The decision comes a day after European cable group UPC announced it would not include Microsoft software in its set-top boxes. In Europe, Microsoft’s strategy of buying stakes in cable groups to promote its iTV software has been scuppered by the software’s quality. Unless Microsoft gets the software working well enough soon, it risks the same happening in the US.
Microsoft is backing Comcast’s bid for US cable operator AT&T Broadband.
Microsoft (MSFT) has decided to back Comcast (CCZ) in its bid for AT&T’s cable subsidiary, AT&T Broadband. Various cable groups, including AOL-Time Warner, submitted bids to meet a deadline on Monday. It had been rumored that Microsoft (which has invested $5 billion in AT&T already) would invest another $5 billion in AT&T Broadband rather than risk AOL taking control.
Meanwhile in Europe, UPC (UPCOY) has said its digital TV offering will not include Microsoft software, despite the IT giant’s 6% stake. UPC has seven million cable TV subscribers and currently only offers basic digital TV services. It has been trialing Microsoft’s interactive TV platform for the last 18 months, but has decided it does not work well enough. Instead, it looks likely to use software from competitor Liberate whose API is proven.
It’s clear what Microsoft is trying to do. Interactive TV is set to be huge: in Europe alone, Datamonitor expects 33.1 million digital set-top boxes to be shipped in 2005. Interactive TV services will be a serious rival to PC-based offerings, threatening Microsoft’s core market. Microsoft would clearly rather ensure it dominates in both camps than risk losing out.
Buying stakes in cable companies seems like a good way to improve its software’s chances – for example, if the Comcast bid succeeds with Microsoft backing, the company will be rather more willing to use Microsoft in its set-top boxes. But as the UPC example shows, cable operators aren’t willing to sacrifice their iTV prospects to please a minority shareholder. If Microsoft can’t deliver the technology, its cable holdings will not pay off.
The situation in European TV looks bad for Microsoft: despite holdings in UPC and the UK’s Telewest, it has missed the chance to get its software in place. The US market is now key to the company’s iTV hopes. If it can get its platform working properly in time, Microsoft’s deals with AT&T, DirecTV and Charter should secure its position. If not, its consumer strategy will be in tatters.