May 5, 2000 9:30 AM PDT

Microsoft fine-tunes TV software strategy

Microsoft will announce its revamped interactive TV software Monday, sources said, as the software giant aims to focus its TV strategy.

The company will unveil features in its Microsoft TV software suite, including TV-based chat, scripted dialog and improved parental control software, at the National Cable Television Association convention in New Orleans, sources said.

The pending announcement is the latest in a handful made by the software giant, as it tackles the crowded interactive TV market. Several players are vying for the lead in this industry, which is expected to yield billions of dollars.

The first generation of Microsoft TV, which runs on of the company's Windows CE operating system, is expected to be released this fall, although beta versions already are being shipped to licensees.

The market for interactive TV services is expected to generate as much as $9 billion from e-commerce and subscription revenues by 2004, while television-based online advertising is anticipated to reap $3.2 billion in the next five years, according to Forrester Research.

But Microsoft has had problems with its TV plans, which analysts say have been somewhat confused. The company's strategy has evolved to encompass two businesses: WebTV, which consists of TV consoles and subscription services sold directly to consumers, and Microsoft TV, a collection of Windows CE-based software sold to cable and satellite providers, which lets them offer interactive services including email, chat and Web surfing to subscribers.

Interactive television, which reached a marketing hype zenith in the early 1990s, has lost some of its luster as focus has shifted to interactive gaming consoles. Products such as Sega's Dreamcast, Sony's PlayStation 2 and Microsoft's upcoming Xbox also offer broadband, or high-speed, Internet access.

Meanwhile, existing services such as WebTV have suffered from slow subscriber growth and the perception that the technology is dated.

Gary Arlen "Microsoft has been fairly low key," said Gary Arlen, president of Arlen Communications. "They've announced a lot of manufacturing deals, but there are not on a whole lot of cable systems."

The software maker isn't alone in its tribulations, Arlen added. Rivals such as Liberate Technologies and America Online have yet to make major dents in the market.

"There's a lot of talk but not a lot of rollouts," he said, adding that cable providers are likely nervous about the technological hurdles involved in offering interactive services, as they try to discover how to make money off the proposed features.

"They all have great hopes, but cable operators are very cautious," Arlen said.

Partnering for interactive TV technology
Microsoft also will announce Monday a development agreement with The Kiss Principle, which develops interactive software for television-based Internet services, sources said.

The agreement is expected to build on an earlier pact in which Kiss provided Microsoft with one of the first chat applications for television.

Under the new arrangement, Kiss will provide "conversational interfaces" for Microsoft TV, including Chat on Television, Chattercast and Future Radio. These applications are expected to be added during the third quarter, sources said.

Executives from Microsoft and Kiss declined to comment.

CNET TV: Interactive TV
CNET TV: Interactive TV


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Microsoft is marketing the client and server software beta to cable and satellite TV providers, and Kiss will develop interface applications for the platform clients.

Chattercast allows TV programmers to develop script, which creates running chat commentary during shows. The chat commentators not only will hold discussions among themselves about shows or advertisements that appear, but they also will prompt viewers to respond to questions.

Chattercast is designed as a revenue generator, sources said, noting that advertisers may be willing to pay a premium to have interactive chat appear along with their ads.

Chat on Television is a ratings-compliant service that ensures inappropriate conversations do not appear in the dialog viewers can see alongside TV programs or ads. Although Microsoft had suggested that this feature will be added to Microsoft TV in December, it won't be included until June.

Future Radio is an alternative to electronic programming guides (EPGs). Some analysts view EPGs as one of the most-used applications for digital TV set-top boxes, as they act like TV portals--allowing viewers to scan program listings by time, channel, category or name.

Details of Future Radio's technology remain sketchy, but it will offer an interface that works with digital video recorders--devices that allow viewers to rewind and pause live television.

News.com's Stephanie Miles contributed to this report.

 

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