As part of its longstanding effort to penetrate the TV industry, Microsoft is developing technology to deliver TV programming and video-on-demand over IP networks and trying to enlist partners to help in the effort. Microsoft claims that the technology, tentatively named Internet Protocol TV (IPTV), will reduce costs for cable providers and help telephone companies compete with cable providers by letting them offer video services. IPTV would also help Microsoft expand the market for Windows Media and related technologies and help push its consumer vision of the Windows PC as home entertainment hub.

Ambitious Plan

IPTV is considerably more ambitious than current Microsoft TV offerings, such as the Interactive Program Guide (IPG) and Foundation Edition. These products are meant to run on today's TV technology, whereas IPTV envisions a complete overhaul of how TV is delivered to consumers.

Today, bandwidth constraints in the "last mile" between providers' head-ends and consumers' homes make it difficult to deliver reliable, high-quality video over IP. Microsoft assumes this problem will eventually be solved, perhaps through advances in video compression technology (such as Windows Media 9 Series) or as providers or governments run fiber-optic cable to homes.

Even if this assumption proves true, many other pieces must fall into place for IPTV to reach fruition: Microsoft must convince cable and telephone companies to update their infrastructure, must convince chipmakers to support IPTV with "systems on a chip" that can be built into set-top boxes and other consumer electronics devices, and must convince consumers that IPTV offers tangible benefits that make it worth switching from the status quo.

Pitching the Plan to Partners

To move IPTV forward, Microsoft has launched an early adopter program for providers, offering assistance from lab testing through market trials. So far, two telephone companies have signed up: Bell Canada, which in Sept. 2003 announced plans to upgrade its analog network to an IP-based network, and Reliance Infocomm, an Indian company that hopes to wire Indian homes with fiber-optic cable. By letting them add video to their services, IPTV could help these and other telephone companies meet increasing competition from wireless voice and data services and from cable-based telephony.

Microsoft is also hoping to lure cable providers to IPTV with the promise of lower costs. In particular, IPTV could allow cable providers to deliver video programming over the IP backbone they currently use for data, eliminating the cost of maintaining a separate network for distributing video to local head-ends. In addition, a standard chip set for IPTV could create competition in the set-top box market, reducing the cost of subsidizing these boxes. However, no cable partners have yet been announced.

Other partners that have agreed to participate in IPTV include chipmakers (Intel), companies that create real-time video encoding solutions (Harmonic, Tandberg Television), and set-top box manufacturers (Pace Micro, Thomson).

Microsoft's near-term goal is to have IPTV in at least one trial by the end of 2004, but IPTV is a long-term initiative that will require significant investment by Microsoft and a willingness to experiment on the part of partners.

For more information, see Microsoft's IPTV page at www.microsoft.com/tv/MSTV_IPTV_Overview.mspx.

For background on Microsoft TV Foundation Edition and IPG, see "New TV Platform Launched" on page 18 of the July 2003 Update.