The companies didn't disclose the purchase price, but a person familiar with the deal terms said the price was "just south of $200 million." The deal should close in the second half of the year.
One of the next big battlegrounds among industry players is video. Many companies, such as Amazon and Netflix, already provide content, but others are looking to provide a full package to consumers. Chip maker Intel is building an IPTV service and set-top box, while Apple is reportedly prepping its own system. Game console makers also are looking at the sector, with Sony and Microsoft both seeking to provide more programming for their customers.
Mediaroom is the software that powers many of the world's leading Internet-delivered television services, such as AT&T's U-verse, and Deutsche Telekom's Entertain. More than 22 million set-top boxes in 11 million homes around the world use Mediaroom technology. Ericsson, the world's largest maker of wireless networks, noted the acquisition will make it the leading provider of IPTV and multiscreen offerings, with a market share of more than 25 percent.
For Microsoft, the deal removes any distraction or conflict with pushing TV on its Xbox console. While Xbox started out as a gaming machine, the majority of the 76 million users worldwide spend more time viewing entertainment than playing games, said Yusuf Mehdi, corporate vice president of marketing, strategy, and business for Microsoft's interactive entertainment operations, during an All Things D conference earlier this year.
"With the sale of Mediaroom, Microsoft is dedicating all TV resources to Xbox in a continued mission to make it the premium entertainment service that delivers all the games and entertainment consumers want -- whether on a console, phone, PC, or tablet," Mehdi said in a blog post today.
He added that there are 76 million Xbox 360 consoles around the world and 46 million Xbox LIVE members. Microsoft is expected to unveil the next generation of the Xbox sometime this year, possibly as soon as next month. The device is likely to attract new users, as well as include new features to attract viewers, not just gamers.
The company has said that it's working on providing interactive TV through Xbox, including live events, reality shows, and scripted programs with an interactive twist. Instead of going it alone, Microsoft is trying to partner with content creators, studios, labels, networks, content aggregators, operators, and distributors.
"We believe the future of home entertainment is one where TV becomes more simple, tailored, and intelligent," Mehdi said. "We believe the best is yet to come for this industry."
Microsoft declined to comment further about the deal.
Ericsson, meanwhile, plans to integrate Mediaroom with its current products to extend the software beyond the set-top box to mobile and other devices, said Per Borgklint, senior vice president and head of business unit support solutions at Ericsson.
"Today Mediaroom is only on set-top boxes, but we at Ericsson have developed multiscreen solutions that have been integrated already on customer premises on the existing Mediaroom solution," he told CNET.
Ericsson will continue to target mobile operators with the service, Borgklint said, with the belief that all will need a video strategy and something to manage and secure the delivery of those services.
The company will hire additional employees for Mediaroom, expanding beyond the current headcount of about 400.
"This is an area of investment," Borgklint said. "We plan to grow the business."
Updated at 9:35 a.m. PT with the deal price, a no comment from Microsoft, and comments from an Ericsson executive.