Microsoft, Comcast to Test Set-Top Software

Microsoft Corp. finally may have something tangible to show for the billions of dollars it has invested in Comcast Corp.’s cable networks: a test run for its set-top box software.

Microsoft Chairman Bill Gates and Comcast Chief Executive Brian Roberts are expected today to announce that Comcast plans to try out the latest version of Microsoft’s cable TV software later this year. The location and extent of the trial were not immediately disclosed, nor were any financial terms of the deal.

If the trial goes well, a spokesman for Microsoft said, Comcast is committed to using the software in at least 25% of the new digital set-top boxes it puts in customers’ homes. Just how firm a commitment that is, and how large the deployment could be, remains unclear.

Microsoft invested $1 billion in Comcast in mid-1997, when the Philadelphia-based company was the No. 4 U.S. cable operator. But Comcast never deployed Microsoft’s products, working instead with such rivals as Liberate Technologies Inc. of San Carlos, Calif.

Two years later, Microsoft announced that it would invest $5 billion in AT&T; Corp., which was on its way to becoming the largest U.S. cable operator. As part of the deal, AT&T; agreed to try out Microsoft’s software for advanced digital set-tops in at least two cities.

But after software glitches delayed the trials, AT&T; abandoned the advanced set-tops in favor of cheaper, less powerful boxes that couldn’t run Microsoft’s programs.

Comcast bought AT&T;’s cable systems at a fire-sale price a year and a half ago, making Comcast the king of U.S. cable operators. And now Microsoft has a new version of its software that can run on the less powerful Motorola digital cable boxes that are widely used by Comcast and other cable operators.

Analyst Josh Bernoff of Forrester Research describes the new software as a crucial step forward for Microsoft after years of offering “the wrong product at the wrong time.” Now, he said, “it’s a lot closer to being the right product at the right time,” adding: “It doesn’t mean they win, but at least they get to compete.”

The competitive landscape has improved for Microsoft too. Liberate, which once was its strongest competitor for cable TV contracts, is in financial turmoil. And Hollywood-based Gemstar-TV Guide International Inc. lost a series of crucial patent fights, loosening its stranglehold over the market for electronic program guides.

Acknowledging the cable industry’s shift from the most powerful new set-top boxes, Microsoft started acquiring and developing programs for the lower-level digital boxes more than two years ago. Its first product was an interactive program guide, which two cable TV companies in Oregon and one in Mexico have deployed.

Its latest product is a software platform for set-tops that encourages consumers to use new services such as video on demand, while also giving cable operators more opportunities for advertising and sponsored programming.

In a departure from the company’s previous approach, the new platform can work in set-tops that don’t use Microsoft’s operating system.

Gates and Roberts are scheduled to announce their agreement at the National Cable and Telecommunications Assn. trade show in Chicago. Microsoft also is expected to announce that Cablevision Systems Corp., Mexico’s largest cable operator, plans to deploy the new software for about half a million Mexico City subscribers in the next year.

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Associated Press was used in compiling this report.