Microsoft Changes ITV Channels

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Microsoft Corp.'s struggling interactive-TV unit confirmed last week that it would shift focus toward a simpler broadcast-oriented product line — and in the process would pink-slip 60 employees.

Industry observers see the move as a tacit acknowledgment that the software giant's grand vision of advanced ITV didn't fit with reality, and had to change.

The realignment, which follows a consolidation of Microsoft's TV-software units earlier this year, is the result of an ITV market re-evaluation, according to Microsoft TV platform group director Ed Graczyk.

"As part of the new strategy, we have decided to focus on fewer things, do them better and better integrate with other areas of Microsoft," he said. "So we will be relying more on technology from other groups than we have in the past, which means we don't have to do that development in our division.

"And so, of course, the natural result of that is efficiencies across the organization."

That includes eliminating 60 positions, or about 10 percent of the TV division's 600-plus work force. The layoffs ranged across all job categories, including marketing, development and testing.

Another 140 former UltimateTV unit employees who could not find positions elsewhere with Microsoft also collected their final paychecks last week.

Meanwhile, the new-market strategy will center on products that can generate revenue for customer MSOs. Microsoft also will pare down its ITV software line to focus to video-centric ITV.

"Whereas a lot of our focus before had been on broadband ITV, the focus moving forward, and this one pillar of the new strategy, will be on broadcast ITV," Graczyk said. "So that means our solutions will enable ITV on a full range of devices, from DCT-1000s all the way up. Operators can roll out the software on set-tops they have in the field, as opposed to rolling out new advanced set-tops."

Microsoft TV also will also focus on creating software products for digital media boxes, such as the Broadband Media Center platform jointly developed by Digeo Inc., Motorola Inc. and Charter Communications Inc. These media centers combine digital-cable functions with home networking, allowing customers to distribute audio and video files between multiple TVs and devices.

To further streamline operations, Microsoft TV would rely more on other Microsoft software units.

In particular, it can tap a Windows XP unit dubbed eHome, which works from a PC-based multimedia center system called Freestyle.

"A lot of the functionalities would be similar" to a TV-based media gateway, Graczyk noted.

But Graczyk insists the Microsoft TV Advanced middleware platform for Motorola's DCT-5000 is not a casualty of this realignment. Although the middleware system has been deployed overseas, Motorola has yet to land a U.S. rollout.

"That's still there, and in fact you will hear a little bit more about that at NCTA," Graczyk hinted. "It turns out what MicrosoftTV does on a DCT-5000 today is quite a long way toward what the media center does."

Like other industry observers, International Data Corp. digital TV analyst Greg Ireland said Microsoft's realignment was a market reality check.

"Their previous strategy had been very much centered on the DCT-5000," Ireland said. "I see this reorganization as sort of a public acknowledgment that they have learned some lessons, and now they need to refocus on where they think they can add value in this space."

Part of that is an understanding that low-end boxes are here to stay, but it also indicates that Microsoft is open to options for advanced boxes beyond the DCT-5000.

"Overall, even though we see layoffs and we see reshuffling, the understanding that I get from Microsoft is this actually might be good news," he said. "And it demonstrates that they have refocused their strategy and seem to have a clearer understanding of where the cable industry is today and where it may go in the future — as opposed to simply sitting back and continually reiterating DCT-5000s are on their way."

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