An update to Microsoft's Internet Protocol TV (IPTV) platform, which enables telephone companies to deliver video signals over IP networks, introduces a new brand—Mediaroom—and lets users play digital media stored on networked home PCs, among other features. The update supports Microsoft's strategy of selling multiple, connected devices for the home. However, adoption of Mediaroom has been slow, and cable companies are continuing to improve their video offerings while drawing voice customers away from telephone companies, suggesting that the overall IPTV market may not get the traction Microsoft hoped it would.

Rollouts Slow

Microsoft's IPTV platform, which the company introduced in 2003, is the company's latest effort in a decade-long campaign to provide software for TV distribution.

Prior to its IPTV platform, Microsoft's TV strategy was focused on software for cable TV set-top boxes, including its most recent effort, Foundation Edition. However, none of this software achieved significant market traction, and setbacks have been common. Most recently, in May 2007, Comcast announced it would use an over-the-air software update to replace Foundation Edition, which it had deployed in Washington State in 2005, with the GuideWorks software it uses in the rest of the United States. (GuideWorks is a joint venture between Comcast and Gemstar-TV Guide.)

Microsoft took a different approach with IPTV, focusing on telephone companies that were already upgrading their infrastructure to provide more bandwidth, and that face an increasing threat to their core business from Voice over IP (VoIP) services offered by cable TV providers. With its IPTV platform, Microsoft promised, telephone companies could meet the threat of cable-based phone systems with a "triple threat" (voice, video, and data) of their own.

Microsoft's IPTV platform includes back-end server software and partner-provided hardware for encoding and provisioning television programs and other video (such as on-demand movies) over dedicated IP networks, set-top box hardware from providers such as Scientific-Atlanta (now owned by Cisco), and a sophisticated program guide (including search and video previews of channels, among other features) for end users.

As of June 2007, six companies are actively deploying Microsoft's IPTV platform—AT&T in the United States, BT in the United Kingdom, Deutsche Telekom in Germany and other countries, Portugal Telecom, TDK in Denmark, and Swisscom in Switzerland—and eight other companies are conducting trials.

However, these deployments are moving slowly. In the United States, for example, AT&T began rolling out a service using Microsoft's IPTV platform in summer 2006 and now has 40,000 video customers. In contrast, Verizon, which doesn't use Microsoft IPTV but does use some components of Foundation Edition, has more than 400,000 video customers for its fiber-optic-based FiOS TV service, which launched in Jan. 2006.

Meanwhile, cable providers are busily upgrading their own systems to provide more bandwidth to end users and continue to draw significant numbers of voice customers from telephone companies. Comcast, for instance, added more than 570,000 digital voice subscribers in the first quarter of 2007, bringing its total to 2.4 million, which is 7% of all the potential voice customers in the area that Comcast serves; Cablevision reported 1.3 million voice customers in the same quarter, or about one-third of all its potential voice customers.

Building Consumer Demand

To drive consumer demand for IPTV services based on Microsoft's platform, Mediaroom adds the following features:

• Access to digital photos and unprotected music stored on networked PCs in the home, including files in non-Microsoft formats (such as the Advanced Audio Coding format used by Apple's iTunes)
• Support for over-the-air ("terrestrial") digital TV signals within an integrated IPTV set-top box
• An HTML-based application environment for providers to build applications such as video-on-demand portals
• MultiView, which allows viewers to see multiple channels, programs, or camera angles simultaneously.

Microsoft also launched a consumer-oriented Web site—a first for its TV Platforms division—to promote the benefits of Mediaroom and convince customers to seek it out.

At the same time, cable companies are continuing to add TV features, such as digital video recording, which is not yet supported by Mediaroom. Microsoft and its IPTV customers will have to continue to improve their services, avoid any technical glitches that could hamper the user experience, and perhaps reduce prices in order to carve out a niche in the TV business.

Resources

Microsoft's Mediaroom site is www.microsoftmediaroom.com.

For background on Microsoft's IPTV platform, see "IPTV Commercial Rollouts Planned" on page 33 of the June 2005 Update.

The patent dispute between Microsoft and Alcatel is covered in "Alcatel Suit and Other Legal News" on page 25 of the Jan. 2007 Update.