Microsoft Restructures TV Unit to Focus on Software and Services

Barely a year after launching its UltimateTV video recorder with great fanfare, Microsoft Corp. is splitting up the engineering team behind it and designing no more new versions of the hardware.

Instead, the company will focus on developing software and services for all the major brands of hard-drive-based video recorders, including UltimateTV, said Bruce Leak, the head of Microsoft’s new TV services group.

The move came as part of yet another restructuring of Microsoft’s troubled TV efforts.

Of about 500 people working on UltimateTV in Mountain View, Calif., two-thirds will be reassigned to the TV services group and Microsoft’s Xbox team, and the positions of almost 170 will be eliminated.

Leak said Microsoft will continue offering and supporting the UltimateTV service, which is available through DirecTV.

The company recently demonstrated new features for the UltimateTV software, and Thomson Multimedia still plans an upgraded version of its RCA UltimateTV receiver.

UltimateTV is one of several brands of personal video recorders, which store programs digitally on a hard drive instead of VHS tapes.

The main difference between UltimateTV and its competitors, including recorders from TiVo Inc., Sonicblue Inc. and EchoStar Communications Corp., is its ability to log on to the Internet for Web pages and e-mail.

Sales of personal video recorders have fallen short of analysts’ expectations, with estimates putting UltimateTV below 100,000 subscribers. By contrast, 1.5 million Xbox game consoles have been sold since November.

Some analysts suggested that the company was shifting its bets, counting on Xbox to carry Microsoft’s TV technology into homes. But David Hufford, an Xbox spokesman, said the UltimateTV engineers assigned to the Xbox team will be dedicated first to cutting the cost of the game console, not to expanding its functions.

Microsoft plans to offer a complete package of software for video recorders and services that could enhance any manufacturer’s hard-drive-based models.