to adopt Microsoft's technology over time.

"Telephone companies going into the business of offering video seem to be very interested" in Microsoft's tools, said Forrester Research analyst Josh Bernoff.

Microsoft itself says the process is still barely under way, with its VC-1 technology still in the last stages of reaching official-standard status. Company executives say media and communications firms will increasingly want to do more than simply broadcast video--offering video on demand, or shows that can be watched just a few times or transferred to portable devices, for example.

The company also predicts that set-top box makers will begin building support for both formats into their products, giving media companies more flexibility to use both, or even to switch between the two for different applications.

"Our hope is that as time moves on, not just the satellite companies, but everyone, will begin looking at the future business models that VC-1 and Windows Media provide," said Jordi Ribas, director of technical strategy for Microsoft's Windows Digital Media Division. "We do not think they are closed doors."