Microsoft Gets 20% Stake in Intertainer

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In a deal worth $56 million, Microsoft Corp. agreed last
week to buy 20 percent of Intertainer Inc., forging an alliance to bring
entertainment-on-demand to consumers via Intertainer's broadband service.

"It's huge," Intertainer president and co-CEO
Jonathan Taplin said of the Microsoft connection. "All of their technologies, all of
the capital support will help [us to] build faster."

The companies will cooperate to hasten wide-scale
deployment of Intertainer's best-of-breed content-aggregation service. New Hollywood
releases, classic films, music, television programs and shopping will be available on PCs
and television sets via Intertainer's service over cable and digital subscriber lines.

"We believe that Microsoft has a very significant
stake in making interactive television," Taplin said. "They put their money
where their mouth is."

In an attempt to move into cable, Microsoft has made
significant investments to position itself in the industry, including $5 billion in
AT&T Corp., up to $3 billion in Telewest Communications plc and millions more in NTL
Inc. of the United Kingdom and Brazilian pay TV outfit Globo Cabo S.A.

As part of the agreement, Intertainer will become the
preferred broadband-content-service provider for Microsoft, and it will be offered as a
service to network operators that license "Microsoft TV" platform software.

In addition, Microsoft will become the preferred technology
provider for Intertainer, which will use Microsoft "Windows Media" technologies
to deliver high-quality music and full-screen video entertainment to PCs and TVs.

Taplin said the Microsoft deal will allow Intertainer to
provide richer applications. "This allows us to do very interesting interactive-TV
programs … and cross from advertising to related Web sites. It allows us to do many
things [in television] that we're able to do on a PC," he added.

Microsoft joins an impressive array of companies that have
stakes in Intertainer. Comcast Corp. -- which itself acquired a $1 billion investment from
Microsoft in 1997 -- Intel Corp., NBC, Sony Corp., Sterling Investment Partners and U S
West have all pumped money into Intertainer, betting that video-on-demand is the wave of
the future.

Taplin said one of the advantages of working with Microsoft
is that unlike cable companies, the software firm is able to push new features faster.
"Microsoft is trying to build an open architecture," he added. "We are
marrying into one seamless service."

So far, Intertainer's content has been available only on
PCs. The company said it would soon begin trial runs with Comcast on set-top boxes, which
will allow consumers to view its products on television.

While Microsoft's investment is modest compared with other
deals it has cut in recent years, the partnership with Intertainer expands the company's
foray into the worlds of cable and the Internet.

"The way we look at it, the Internet is as about as
big today as Wheel of Fortune or Jeopardy," said Alan Yates, director
of TV-platform marketing for Microsoft. "We see that what we're all about is to build
on the Internet and Internet standards and to take it to a completely new mass-market
level."

Microsoft is following a two-pronged strategy, Yates added.
One is the company's WebTV Networks system, which allows consumers to play along with
their favorite television game shows, find what they like with interactive show listings,
automatically program their VCRs, send e-mail and surf the Net.

Microsoft also wants to take the software that underlies
new technologies and find partners that provide content.

Yates said Microsoft views 2000 as the breakthrough year
for television services over broadband. To that end, the company is working with
distributors of set-top boxes, like Comcast, to achieve the technical and content synergy
it is hoping for.

While both companies lauded their new partnership, some
analysts said it is simply one of many similar deals being cut.

"You're seeing a lot of deals like this," said
Ted Henderson of Denver's Janco Partners. "Intertainer is talking about providing
releases of old and new films via services over cable … Doesn't that sound like 100
business plans?"

However, Paul Talmey, president of Talmey-Drake Research
& Strategy Inc., said it was almost a necessity for Microsoft to forge relationships
with content providers if it is to be a player in the cable industry.

"All of the companies in this industry are out
covering all of the bases they can," Talmey said. "You really can't have 1,000
different companies delivering content on television. These companies have to get together
to get the marketing clout."

Henderson said Microsoft's bet on Intertainer might pay off
in the long run. "Microsoft is placing a lot of bets, and you've got to like the way
they've placed bets historically," he added.

Intertainer also said last week that it would work with
Artisan Entertainment to develop, produce and distribute five feature-length motion
pictures to be shot and edited in digital form. Intertainer would showcase the films on
its entertainment-on-demand service, while Artisan would keep domestic rights to the
features.

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