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WebTV expands recording, connection options

Microsoft's WebTV, originally conceived as an inexpensive and simple way to access the Internet via the TV, is reinventing itself as the next-generation answer to the VCR.

Microsoft's WebTV, originally conceived as an inexpensive and simple way to access the Internet via the TV, is reinventing itself as the next-generation answer to the VCR.

Upcoming WebTV boxes will feature expanded digital video recording, sources say, similar to what is offered by TiVo and Replay Networks. Digital video recording essentially replaces a VCR's videotape with a hard drive, offering typical VCR functions such as record and playback, as well as newer features such as freezing and playing back television shows while they are being broadcast.

Also in the works are plans to include high-speed digital subscriber line (DSL) access and larger hard drives in WebTV Plus boxes, industry sources said. Those new features should be available early next year, sources said.

A WebTV spokesperson said the company does not comment on unannounced products or rumors.

These upcoming changes are

What's next for WebTV
• Digital video recording (DVR), up to 14 hours
• Broadband high-speed Internet access
• MSN Instant Messaging
• Access to fax and voice mail messages from eFax
Source: various
but the latest events in the WebTV tale. When acquired by Microsoft, WebTV was beginning to make a name for itself as a low-cost and simple Internet access device working in conjunction with the TV.

Since the 1997 acquisition, however, the division's focus has been somewhat blurry, as the company has tried to carve a niche in Microsoft's competing online and cable efforts. With PC and Internet service provider (ISP) prices declining, WebTV has seen its low-cost argument erode. Subscribers continue to sign up for the service, but sales have not met expectations. WebTV has less than 1 million subscribers, sources have said.

Other issues, including the use of the Real Audio media player and the departure of cofounder Steve Perlman, have plagued WebTV. (See related story.)

The future now seems to lay in merging new-age TV functions into the device. By the end of this month, WebTV will expand the capabilities of the service offered on Echostar's WebTV Dish set-top box to offer four hours of digital video recording, sources say. (Microsoft provides basic WebTV service, but companies such as Echostar make the actual boxes and some supplemental service.)

"Right now [with the WebTV Dish device], you can only pause for up to 30 minutes," said Marc Lumpkin, an Echostar spokesman. "Next month, we'll offer personal television services which allow you to record, rewind, fast forward, skip, and replay."

Echostar and WebTV will upgrade Dish receivers which have been shipping since mid-July, Lumpkin said.

By early next year, WebTV will begin offering set-top boxes that offer up to 14 hours of video storage and broadband high-speed Internet access, as well, sources said.

The moves reflect Microsoft's attempts to stratify WebTV's product line with high-end and low-end offerings. For example, at the entry level is the WebTV Classic device for less than $100. At the other end of the spectrum is the upcoming Dish player with a larger hard drive, which is expected to retail at just less than $500.

"They've been shipping Dish players with larger drives, and now they'll turn on that capability," said Richard Doherty, a television and cable industry analyst with Envisioneering Group, adding that WebTV's strategy has been murky since Perlman left the company earlier this year.

At the same time, WebTV's aggressive expansion may indicate it is ceding the market for first-time Internet users to Microsoft's MSN group. More and more, the two online divisions have begun to overlap in terms of target markets and resources, with MSN mulling free or sharply discounted Internet access and WebTV offering MSN branded email and messaging as part of its television server software products.

Other observers believe WebTV's strategy is on target.

"It's a logical upgrade, and I think it's a reasonable strategy," said Greg Blatnick, an analyst with Zona Research, especially as TiVo and Replay ramp up their marketing and retail efforts. "They don't want anyone else horning in on what they think of as their territory, which is the combination of Internet and TV in the home."

Microsoft and WebTV are protecting their turf for another reason: The digital video market is projected to be big, as approximately 300,000 units will ship this year, growing to 10 million shipments in 2004, according to market research firm International Data Corporation.