TCI, Microsoft Join Forces in On-Line Service Venture : Telecom: Delivery over cable TV lines would greatly enhance computer graphic and video transmissions.
In a deal that solidifies the ties between the most powerful players in cable television and computing, cable operator Tele-Communications Inc. said Wednesday that it has invested $125 million to acquire a 20% stake in Microsoft Corp.’s upcoming on-line network.
The agreement is likely to hasten efforts by Microsoft and other on-line vendors to offer their services via high-capacity cable TV lines--and puts TCI in the forefront of the cable industry’s efforts to move into new, computer-oriented information businesses.
Microsoft plans to launch its on-line service--the Microsoft Network--in conjunction with its new Windows 95 operating system, now scheduled for delivery in August. It will initially be available via conventional telephone lines, but the TCI agreement raises the likelihood that Microsoft will move quickly to other delivery mechanisms such as cable.
For TCI, the nation’s largest cable operator, the move reflects a commitment to the delivery of interactive services over its network--and a desire to take a cut of both content and delivery. Through its Liberty Media affiliate, TCI may provide programming for the Microsoft Network as well.
On-line services, which provide information, entertainment and communications services to users of personal computers, have grown explosively over the past year, and Microsoft’s entry into the market is expected to draw even more new customers. But all the services are handicapped by the low speed of standard telephone lines and their resultant inability to effectively handle graphics and video.
Delivery over cable would solve this problem. All the leading on-line service providers--Prodigy, America Online and CompuServe--are experimenting in tests with cable operators.
Analysts said the Microsoft-TCI deal would probably spur the development of cable modems and other equipment needed to make these so-called broad-band on-line services viable. In turn, information and entertainment producers may be quicker to develop products for the on-line medium, and for Microsoft in particular. The two firms said they expect the service to be available over cable in early 1996.
“We’re big believers in connecting PCs to cable for on-line because it gives us more bandwidth to use applications like audio and video, and it’s important to send a message to information providers that we are going to be able to provide that bandwidth through the Microsoft Network,” said Russ Siegelman, general manager of Microsoft’s on-line services group.
TCI said it will not enter an exclusive distribution agreement with Microsoft, but the deal is expected to give the firm’s on-line offering a leg up on the competition.
Microsoft’s as-yet-nonexistent service has already struck fear in the hearts of the existing on-line service companies. About 60 million Windows users will receive instant access to it when they upgrade their software.
One casualty apparently was the price for Ziff Communications Co.’s Interchange on-line service, which reportedly plunged from $150 million to $50 million after Microsoft announced its entry. Published reports said Tuesday that AT&T; has won the bidding for the service.
The on-line deal is part of a growing alliance between TCI and Microsoft and is the first to include an equity partnership. The companies are conducting an interactive television test using Microsoft’s Tiger server software.
The investment was made in TCI common stock. Microsoft rose $1.625 to $61.50 on Nasdaq, while TCI shares slipped 12.5 cents to $21.25.
