Microsoft Throws Weight Into IPTV Battle Against Satellite

The competition for satellite pay-TV operators is getting more intense around the globe, with traditional rival cable now joined by a growing number of telcos eager to gain a slice of the lucrative pay-TV market. While some direct-to-home (DTH) satellite operators have formed partnerships with telcos, the reality is telcos look to be strong competition going forward.

An area where telcos could gain an edge in this sector on satellite players is the involvement of software giant Microsoft Corp. Currently, Microsoft TV is developing a software platform for telcos to deploy TV and already has a number of contracts with players such as Verizon, Deutsche Telekom (DT) and BT, among others. So, what impact will Microsoft have in the TV sector and secondly what impact will a strong Microsoft TV platform have for DTH players?

Bob Larribeau, a media analyst at MRG told Satellite News, "I think the GUI (graphical user interface) and features such as PIP (picture in picture) position Microsoft well ahead of cable and satellite competitors. The cable and satellite services are limited by the functionality that can be provided by software that runs on the set-top box, which is a closed-end approach," he said. "The Microsoft approach uses network resources in addition to the set-top box to provide features, which is an open-ended approach."

Michelle Abraham, a media analyst at In-Stat added, "I believe the two-way network gives cable and telecoms advantages over DTH. Microsoft has capitalized on these, and I do not see how they can be replicated in the DTH platform," she said. "Microsoft has made all providers pay closer attention to their user interface. In the long term, I do believe Microsoft TV could use a proven and tested IPTV Edition platform to develop a similar software platform for the cable market if Microsoft’s telco partners gain large numbers of subscribers at the expense of cable competition and Microsoft’s platform is deemed the reason for their success."

Slow Start

Despite the potential of the Microsoft TV platform, there are still many questions, and commercial deployments of the platform have lagged expectations, said Larribeau. "I have been surprised," he said. "A year ago, Microsoft told me that it would be ready with the release that it was making in [the first quarter] of this year. It has missed this pretty badly." Larribeau believes the technology needs to start proving itself soon. "I believe, and everybody I talk to believes, that Microsoft will resolve its problems and produce a product that works, but I believe that they need to turn around the situations with AT&T and DT, and make BT a success in short order. If it fails to do this, then it will have a difficult time recovering. It is difficult to say when the tipping point will occur, but I think that Microsoft needs to resolve these problems by the end of the year."

The challenge now for Microsoft TV is to get its technology out there and prove that it will be successful, a responsibility that falls on Enrique Rodriguez, who was appointed corporate vice president of the Microsoft TV division earlier this year. "We are on the last stages of working with our key customers and ecosystem partners to bring IPTV to commercial deployment," he said. T-Online France was the first European customer launching services in June under the Club Internet brand. DT and BT expect to launch services by the end of the year. "We currently have 15 customers either in trials or initial limited commercial rollouts. So we are in the last throes of tailoring the product for each of our customers’ mass-market, commercial launches this year," he said.

Rodriguez believes these delays are understandable and compares the rollout to the launch of digital satellite. "The teams are working really hard and the reality is there have been a few changes to the schedule, but nothing I would consider material, given the scope of what we are trying to achieve," he said. "You have to put this in the context of a pretty major change in the way television is being delivered. The only fair analogy I make today is when you go back to 1994 when the first deployments of digital satellite occurred. We had lots of conversations back then related to whether things like MPEG-2 were going to work, for example. So when I look at the IPTV industry today, and at the context and the dramatic change we are bringing about with our platform, I am more than satisfied with the fact we are moving into commercial rollout."

Rodriguez would not comment on rumors that problems with the platform must be resolved before the service can really be launched. "I am not going to measure my success on whether the rumors stop," he said. "The truth is it would only have limited impact. What will have the most impact is when the industry sees what we are doing with our customers and consumers can touch and feel the services for themselves. I am very confident that when other service providers see what we’re doing with our customers they will think about taking the same train and expect you will see major commercial deployments from us by the end of 2006."

Analysts are also confident that Microsoft TV will prove itself here. "All middleware choices are risky as none of the providers using them have reached more than a few hundred thousand subscribers," Abraham said. "So in that sense they are all unproven and a risk. As Microsoft is a large company, telcos did not have to worry about them going out of business. Microsoft TV does have the resources to keep improving their product until it meets and then exceeds expectations."

Larribeau added, "I expect that Microsoft will resolve its problems sufficiently so that most if not all of the major service providers that such as AT&T, Deutsche Telekom, and BT will remain with Microsoft."

Grand Expectations From Microsoft

However, with such huge resources available, few would bet against Microsoft making a major impact in this space. "Every time we have a review, the thinking is big, big, big," Rodriguez said. "Our expectations in any business are of scale. We entered this business with a conviction that the experience of entertainment services on television is about to undergo a major change. We want to be the driving force of that major change. We have very high aspirations of the business that will be created, both for our ecosystem partners and also for ourselves. We’re here as a business. Like any other major-scale business, you want to invest before you have reasonable expectations in terms of profits. I am pretty comfortable that this will be a strong business in Microsoft’s portfolio."

Microsoft believes the power of software ultimately will create a much richer TV experience. "In 10 years, digital will clearly be the way that most revenues are generated in TV," Rodriguez said. "Together with the digital transition, I think 10 years from now, the power of software on television will have been unleashed. The best analogy I can give you is to rewind seven to eight years ago when browsers were becoming something known such as Internet Browser 3.0. No one thought that browsers then would deliver you services such as Amazon.com, MSN Live, Google, iTunes. No one would have envisioned back then these sorts of things would be done over the infrastructure. Back then, it was about a revolution in communications."

Rodriguez believes the way we think of television will dramatically change. "Today, we think of video entertainment in a very fragmented way," he said. "We think of live television, cable television, satellite television. No one confuses that with the video you get from MSN Video, Youtube or the small clips from the BBC news site, although it is all video. However, it is all some form of video and entertainment that really has no reason to be fragmented. The only reason why it is fragmented is because the infrastructure technically is fragmented today. I think the IP infrastructure is going to blur that distinction, and that fragmentation will blur. In 10 years’ time, consumers will be able to watch whatever entertainment they want without having to worry about which video service bucket they are getting it from."

It is this vision of the future that is propelling the Microsoft TV vision. If Microsoft is successful in this space, it is likely that its software will give telcos an edge in terms of the user interface over satellite and cable. "I expect Microsoft will be at the forefront of innovation over the next 12 months, but we need to understand that at the end of the day this is a consumer service and that it must evolve at the pace of the consumer," Rodriguez said. "It is the service providers who have to show innovation at the service level. Our role is to provide them with all the tools so they can do that in the most effective way. We will have to work hand-in-hand with service operators in order to do this. Identifying service opportunities and prioritizing them will be the biggest challenge. We could easily fail by trying to do too much too fast."

However, Rodriguez is confident that the Microsoft TV platform will showcase the power and flexibility to give telcos an edge over satellite and cable. "I think 12 months from now you will start to see the first major utilization of some of the core software features of Microsoft TV IPTV Edition which significantly differentiate the platform from existing digital pay-TV networks. The fundamental difference is that we ride on a pure IP network, so we can continuously evolve our offering and add more and more advanced services to our customers and to their subscribers. Twelve months from now, I suspect we are going to be talking about the next phase of this industry."

–Mark Holmes

Contact, Geraldine Grewal, Weber Shandwick (For Microsoft TV), e-mail, [email protected]

Michelle Abraham, In-Stat, e-mail, [email protected]

Bob Larribeau, MRG, email, [email protected]