Extending its costly drive to become the dominant software provider for a new generation of digital TV services, Microsoft said Monday that it will invest $407 million in Rogers Communications, Canada's largest cable TV operator.
The investment will eventually give Microsoft as much as a 9.2% share of the cable firm.
Rogers also said it will use Microsoft software on a million digital set-top boxes as well as in the computers that will provide various interactive television services to its subscribers.
Both Microsoft and Rogers said the software giant's investment and the cable company's decision to deploy its software were unrelated. Ted Rogers, chief executive of the Toronto-based cable company, said he chose Microsoft technology based on an independent evaluation of the software rather than because of the Microsoft investment.
But analysts say Microsoft is clearly using its large cash hoard to buy itself a strong presence in the emerging market for interactive TV.
"I don't know of any discussions going on related to [Microsoft's digital TV technology] where investments aren't a part of the discussions," said Richard Doherty, head of research at Envisioneering Group, a Seaford, N.Y.-based market consulting company.
In a similar deal earlier this spring, Microsoft invested $5 billion in AT&T; in exchange for AT&T;'s agreement to use Microsoft software on set-top boxes for 10 million AT&T; cable customers.
Doherty and other analysts expect many similar deals to follow as debt-laden cable companies look to Microsoft to help defray the high cost of renovating their networks to carry new interactive technology.
Microsoft's investment in Rogers consists of its purchase of Rogers preferred securities carrying an interest rate of 5.5%. They are convertible into Rogers Class B common shares at about $23.80 a share. Rogers shares closed Monday at $20.87 in U.S. dollars, up about 8 cents, on the Toronto Stock Exchange.
Microsoft will also receive 5.33 million warrants to buy Rogers Class B shares at the same price within three years. If Microsoft exercises all the warrants, it could end up owning 9.2% of Rogers.
Just as Microsoft's $1-billion investment in Comcast Communications two years ago sent cable stock prices soaring in the United States, the Rogers deal boosted shares of Canadian cable companies. Montreal-based Cogeco Cable, for example, rose 7.5 % following the news.
Rogers is considered to be among the most sophisticated cable systems on the continent, with about 90% of its cable network already upgraded for digital communications. The company plans to begin delivering such digital services as games, Internet access and electronic commerce next year.