Microsoft has announced a major push into digital broadcasting, with plans to buy privately held WebTV Networks Inc. for US$425 million in cash and stock, and to enable Windows users to receive video and digital broadcasts over land lines, satellite and cable.
"This acquisition is the cornerstone of our long-term effort to combine the best of the Internet and the best of digital television technology," says Craig Mundie, senior vice president of the consumer platforms group at Microsoft.
WebTV Networks founder Steve Perlman says he was "shocked and surprised, but delighted" when Mundie "popped the question" to WebTV Networks in February, but emphasises "how excited and delighted we are to be members of the Microsoft family,"
Under the purchase agreement, which is subject to regulatory approval, the 20-month-old WebTV Networks will operate as a subsidiary of Microsoft, retaining its Palo Alto, California, offices and staff. More than half of the purchasing price will be paid in offerings of Microsoft stock to WebTV employees.
Microsoft expects to report an acquisition write-off of 50-60% of the value of the deal after it is completed either in its June or September fiscal quarters. The firm will have more details when it reports its latest earnings results April 17.
Meanwhile, Microsoft will include its digital broadcast architecture and NetShow multimedia streaming software in the next version of Windows, code-named Memphis, which will be in beta testing late this year, and Windows NT version 5.0. The technologies will allow users to view TV programs and Internet broadcasts on PCs or TVs connected to PCs, as well as interact online, receive personalised content and use a remote-control device. The enabling hardware will add a "nominal amount" to the cost of PCs, according to Microsoft.
The inclusion of broadcast technology into Memphis is not expected to delay its delivery to users or to affect OEM (original equipment manufacturer) pricing. Microsoft has not made any final decisions on pricing of upgrades to Memphis, according to Mundie.
New versions of Windows will offer a common data networking capability built on broadcast, cable and satellite services with speeds ranging from 9600bps to 30Mbits/s with satellite. Users will only need to add a digital tuner card to their existing PCs when broadcasters begin to transmit digital signals.
Meanwhile, Microsoft and Intel have outlined a proposal for how broadcasters can send data over the airwaves for consumption by computer users as early as next year. Microsoft will publish a specification for configuring consumer and entertainment devices as part of the Windows Hardware Engineering Conference in San Francisco this week, Mundie says.
Microsoft has submitted to the Internet Engineering Task Force a proposal for sending Internet protocol (IP) data packets over existing land-based television broadcast networks using the IP Multicast protocol.
IBM Corp. and NBC have jumped in to support Microsoft's PC-TV plans. "TV will never be the same again, and today's announcement is just the first step toward a larger vision of easy-to-use connected information and entertainment appliances and devices that IBM believes will ultimately be a part of every home," Brian Connors, vice president of IBM's consumer division, said in a statement.
"We anticipate that our digital television signal, in the future, will be received by computers as well as digital television sets," says Marty Yudkovitz, president of NBC Interactive, which has a partnership with Microsoft in the MSNBC network services for TVs and PCs.
With the WebTV acquisition, Microsoft can boost WebTV's client side technology with Microsoft's Internet Explorer browser and Windows CE operating system technology. Meanwhile, Microsoft Network (MSN) and WebTV will combine efforts on providing Internet access and make money off advertising, subscriptions for different levels of service and transactions make online, officials said.
WebTV Networks offers a Web-to-TV network service and licenses its WebTV Reference Design for TV set-top boxes to Philips Consumer and Sony. Those firms build systems that allow people to access the Internet using a TV remote control. The deal with Microsoft will not affect those licenses, Perlman says.
Microsoft and WebTV have been working together on TV-Web browsers since September when Microsoft made an unspecified investment in WebTV.
Besides Microsoft, Compaq and Intel, companies that will develop technologies and services for the new versions of Windows include IBM; AST; Rockwell Semiconductor Systems; DIRECTV Japan; Fujitsu Ltd.; Hitachi Ltd.; Mitsubishi Electric Inc.; Nippon Telegraph and Telephone Corp.; Samsung Information Systems America; Sanyo Electric Co. Ltd.; SGS-Thomson Microelecronics Inc.; Sharp Corp; Sony; and Toshiba corp.
WebTV Networks in Palo Alto is at http://www.webtv.net/.