Microsoft entertainment OS, take two

The software titan is working on a newer version of its Media Center software, which is expected to debut on PCs in the third quarter.

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Microsoft is working on a newer version of its Media Center software, which is expected to debut on PCs around the third quarter, according to sources.

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The Redmond, Wash.-based company has started working with its PC partners on the updated version of Windows XP Media Center Edition, as well as soliciting beta testers. Microsoft debuted the entertainment operating system in January 2002 and shipped the software to PC makers in the third quarter of last year. The first computers running the software reached store shelves in October.

Windows Media Center PCs sport a second user interface, by which consumers can access the operating system's digital media features via remote control. New features of the entertainment OS include a TV Tuner and digital video recorder (DVR) for recording TV shows to the computer's hard drive.

Unlike other Windows operating systems, which Microsoft updates with a series of service packs between new releases, the next Media Center release will be a new version, according to sources familiar with Microsoft's product strategy. Currently, Microsoft does not sell the software separately; consumers must buy a Media Center PC to obtain the entertainment-hybrid OS.

ARS analyst Toni Duboise expressed surprise that Microsoft would release a second version of Media Center within a year of the software's debut.

"I honestly don't think we're ready for a new version," she said. "I don't think they've sold enough to warrant this yet. They're not going to boost sales with a new OS release."

Gauging sales is difficult, as manufacturers are reluctant to break out the figures. But based on the single model sold at retail, Hewlett-Packard's Media Center 873n, PCs running the software are off to a surprisingly good start.

During the last week of January,

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the 873n ranked in the top 15 PCs sold at retail, "which is pretty good since it is more than $250 above the next highest seller," said Stephen Baker, an NPDTechworld analyst. In fact, only three PCs in the top 15 sold for more than $1,000 during that period. "So it's doing pretty darn well," Baker emphasized. The Media Center 873n sells for $1,649.

A Microsoft representative would not give specific sales figures, although she acknowledged that "they're above our expectations."

Living room meets the den
Microsoft may have other good reasons for rapidly trying to mature Media Center. The software giant sees living room entertainment, such as TV viewing and recording, as a crucial convergence point between the television and the PC. Some PC makers agree. Gateway, for example, bundles a 42-inch Plasma TV with its Media Center PC.

At the same time, Microsoft has been trying to convince record labels and Hollywood that the PC is not a digital Wild West, where content and intellectual property are stolen.

"People at Microsoft lose sleep worrying about record labels and Hollywood studios creating CDs or DVDs that won't play on PCs," said Matt Rosoff, an analyst with Directions on Microsoft. "They're working overtime on this problem."

In fact, Microsoft initially planned to release Media Center with encryption technology that would prevent recorded TV shows from playing on other computers or DVD players. But the company backed off on the stance, following stiff customer resistance.

Still, the company clearly is considering what the proper balance of consumer satisfaction and proper copy protection should be in the next version of Media Center. This is evidenced by some pointed questions for people answering the beta test survey.

In one question, Microsoft asks the tester how many times "during a typical week (do you) upload or share music on the Internet," a practice greatly frowned on by record labels.

"The question actually makes perfect sense because of what Media Center does," Duboise said. "But who's going to tell Big Brother that they're sharing music? I guess you don't have to answer, and Microsoft doesn't have to pick you as a beta tester."

Later on in the survey, testers also were asked to reveal how many times a week they copy DVDs to their computers.

"Obviously, if you're going to be a beta tester on something that has tasks that are on the bleeding edge of digital rights management, I don't think it's out of line to ask those kind of questions," Baker said.

"If Microsoft doesn't get people to answer those kinds of questions, it's a problem," he added. "Those tasks hit the core functionality of the product, and you have to know how people are going to use it."

Bulking up features Microsoft is expected to greatly enhance Media Center's features, but the company spokeswoman would not discuss the changes ahead of the testing process. The software titan plans to accept tester applications through Saturday.

But Microsoft Chairman Bill Gates gave a hint of what could be coming during a Tuesday speech at the company's Most Valued Professionals Summit. He described extending Media Center's functions beyond the PC to other devices and making use of 802.11 wireless networking in the process.

"Your car pulls in the garage; it's within the range of the (wireless) network so that your tunes and shows and things that you're interested in are automatically just sent out there," Gates said. "And so then it's connecting with all the different devices: the TVs, the PDAs (personal digital assistants), multiple PCs working together in a different way."

Microsoft considers wireless one of the most important technologies to add to its products. In September, the company released its first set of networking gear, including wireless hubs and adapters. Portables running Microsoft's Tablet PC software also require wireless networking to make use of the full features.

"Here at Microsoft, of course, we've got the wireless networks installed everywhere, and so in a typical meeting now we have a protocol: Is this a meeting where you can use your tablet and just take notes or can you use your tablet and also browse other things like e-mail that might be coming in," Gates said during his Tuesday speech.

Adding wireless capabilities to Media Center also could benefit the software's wider adoption on portables. In January, AlienWare and Toshiba committed to making notebooks running the entertainment OS. AlienWare already is shipping a Media Center version of its Area 51 notebook, while Toshiba expects to launch its new portable within a few months.

Still, one source familiar with Microsoft's product plans questioned whether wireless or synchronization capabilities would make the next version of Media Center. "You might not see that until a later" revision, he said.

At the least, Microsoft apparently is looking to bulk up existing features and address some user complaints. One customer gripe: Consumers must manage and set up their music library and playlists using Windows Media Player before playing music using the Media Center interface. Microsoft also may improve the integration of the five major features: DVDs, music, pictures, television and videos. The company is expected to bulk up the music and video features to support the release of Windows Media Player 9 Series and Movie Maker 2.

Depending on the test process, the new version of Media Center could ship on new PCs as early as summer, sources said.