Microsoft, Sci-Atlantic pact on cable

Software giant stakes set-top claim

ANAHEIM — Microsoft Corp. Wednesday moved ahead in the emerging high-tech battle for control over television digital set-top boxes by announcing a deal with one of the major set-top box companies.

At the 1998 Western Cable Show in Anaheim, Microsoft said it had signed a letter of intent to provide Scientific-Atlanta Inc.’s cable system operators and subscribers with Microsoft WebTV service. The service would be offered on the Scientific-Atlanta Explorer 2000 advanced set-top box and digital interactive network.

This next-generation set-top box allows consumers to interact with new and existing services in their cable system and is capable of delivering Internet access, video on demand, electronic commerce and in-home networking.

WebTV, purchased by Microsoft for about $425 million last year, is the most widely used service that melds television and the Internet. Its main rival, NetChannel, went out of business and then was purchased by America Online in May.

Many industry experts feel the technology behind the device — which uses a standard phone line to send data — is being overshadowed by newer, higher-speed digital offerings that the cable industry is now trumpeting.

In fact, many at the show said that while Microsoft dominates the personal computer operating system market, cable operators were wary about embracing its software for the new set-top boxes and other gadgets that will allow consumers to watch TV, access the Internet and swap e-mail.

“This is the first step, but the next step is if the cable operators will say they are willing to use WebTV, which would generate the revenues for Microsoft,” said Eric Buck, analyst with Donaldson Lufkin Jenrette, who was at the show.

“A lot of cable equipment manufacturers and operators don’t want to use Microsoft products because they’re afraid of being locked into a system like the desktop operating system,” said a member of a Dallas venture capital firm.

Analysts said that by year’s end, more than 2 million digital TV set-top boxes will have been shipped, and that number should double in 1999.

Microsoft also said it was working with Scientific-Atlanta on the design of its next-generation set-top box that will run the Windows CE operating system and be based on the Microsoft WebTV television software platform.

“We’re committed to working with the cable industry to provide new technologies to cable customers,” said Steve Guggenheimer, Microsoft group product manager for digital television.

The WebTV Network currently has more than 500,000 subscribers.

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