As a result of shifting business priorities, Microsoft has sold most of its stake in the MSNBC cable TV network to co-owner NBC (a subsidiary of General Electric), and has sold most of its stake in Japanese cable provider Jupiter Telecommunications to institutional investors. The divestments are the latest example of Microsoft's decreasing interest in owning content and broadband infrastructure.

MSNBC

Microsoft and NBC launched the MSNBC TV network and companion Web site in 1996, with Microsoft reportedly investing US$220 million for a 50% stake in the venture. Since then, thanks in large part to links from Microsoft products such as Internet Explorer, the MSNBC.com Web site has become the most popular TV news site on the Web with more than 22 million unique visitors in Nov. 2005 (according to Nielsen/NetRatings). However, the TV network has fared poorly, consistently drawing about half as many viewers as CNN and one-quarter as many as Fox News.

After denying rumors of a split for more than a year, Microsoft and NBC finally announced in Dec. 2005 that the status of their joint venture is changing. Microsoft has sold most of its stake in the MSNBC TV network, giving NBC an 82% share now, with the option to buy the remaining 18% after two years. NBC says the deal will help it better integrate MSNBC into its other news organizations, including NBC News and CNBC, a cable TV network devoted exclusively to business news.

The two companies will continue to have joint ownership of MSNBC.com, although they did not reveal whether the percentage of that ownership has changed. Financial terms of the deal were not disclosed.

Jupiter

In the late 1990s, Microsoft invested more than US$10 billion in cable and other broadband providers around the world, including an unspecified amount (estimated at more than US$900 million) in the company that would eventually become Jupiter Telecommunications. (Two charts detailing Microsoft's broadband investments can be found in "Broadband Crucial to Consumer Strategy" on page 17 of the May 2002 Update.)

In Mar. 2005, Jupiter began offering shares for sale on the JASDAQ public market. As a result of that initial offering, Microsoft's stake in Jupiter decreased from 19% to 14%. (Microsoft sold some shares, and the total number of shares outstanding increased.) Since then, Jupiter's share price has increased more than 22%, providing Microsoft with a welcome sales opportunity after years of losses in the cable sector. In Dec. 2005, Microsoft sold most of its remaining stake in Jupiter to Goldman Sachs, which in turn sold it to other investors. Microsoft is expected to earn approximately US$670 million from the sale and continues to own about 1.5% of the company.

Shifting Priorities

The MSNBC and Jupiter investments are a legacy of Microsoft's business strategy in the latter half of the 1990s. At that time, Microsoft believed that consumers would soon begin to get entertainment content, including audio and video, in new ways, such as downloading it to a PC over broadband Internet connections or accessing it on new types of TV set-top boxes offered by cable and satellite providers. To ensure that it was not frozen out of these markets, Microsoft believed it needed to own content and some of the infrastructure for delivering that content.

Microsoft was correct about the eventual popularity of entertainment delivered over cable and IP networks, although the company anticipated the market developing earlier than it did. However, many broadband providers did not benefit from this movement, consumer demand for interactive TV services has remained low, and content owners have faced challenges such as piracy and the shift of advertising revenue away from traditional media and onto the Internet. As a result of these and other market changes, Microsoft was forced to write down more than US$9 billion in the value of its investments between 2000 and 2003. (See the chart "Investment Write-Downs" on page 36 of the July 2003 Update.)

Meanwhile, more pressing threats and opportunities have emerged, such as advertising-supported Internet services, portable media players, and game consoles. As a result, Microsoft has redefined its strategy accordingly and is leaving the content and infrastructure businesses to more experienced players.