The first production deployment of any Microsoft TV platform by a cable company in the United States will begin in late 2004 when Comcast digital cable customers in Washington State (where Microsoft is based) start getting new on-screen program guides and other services built on Microsoft TV Foundation Edition. The venture marks achievement of a goal that Microsoft has been pursuing since the 1990s. The Comcast deployment also includes optional digital video recording (DVR) at a very competitive price, a feature that could hurt demand for stand-alone digital video recorders and Media Center PCs.

Years in the Making

Between 1997 and 2001, Microsoft invested more than US$8 billion in cable TV companies, including US$5 billion into AT&T and US$1 billion into Comcast. (Comcast later bought AT&T Broadband, and Microsoft ended up with less than a 5% voting share of Comcast.) Although some of these investments were made with the hope that cable companies would deploy Microsoft TV (MSTV) platform software, only one investee moved beyond testing into deployment—TV Cabo in Portugal.

In 2002, Microsoft revamped its TV strategy to focus on what network operators said they wanted—services directly related to TV programming, such as a better on-screen channel guide, video on demand, and DVR—instead of features such as interactive television and Web surfing. Operators also said they wanted a platform that could run on the current generation of set-top boxes but would offer additional value as new hardware emerged.

In response, Microsoft built a new platform, MSTV Foundation Edition, that can run on a wide variety of set-top boxes. Foundation Edition incorporates a searchable on-screen program guide and enables cable operators to build Web-like interactive pages and applications (such as games) and make them available from within the program guide interface.

In Nov. 2004, Comcast said it would deploy Foundation Edition to all of its digital cable customers (approximately 500,000 households as of press time) in Washington State by the end of Jan. 2005. The service could also attract additional customers from Comcast's analog cable services. (Cablevision Mexico also agreed to deploy Foundation Edition to about 450,000 customers in 2004.)

All customers in the Comcast deployment will get the following:

• A searchable on-screen program guide, which replaces the current guide provided by TV Guide (listings are provided by Tribune Media Services)
• Video-on-demand selections integrated into the main menu
• iChannels, Web-like pages with news and information on subjects such as sports and weather (viewed while the audio from the last TV channel selected runs in the background)
• Simple games, such as blackjack.

Comcast will also offer an optional DVR service, which will cost an additional US$9.95 per month for regular-definition digital cable customers and an additional US$4.95 per month for high-definition customers. Customers who choose this option will receive the client component of MSTV Foundation Edition, along with a new set-top box, the Motorola 6412. The set-top box includes two tuners, allowing customers to record one show while watching another, and a 120GB hard drive, allowing users to store up to 90 hours of standard-definition or 20 hours of high-definition programming. Comcast will not charge customers for the new boxes, nor will it require them to sign a contract for a minimum length of time. In contrast, customers who get DVR through stand-alone devices such as TiVo or ReplayTV, or through satellite provider DirecTV (which resells TiVo's service), must buy new hardware, which costs anywhere from US$50 to US$200. Monthly service fees for stand-alone boxes are also higher than US$10.

Comcast has purchased the right to deploy Foundation Edition to 5 million customers, and if the Washington deployment helps Comcast convert customers to higher-priced services, the company says it will quickly expand its deployment to other U.S. regions, where it has an additional 20 million customers.

DVR Competition

The Comcast deployment of Foundation Edition represents an important win for MSTV, but could hurt prospects for another Microsoft product: Windows XP Media Center Edition.

Given its competitive pricing, many researchers expect cable-based DVR to become the norm. For instance, researcher Parks Associates predicts that by 2006, half of all DVR customers will get their DVR service through a cable provider.

But DVR has also been a major selling point for PCs running Media Center Edition. As DVR becomes a standard option offered by cable providers, Microsoft and its Media Center partners will have to emphasize the full package of Media Center features, such as DVD playback and burning and digital music storage, to convince them to spend upwards of US$1,000 on a new PC.

Resources

MSTV Foundation Edition is described in "New TV Platform Launched" on page 18 of the July 2003 Update and at www.microsoft.com/tv/content/Solutions/Foundation/MSTV_Foundation_Main.mspx.

Microsoft's cable investments are outlined in the chart "Cable Investments" on page 19 of the May 2002 Update.

Microsoft's Media Center PC strategy is described in "Media Center Positioned as Premium Home OS" on page 3 of the Nov. 2004 Update.