Microsoft IPTV: At long last, progress

For nearly a decade, Microsoft (MSFT) has tried to shake up the market for Internet TV, attempting to build a family of products that would give phone companies a big push forward in their battle with cable and satellite TV providers. But as is the case in other non-PC markets, such as smartphones and music players, Microsoft's progress in TV has been painfully slow.

Despite massive investments and headline-grabbing contracts with many of the world's largest phone companies, only about 500,000 homes now get TV from phone companies using Microsoft software and technology. In a market where dozens of small companies have developed an expertise in key niches, from video servers to set-top boxes, Microsoft has tried to cover all the bases of delivering TV programming via Internet technology"”an approach that for many carriers has proved harder and more expensive than expected to carry out on a large scale.

IPTV gathers momentum

But for the moment, the pace seems to be picking up on this slow march toward TV innovation, as plans to use Microsoft's Internet protocol TV products actually begin getting off the ground. AT&T (T), which by most accounts has been the poster child for Microsoft's disappointing progress, said in October that its U-Verse IPTV service had amassed 126,000 customers in the third quarter, from 51,000 in the second quarter. Ma Bell plans to make the service available to 8 million homes by the end of the year, up from 5 million now. Swisscom says it has lured 50,000 of Switzerland's 3 million homes away from cable and satellite rivals using Microsoft IPTV.

A year after launching its BT Vision IPTV service, British Telecom Group (BT) will release figures on subscriber gains on Nov. 8. BT Vision Chief Executive Dan Marks says his target is to sign up 2 million to 3 million customers within three to five years. 'It took longer than everyone wanted to get to this point, but we're pretty comfortable with the way things are going,' Marks says.

Microsoft continues to line up new business. On Nov. 5, Indian telecom powerhouse Reliance Communications announced a $500 million deal to begin delivering Microsoft's technology by April, 2008"”four years after first announcing a partnership with Microsoft. Yankee Group analyst Vince Vittore expects an increase in 2008, though he won't predict how steep. 'It's a complicated business,' Vittore says. 'But Microsoft is starting to get traction, and they've got the biggest carriers as key customers.'

The road to success

Why the holdup‾ While dumping Google's (GOOG) grainy YouTube videos onto the TV is relatively easy, getting glitch-free, HD-quality pictures and no-wait channel changing requires massive behind-the-scenes engineering"”a process made even more difficult by the cautious pace at which phone companies introduce new technologies onto their networks. Many of AT&T's customers suffered a 12-hour blackout of their TV service in late October. 'People will tolerate being without their phone for two minutes or without the Internet for 20 minutes, but they won't tolerate their TV going off at all,' Vittore says.

To keep up the progress, Microsoft will not only have to eliminate glitches but will need to find ways to make its basic TV service stand out vs. cable and satellite rivals. MediaRoom, the most recent makeover of its IPTV software, includes many slick features, such as the ability to see a thumbnail video of what's playing on each station in the program guide.


But for Microsoft to really cash in, it will have to help carriers go well beyond basic TV, with a type of interactivity that really matters to consumers. Over the past 15 years, there have been a slew of interactive TV efforts with features that failed to impress viewers"”say, the ability to order a pizza without picking up the phone, or to choose the camera angle for watching Monday Night Football. '[The industry] has tried and failed in a number of ways to figure out what interactive TV means,' says Enrique Rodriguez, corporate vice-president for Microsoft TV.

To avoid repeating history, Microsoft seems to be making progress in another critical area: getting independent software developers to create more innovative services. Since Microsoft rolled out new programming tools in June, a number of developers have begun work on a variety of applications, such as visual voice-mail that lets you see who has called you, right there on the TV screen. 'They've got a great road map,' says Donal O'Connor, a product manager with London-based Emuse Technologies, which develops software that targets ads to particular viewers. 'A few years ago I wasn't sure they would succeed, but I genuinely [believe they will] now.'

Redefining interactivity

Rather than using the set to order pizza or pick a camera angle, Microsoft now is emphasizing the need for the TV to work well with other digital devices. A big test of Microsoft's IPTV mettle could come early next year, when gamers will be able to use MediaRoom on their Xbox game consoles. Besides giving 12 million gamers one-click ability to jump from watching a TV show to playing a video game or buying music, this will mark the first time MediaRoom runs on hardware not specifically designed for it. It won't be the last, however.

Rodriguez, who was recently given authority over Microsoft's Media Center PCs and its HD-DVD strategy, envisions a day when all manner of content"”from family photos on the PC in the den, to the latest episode of 24"”will be available on whatever screen you choose. Those are big promises from a company that still has much to prove. But for the first time in a long time, there's some reason to think Microsoft just might deliver.

Burrows is a senior writer for BusinessWeek, based in Silicon Valley .


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