Microsoft Shuts Down UltimateTV Unit

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Microsoft Corp. last week confirmed reports that it had shut down its 420-person UltimateTV division to shift internal resources to other TV-centric operating units within the company.

UltimateTV combines personal video recording functions with television-based Internet access and is currently available to DirecTV Inc. subscribers who own compatible direct-broadcast satellite receivers. About 100,000 UltimateTV receivers have been sold, according to analysts' estimates.

About 252 employees from the UltimateTV division have been moved to other divisions, both at Microsoft's Silicon Valley campus in Mountain View, Calif., and at company headquarters in Redmond, Wash., Microsoft spokeswoman Erin Brewer said.

Brewer said Microsoft would continue to support current UltimateTV subscribers and expects future software enhancements to help attract new customers.

Though Microsoft will no longer develop new hardware specifications for UltimateTV set-top boxes, it will continue to introduce new software features, including the ability to activate the recording function remotely via the Internet.

"We don't see any real implications of this announcement, for either current UltimateTV subscribers or any we might acquire over the near term," DirecTV executive vice president of marketing and product development Larry Chapman said. "We don't anticipate any disruption of service to our subscribers."

Late last week, Thomson Multimedia spokesman Dave Arland said, "I would encourage people not to read too much into this."

Thomson plans to take over the UltimateTV set-top design tasks that had been Microsoft's responsibility in the past, Arland added.

At the recent Consumer Electronics Show in Las Vegas, Thomson showed a new DirecTV/UltimateTV receiver with a 70-hour hard drive.

Sony Electronics Corp. also produces DirecTV/UltimateTV boxes. Competing consumer-electronics manufacturers make DirecTV receivers with built-in PVRs from TiVo Inc.

DBS PVR PROSPECTS

The long-term viability of the DirecTV-compatible PVRs has come into question, given the proposed merger of DirecTV parent Hughes Electronics Corp. and EchoStar Communications Corp.

The DBS companies have not publicly said which PVR platforms would be favored following a merger.

Microsoft was EchoStar's first PVR partner and helped the DBS provider develop technology for its DishPlayer. EchoStar continues to offer a monthly subscription service to DishPlayer customers, but no longer produces those set-top boxes. EchoStar has since moved to the DishPVR, a unit designed in-house.

EchoStar also has a new relationship with start-up Moxi Digital Inc., which could design software applications for future DishPVRs.

Today, UltimateTV and TiVo each charge subscribers about $10 a month for their PVR service, while the new DishPVR has no monthly fee.

"It's hard to say" whether the DBS merger would change DirecTV's relationship with UltimateTV, Brewer said. "It's out of our control."

EchoStar spokesman Marc Lumpkin said an EchoStar/DirecTV transition team is looking at the issue of which satellite-receiver technology would be used following a merger.

Chapman would not disclose DirecTV's PVR subscriber base, but noted DBS had its best period ever in all set-top categories, including PVRs, in the fourth quarter of 2001. PVR customer satisfaction is very high, especially for units integrated into a DBS receiver, he added.

It turned out UltimateTV's TV-based Internet service — like that of its predecessor WebTV Networks Inc. — wasn't of interest to many people, Bernoff contended.

"It confused the market without adding many benefits," he said.

SET-TOP IMPLICATIONS?

Brewer said the movement of some UltimateTV engineers to the Xbox division should not be seen as a shift in Microsoft's strategy for the game console, despite speculation that Microsoft planned to integrate Xbox gaming and UltimateTV PVR functionality into one set-top.

"Goal No. 1 for Xbox is to be a premiere game console," Brewer said. "In the relatively near term, that's the focus."

Josh Bernoff, a Forrester Research Inc. analyst who follows the PVR category, said speculation that UltimateTV and Xbox set-tops would be integrated doesn't hold up to scrutiny, because they don't require the same components. And the addition of costly PVR components could slow Xbox sales in the price-sensitive — and highly competitive — game-console sector.

"Will the Xbox turn into the next PVR? I think the answer is no," Bernoff said.

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