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Tuesday, November 09, 2004 - Page updated at 12:00 A.M.
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Comcast deal gives Microsoft entry into cable TV

By Kim Peterson
Seattle Times technology reporter

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Comcast is giving Microsoft something the software giant has struggled to get on its own: an easy way to expand from the desktop computer to the home-entertainment center.

The two companies announced yesterday that on Monday they will begin offering Microsoft's cable-television software to Comcast customers in Washington state, although it will be months before the rollout is complete. Financial terms of the deal were not disclosed.

For Microsoft, the partnership is significant. The Washington deal is the first large-scale deployment in the United States of its TV Foundation Edition software, which includes an interactive channel guide and a set of digital-cable tools that let cable operators upgrade services without swapping out set-top boxes. Up to now, only two small cable operators in Oregon were using the Foundation software.

Comcast also said that on Monday it will launch new cable boxes in Washington equipped with a dual-tuner digital video-recording system, which allows a user to pause and rewind live television broadcasts and record programs. Those boxes also run on Microsoft's software.

Those who want to use Comcast's digital video recorder can begin doing so Monday, although they must switch to new Motorola set-top boxes that can handle the service. They will have to pay an extra monthly fee as well — $5 for high-definition cable customers and $10 for digital-cable customers.

The service is similar to that offered by TiVo, the company that made a name for itself as an early entrant into the digital video-recorder market. By comparison, TiVo charges $13 per month, or a $299 one-time flat fee, for a package that includes digital video recording and other features.

Comcast customers who don't want the digital video recorder can still use the interactive channel guide from Microsoft instead of the current guide, which is from Gemstar. Comcast plans to roll out the guide next month to its high-definition-cable customers and early next year to its digital-cable customers.

Employees from both companies have been testing the services in the Puget Sound area for months.

"This is going to fundamentally change people's perspective on television," said Moshe Lichtman, corporate vice president of Microsoft's television division.

Microsoft has spent years trying to break into the cable industry. It invested $5 billion in AT&T in 1999 with the intent of developing advanced interactive-television software for set-top boxes. AT&T would later scale back the project in favor of less expensive technology. Microsoft's $2.6 billion investment in U.K. cable operator Telewest Communications also failed to live up to expectations.

Microsoft "has been kept out of the living room and sequestered to the home office," said Greg Gorbatenko, a cable and telecommunications analyst with Marquis Investment Research. "It wants to be part of the growing appetite for content."
 
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The company has long talked about its vision of a connected home, where people can view photos, listen to music and access the Internet from their television sets. The deal with Comcast doesn't accomplish any of those things, but it gives Microsoft a point to work from.

Microsoft's technology could help Comcast increase its digital-cable subscriber base and its sales, particularly because the software is designed to heavily promote on-demand programs that are available for an extra charge. The company is building a vast library of free and pay-per-view programs immediately available for viewing.

Comcast bought 5 million licenses of Microsoft's Foundation software, which it could deploy across its base of 21 million subscribers.

It has 1.1 million cable customers in Washington, and fewer than half of those use the company's digital-cable and Internet products.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Copyright © 2004 The Seattle Times Company

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