Microsoft’s iTV on inactive list

Associated Press

LISBON, Portugal — When Microsoft Corp. plunged into the interactive television market, it had high hopes for a new revenue stream potentially worth billions of dollars.

But six years on, the software powerhouse’s quest has been beset by technical setbacks, commercial delays and market rejections that have left its iTV project looking frayed, especially in the burgeoning European market.

Portugal’s TV Cabo, which in June became the world’s first cable company to roll out advanced set-top boxes running Microsoft’s new TV software, has now postponed a major marketing campaign for the service until next year, citing technical reasons.

TV Cabo has more than 1 million cable subscribers. But only about 2,500 have so far signed up for interactive TV, which lets viewers shop, play games and do e-mail and other activities by updating with digital technology what was formerly a dumb video terminal.

That’s far short of the 100,000 that TV Cabo predicted it would have by the end of 2001.

Following word of the delay last week, Europe’s largest cable operator compounded Microsoft’s troubles. United Pan-Europe Communications said it had decided to deploy competing software from Liberate Technologies Inc. in digital broadband services in four countries — Austria, Norway, Sweden and the Netherlands.

Microsoft had delivered its test system late to UPC and there were technical snags, the cable operator said.

The latest delay in Portugal "doesn’t send out the right signal," said Dario Betti, an analyst at Ovum Consulting in London.

Microsoft and TV Cabo are under close market scrutiny as potential clients worldwide closely monitor the software’s performance and the system’s appeal.

Analysts say Microsoft has struggled to adapt the architecture of its feature-packed PC operating system software to the more limited processing power of set-top boxes.

The delays at TV Cabo could hurt Microsoft’s credibility and undermine confidence, said Rob Martin, an analyst at Friedman Billings Ramsey in Arlington, Va.

"The more applications that are bundled in … the more difficult it becomes to deploy," Martin said, adding that Microsoft "needs to scale back its system and offer customers what they want and not what (Microsoft) thinks they need."

Copyright ©2001 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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