Daily Variety
January 24, 2000
NEW WEB ALLIANCE: Microsoft invests in interactive TV service

Microsoft is expected to announce today that it has paid $ 56 million for a stake in interactive TV service Intertainer. The investment is widely viewed as a defensive move to bolster the software maker's WebTV service against soon-to-deploy AOL TV.

Announcement of the deal will likely be Microsoft's biggest out of the Natl. Assn. of Television Program Executives confab in New Orleans this week.

For Culver City-based Intertainer, deal will hasten the company's deployment of its pay-per-view video content and e-commerce features. Intertainer only recently emerged from a two-year soft launch phase.

Fast deployment
"It means we can deploy on these platforms a lot faster," said Intertainer prexy and co-CEO Jonathan Taplin. "We've been waiting for the last two years to get onto a high-powered set-top box that can support DSL."

Intertainer plans to deploy on the new powerful General Instruments-built, Microsoft -enhanced set-top box, which will enable Intertainer to deliver interactive VHS-quality video to PCs and TV sets using high-speed DSL or cable Internet connections.

Taplin said it plans to use the Microsoft funding to "move things faster internally and sell what we're doing. We have to be on every platform we can."

Over the next several months, Intertainer plans to deploy nationally through Microsoft, US West, Comcast (in which Microsoft has invested $ 1 billion), RCN Corp. and Cincinnati Bell's Broadwing cable and high-speed Internet services.

Although the WebTV service single-handedly created a market for interactive TV, few consumers have tuned into the service, which has gathered little more than 1 million subscribers since bowing in 1996. It soon goes up against AOL TV, whose Internet-based counterpart has 22 million subscribers.

Jump-starting WebTV
The deal helps jump-start WebTV with more content, something Microsoft has shown little interest in developing on its own.

Instead, Microsoft has looked at investing in content creators for libraries and is developing the systems to deploy the content, with TV set-top boxes, Internet phones and handheld devices all part of the company's vision.

Intertainer has film, music and TV content distribution deals with NBC, Sony, 20th Century Fox, Warner Bros., DreamWorks, Disney, the BBC and Discovery Networks, among others.

Basic cable boxes that sit on top of cable-capable TVs today will eventually be replaced by advanced devices that offer the power of a personal computer. WebTV boxes let a customer surf the Web using a television, a remote control and a phone line. Deals with high-end cable set-top box manufacturers will mean WebTV customers won't need either the WebTV box or the phone line.

And Intertainer will give WebTV and other cable services pay-per-view access to Hollywood films and TV program services available from Intertainer's library, as well as e-commerce opportunities from partnerships with BigE.com and Styleclick.com, among others.

"We believe the PC will continue to be the most powerful creativity piece available to people," Steve Ballmer, Microsoft's new CEO, said in a press conference. "But we also need to ensure that non-PC devices can leverage this next-generation set of services."

"As an innovative broadband service, Intertainer has demonstrated leadership and proven what is possible by introducing high-quality entertainment on demand," said Jon DeVaan, senior veep of the Consumer Group at Microsoft. "This alliance is consistent with our strategy of focusing on delivering superior software platforms for broadband interactive services that are open and allow everyone in the industry to contribute their unique value."

Microsoft joins Comcast, Intel, NBC, Sony, Sterling Investment Partners and US West as investors in Intertainer.