April 24, 2002 3:50 PM PDT

Microsoft: Layoffs, changes in TV groups

Microsoft confirmed Wednesday that it is in the process of laying off employees in its television division and UltimateTV service group. The company also said it's expanding its TV software to work with low-end set-top boxes.

In the television division, called Microsoft TV, the software giant said it would lay off about 60 workers, or less than 10 percent of that division's employees. Microsoft has already started letting go of about 140 employees from its UltimateTV service group, or about 33 percent of that group's staff.

UltimateTV is a service for subscribers to DirecTV's satellite TV network; it lets customers record television shows to a hard drive and access the Internet. Microsoft's TV division creates and develops interactive TV software for set-top boxes that is similar to an operating system on a PC.

The San Jose Mercury News first reported the layoffs within Microsoft TV on Tuesday. Microsoft representatives confirmed the layoffs Wednesday and added that they were part of a larger restructuring within the group. The company also confirmed on Wednesday the UltimateTV layoffs, which the Wall Street Journal had reported earlier in the day.

The layoffs and the restructuring of the television division are part of the group's efforts to focus on software for low-end set-top boxes. The focus shift was detailed by Microsoft TV Vice President Moshe Lichtman to the group earlier this week. Lichtman took over for Senior Vice President Jon DeVaan as the head of Microsoft TV. DeVaan is on leave from the company.

The addition of software for low-end set-top boxes to the group's strategy came after Microsoft TV lost out on licensing deals with cable companies that the company has major investments in, including AT&T Broadband and Comcast.

Earlier this year, Microsoft restructured the UltimateTV group and added it to its services division, MSN TV.

The restructuring in UltimateTV meant that the television division would strictly focus on software development for cable companies.

Microsoft "stumbled"
Following a period of high expectations for companies in the interactive TV market, the market has cooled significantly as cable companies have come to realize that subscribers aren't rushing to sign up for expensive or advanced services--such as online gaming and e-mail and Web access--available on their set-top boxes.

Cable companies have reacted by slowing down their efforts to bring advanced services to the masses through their set-top boxes. Analysts have said that Microsoft has been slow to react to this change and it has cost them customers.

"In hindsight, you could say that they stumbled," said Sean Badding, an analyst with market research firm The Carmel Group. "They were waiting for the market to catch up with them...They missed the market a bit, but they will be in a better position later, when the market is ready for advanced services."

Ed Graczyk, director of marketing for Microsoft TV, said that the company was too caught up in bringing advanced features to set-top boxes and wasn't taking into account enough how expensive it would be for cable companies to launch advanced set-top boxes.

But with a new focus on software for the 13 million low-end set-top boxes currently in the market, the group is looking to grow its influence in the business.

Eye on the low end
The television group is now focusing on "broadcast iTV" software and applications for more advanced "cable media center" devices. The broadcast iTV software will be used with existing set-top boxes, while software for the cable media center devices will support advanced features and allow advanced set-top boxes to act as digital home entertainment hubs, similar to those described by Moxi Digital, which recently merged with Digeo.

"About 20 percent of cable subscribers are at the highest end and spend lots on entertainment, and we still want to address them," Graczyk said. "But the interactive TV industry has slowed down tremendously, and (cable companies) aren't interested in rolling out new advanced hardware."

Graczyk added that Microsoft TV is working with other groups within Microsoft, such as eHome, to improve television and media use for consumers.

The eHome division has been working on software, code-named Freestyle, that it says will allow PC owners to use their computers to record TV shows and music. Freestyle PCs will also come with a remote control.

Freestyle's plan will differ from Microsoft TV's efforts because it will target consumers directly and will be specifically for PCs, while Microsoft TV's cable media center software will target cable companies and be used on set-top boxes.

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Fast forward 7 years and Microsoft has just announced a new round of layoffs... This morning Microsoft CEO Steve Ballmer sent an email to all Microsoft employees announcing plans to layoff 5,000 employees over the next 18 months.

Most news sources are saying ?an internal email was leaked to the press,? which makes this sound like the email was intended to be kept private. However, considering Steve Ballmer sent the email to all Microsoft employees, I?m guessing he never expected it to stay private, but rather wanted the employees to hear the news first before the media broke the story. Perhaps it was The Daily Anchor's 3-days-in-advance scoop of the Williams-Sonoma layoffs that made him wary? one can dream.

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