Microsoft Corp. (MSFT) and a major Chinese TV set maker announced Monday they will jointly develop entertainment products linking television and the Internet, joining a race to profit from the Web's growing status as a channel to distribute movies and other programs.

As a part of the deal, Microsoft will become a strategic investor in Changhong, buying just under 1 percent of its shares for about $12 million, Changhong said in a prepared statement.

Microsoft and Sichuan Changhong Electric Co. will explore "a wide range of scenarios for digital entertainment needs," said Roger Chen, a Microsoft spokesman in Beijing.

The types of equipment, software and other products that might be developed, in which countries they might be sold and other details are still under discussion, Chen said.

"The project focuses on in-home network digital entertainment — how to connect PCs, TVs and the Internet to provide this digital entertainment experience," he said.

The Internet is emerging as a key channel for piping movies and other programming into homes. Sony Corp (SNE)., Apple Inc. (AAPL) and other media and electronics companies have announced plans for devices to allow programs downloaded from the Web to be viewed on high-definition TV sets, rather than on computers.

Microsoft's decision to turn to China for a development partner reflects the country's status as a major television and Internet market and a leading producer of consumer electronics.

China has the world's second-largest population of Internet users after the United States, with 137 million people online. Its population of television viewers is already the world's biggest at 400 million.

Spokespeople for Changhong, based in the southwestern city of Chengdu, refused to give any other information other than the prepared statement.

Redmond, Washington-based Microsoft and Changhong have been jointly exploring China's Internet media market since 2004, according to Chen.

"Definitely China is a very important strategic market for Microsoft and on digital entertainment, a major potential market," he said.

Chen said he had no details on whether Microsoft was pursuing similar Internet-media development with local partners in other countries.

In the United States, DVD rental company Netflix Inc. (NFLX) said in January it would distribute movies and TV programs over the Internet.

In China, foreign media companies have turned to Web distribution to avoid government rules that restrict the amount of foreign programming on Chinese television and its content.

Viacom Inc.'s MTV Networks launched a venture with Chinese search engine Baidu.com Inc. in October to distribute music videos and other material online. Chinese regulators have limited MTV's presence in China to cable systems in a portion of the country's south and syndication deals with some local broadcasters.