The Wall Street Journal cites "people familiar with the matter" as confirming that Microsoft has developed a simple new class of set-tops designed to stream video "and other entertainment options" to viewers. Recent prototypes of the set-top also feature integration with Microsoft's Kinect motion-control technology.

While Microsoft appears to be working on the new set-top, there are no confirmed plans for a commercial launch. Depending in part on the roadmap for the popular Xbox game console, the company's proposed media streamer may never make it to retail stores. Plans call for Microsoft to unveil its latest version of the Xbox next week, setting up a battle with Sony's upcoming PlayStation 4 console this fall.

Microsoft's struggle to enter the TV market is a long and tortuous tale. Most recently, the company sold off its Mediaroom middleware product line to focus on the Xbox 360 for TV delivery. With the next Xbox due out shortly, there are reports that Microsoft will make a new land grab by offering a feature that overlays its own TV interface on a cable video feed. (See Microsoft's Pursuit of 'Input 1' and Does Xbox Have a UI for Cable?)

At the same time, however, many other companies are converging on the same retail TV space. In addition to products from Apple Inc., Google, Boxee, Roku Inc., and others, Amazon reportedly has a retail set-top slated for launch this fall. (See Amazon Set-Top Slated for Fall.)

Interestingly, the feature sets for the different retail set-tops vary in focus. Some set-tops tie to a specific app store, while others are less proscriptive. Some center primarily on transactional media purchases, while others highlight subscription services.

As a result, Microsoft could find itself smack in the middle of a fragmented but growing market.

— Mari Silbey, Special to Light Reading Cable