Microsoft Soups Up the Set-Top

News Analysis Light Reading 9/9/2005

AMSTERDAM -- Microsoft Corp. (Nasdaq: MSFT) made the biggest splash during the opening day of International Broadcasting Convention (IBC) 2005 with some set-top box initiatives that will tighten its grip on the carrier IPTV sector (see Set-Top Boxers Support MSFT).

Microsoft has built a strong position for its IPTV middleware in the telco TV market during the past two years, announcing the sector's most high-profile customer wins and securing a partnership with one-time rival Alcatel (NYSE: ALA; Paris: CGEP:PA). (See BellSouth's Smith Details IPTV Plans, Telecom Italia Trials IPTV, Microsoft Wins at BT, Swisscom IPTV Stall Sends Shivers, Alcatel & Microsoft Going Steady, SBC Awards Microsoft $400M IPTV Deal , and Verizon Makes Microsoft Video King.)

With deals like that under its belt, it was only a matter of time before set-top box manufacturers would want to build products that could interact with the network-based software. Today, French vendor Thomson (NYSE: TMS; Euronext Paris: 18453) and its partner Intel Corp. (Nasdaq: INTC) announced the commercial availability of the IPM11xx set-top boxes "that support Microsoft TV's IPTV Edition," while Motorola Inc. (NYSE: MOT) and Scientific-Atlanta Inc. (NYSE: SFA) are among those set to launch similar products.

Both Motorola and Scientific-Atlanta have already been awarded deals by Microsoft IPTV customer SBC Communications Inc. (NYSE: SBC). (See SBC Taps Motorola and SA.)

And to help expand its influence on set-top box makers even further, Microsoft is working with chip firms to develop low-cost system-on-chip products that can be used by the set-top box firms to make cheaper units more quickly. Sigma Designs Inc. is the first chip firm to have made such a product commercially available.

Sigma says that because its SMP8634 processor incorporates support for such features as high-definition TV (HDTV) and multiple video codecs, including MPEG-4, that this will make it easier and cheaper to build set-top boxes. The chip can also be used in other domestic entertainment products, such as TVs, DVD players, and gaming units.

But would products using that chip only work with Microsoft's IPTV middleware and not systems from rivals such as Minerva Networks Inc., Myrio Corp., and Orca Interactive Ltd.?

Absolutely not, claims Microsoft TV's marketing chief Ed Graczyk, who says other players in the sector have been spreading "totally false" rumors about the proprietary nature of his company's IPTV developments: "These chips will work with other systems, too, though we believe the best experience would come from using them with the Microsoft solution."

He says the cost of a set-top box using such a chip would depend on what other functions were incorporated into the product, but says this initiative is part of a drive to help reduce the cost of making a set-top box from $150 per unit last year to $70 by 2007.

Graczyk didn't have any customer news, but he noted that the full version 1.0 of the Microsoft IPTV Edition software platform would be shipping to telco customers in the next few weeks. Up to now, carriers have been testing and trialing beta versions that haven't included the full range of IPTV management functions.

Microsoft isn't the only company announcing a pre-integrated IPTV chip at the IBC show. One of its smaller rivals, Orca Interactive, has been working on the same concept with Texas Instruments Inc. (NYSE: TXN) (see TI, Orca, ANT Join Forces ). And that's not Orca's only IBC announcement (see Orca Gets Flash at IBC , Energis Upgrades Its MetaSolv, and Dansk Bredband Picks IPTV Suppliers). Other news from IBC includes:

— Ray Le Maistre, International News Editor, Light Reading