Microsoft Falling Behind On Software For Set-top Boxes
By Laura Raun / Bloomberg News
REDMOND, Wash. -- Microsoft Corp. is having trouble persuading
cable-television companies to use a computer operating system that it
trumpeted as the brains behind the convergence of TV and the Internet,
analysts said.
No. 2 U.S. cable operator Tele-Communications Inc. is scaling back its
use of TV settop boxes using the Windows CE system to 1 million units
from a planned 5 million, said Abhi Chaki, an analyst at Jupiter
Communications. Microsoft, the No. 1 software maker, and TCI said
their January 1998 agreement still stands, with the first units set
for release early next year.
Aside from the TCI agreement, though, Microsoft has yet to announce
similar orders from any other major cable-TV companies. Cable
operators have hesitated buying CE-driven boxes, believing they're
more expensive and complicated than consumers need and are willing to
pay for in higher monthly fees, analysts said.
"The set-top boxes, particularly the ones Microsoft and TCI are
talking about, are overly engineered," Forrester Research analyst Tom
Rhinelander said. "They amount to a PC."
Set-top boxes are being designed to handle digital-cable TV,
high-speed Internet access and other services requiring greater
amounts of computing power. Cable operators are favoring boxes costing
around $200 that primarily provide digital video over those costing as
much as $500, such as CE-driven models, which also provide online
shopping and bill paying, analysts said.
"The cable guys are agnostic as to which operating system they use,"
Chaki said.
While CE has yet to be installed in any boxes, No. 2 set-top box maker
Scientific Atlanta Inc. has shipped 200,000 units containing its
PowerTV system and will ship 800,000 more in the next year.
CE is a slimmed-down version of the Windows operating system that can
run set-top boxes and other Internet devices. It was designed to take
Redmond, Washington-based Microsoft beyond the desktop computer and
into consumers' living rooms, opening up new markets.
In the past, Microsoft alienated some cable-TV companies by suggesting
that it wanted to set standards for digital TV. Cable operators
responded by insisting on set-top boxes that wouldn't be dominated by
any one company's software.
Windows CE, also used in handheld computers and cell phones linked to
the Internet, generated $47 million of revenue for Microsoft in its
fiscal year ended June 30, and will generate an estimated $125 million
this year, said J.P. Morgan analyst William Epifanio. For Microsoft,
building brand awareness could prove critical to its success in the
set-top box market. Starting in July of next year, consumers will be
able to buy boxes in retail stores, no longer reliant on cable
operators to make that choice, and Microsoft wants to be a recognized
name for box system software.
General Instrument Corp., the No. 1 set-top box maker, uses a
proprietary system on its units, though it agreed to install Windows
CE in future models, including those being sold to TCI.
Several analysts said they've been told that TCI plans to buy far
fewer CE-driven units because services such as video on-demand are less
important to its new parent, AT&T Corp., than local and long-distance
phone service delivered over cable lines.
"AT&T's priority is to get phone (services) in there," said Bruce
Leichtman, an analyst at the Yankee Group. Scientific Atlanta's
PowerTV-driven boxes are being deployed by 14 of the largest
U.S. cable operators, including Time Warner Inc., Comcast Corp., Cox
Communications Inc.,
Adelphia Communications Corp. and Marcus Cable Co., said Bow Rodgers,
PowerTV's chief operating officer. PowerTV also has had talks with
TCI, he said.
"They've looked at PowerTV as an alternative," Rodgers said. TCI
still is planning to buy 5 million CE-driven boxes, with unit testing
set for later this year, TCI spokeswoman Katina Vlahadamis said.
"We're quite happy with our work on the TCI project," said Alan Yates,
Microsoft's director of platform marketing. "TCI plans to start the
roll-out in the beginning of 2000 and will be determining then how it
goes from there."
The first set-top box of any type to use CE will ship by the end of
this year, Yates said, declining to give details.
CE also has yet to get into set-top boxes from Microsoft's WebTV
Networks, which lets TV users toggle between TV programs and the
Internet, using a box and subscription service. Originally sold as a
standalone service, WebTV now is being pitched to cable operators to
include in their overall service, analysts said.
Microsoft's goal "is to get it integrated into cable systems, but they
aren't there yet," Leichtman said.
In December, Scientific Atlanta and Microsoft announced plans to offer
WebTV to cable operators for use on Scientific Atlanta boxes and to
collaborate on the design of an advanced set-top box.
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