Microsoft, NBC Outline Cable TV Plan : Internet: Software giant plans to pay $220 million to buy 50% stake in news channel that will replace network’s ‘America’s Talking.’

Microsoft Corp. and NBC-TV formally unveiled their partnership in a 24-hour cable television news channel Thursday, a venture underscoring the software company’s drive to dominate the Internet.

The joint venture is one of a series of marquee investments Microsoft is making in news and entertainment content that Bill Gates believes will help his company stake a powerful position as the Internet expands. This spring he linked up with DreamWorks SKG, and analysts expect a series of other major announcements.

“We believe in the world of interactivity,” said Microsoft Chairman Gates in comments beamed from Hong Kong to a New York news conference. “We’re bringing this world into broadcast.”

Microsoft will pay $220 million for a 50% share in MSNBC Cable, a new cable service that will replace existing NBC cable channel “America’s Talking.”

The two companies will also spend $200 million over the next five years to expand the cable venture and create MSNBC Online, a “technology-driven” online news service that will draw from NBC’s network of correspondents and huge archive of video clips.

“Bill Gates doesn’t want to be in the cable business--Bill Gates is in the information business, and he wants content for the Internet,” said Ed Atorino, media analyst for Oppenheimer Co. in New York.

Gates has been widely criticized for having underestimated the growth of the Internet, but he has now made it the centerpiece of Microsoft’s strategy for growth into the next century.

In the near term, the joint venture will probably have trouble competing with CNN. Bob Wright, chief executive of NBC, predicted that the new cable service will have between 25 million and 35 million viewers by the end of 1996. But it is still unclear how many cable companies will agree to cover the service.

CNN, the well-entrenched pioneer, has 67 million viewers and is included in the proposed merger of Turner Broadcasting System Inc. with Time Warner Inc., which would create the nation’s leading owner of cable service. And the news channel field is getting more crowded: ABC-TV plans to launch a competing 24-hour news channel in 1997.

The online world is also awash in newspapers, magazines, wire services and other companies that all want to offer the latest news with the slickest graphics. CNN said it gets 3 million “hits” a day at an Internet site that already offers the news, background text, photos and video clips MSNBC Online is promising for next year.

Microsoft offered few details on how it would differentiate its online service from the competition. Still, many analysts believe Microsoft’s deep pockets and its reservoir of technical talent will ultimately raise the quality of MSNBC’s online offering above those of its broadcast and online competitors.

“You’ll begin to see all this talent that’s been trapped in Microsoft begin to emerge,” said Nate Zelnick, editor of the Internet Business Report, an industry publication. “I haven’t seen Microsoft people so excited in years.”

Peter Neuphart, a Microsoft vice president, said someone watching the news on Bosnia could turn to the computer and get access to maps of the area, video clips of fighting in the region now and during World War II and historical information about why the region has been so prone to conflict.

A family concerned about the budget debate could call up Senate and House versions of the budget, plug in their income and other relevant numbers and get estimates of how each bill would affect their taxes, he said.

Initially, Microsoft hopes MSNBC Online will add muscle to Microsoft’s enfeebled online offering, Microsoft Network. The network, with 600,000 subscribers, is about a seventh the size of America Online, the largest commercial online service.

When Microsoft moves its service next summer from being a proprietary network only accessible to subscribers to a Web site accessible to all Net surfers, it will need special content to attract to its site as many as possible of the 10 million to 20 million people estimated to surf the Internet.

“The key is to get high market share and mind share,” Neuphart said. The more people who go to the Microsoft site, the more money Microsoft can demand from advertisers. Microsoft also hopes to entice more of those surfers to sign up for its network by offering special features, some of which may be tied to the news offering.

Analysts believe that it could be two years or more, however, before Microsoft and NBC’s real talents are reflected in an online offering accessible to the majority of Net users.

Today, most people connect to the Net using modems that are frustratingly slow for downloading still pictures, let alone news video.

A new generation of cable modems as well as high-capacity phone lines could change that by offering connections that allow users to quickly download pictures and offer passable performance for video clips.

Gates believes that these high-capacity connections, which he calls “mid-band” in contrast to today’s narrow-band phone lines, are in themselves merely transitions to the day when most homes have broad-band connections that give customers virtually limitless transmission capacity, including the ability to download movies from any site on the Internet.

That could be 10 to 20 years away. But Microsoft is betting that quality content like that produced by MSNBC will help speed the day when such interactive television services are available. Meanwhile, Gates hopes the content will encourage more people to buy computers and connect to the Net.

“This is a bet on tomorrow,” said Dan Rosenbaum, an editor at Netguide, an industry publication.

And Gates doesn’t seem overly concerned about the profitability of the venture in the near term. The venture “probably won’t make money for at least five or six years,” said Gates, “but it’s something we’ve decided to try.”

Helm reported from Seattle, Hall from New York.