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Microsoft to Create Its Own TV Service, Sources Say

Xbox 360 Kinect

The Microsoft Xbox 360 gaming console, and the new Kinect motion controller.Microsoft

Microsoft has held talks with media companies to license TV networks for a new online pay-television subscription service through devices such as its Xbox video game console, two people familiar with the plans told Reuters.

The software giant's possible push into the television business comes as Google, Apple and Netflix have jostled for a seat at the table of television's future -- a main topic of discussion at the Reuters Global Media Summit to be held this week.

The maker of the Windows operating system has proposed a range of possibilities in these early talks including creating a "virtual cable operator" delivered over the Internet for which users pay a monthly fee.

Other options include using the Xbox to authenticate existing cable subscribers to watch shows with enhanced interactivity similar to how pay TV operators have sought to do over the Web, said these people.

Microsoft is also exploring the possibility of creating content silos and selling more individual channels directly such as an HBO or Showtime. It already has Walt Disney's ESPN on the XBox Live online service for example.

These people said a service may not arrive for another 12 months, but early discussions have been productive.

Microsoft said it does not comment on rumor or speculation. The people involved in the talks asked not to identified as the discussions were confidential.

News of Microsoft's plans come as the pay-television industry has sought to allay investor concerns that consumers are fleeing expensive subscription packages for cheaper online services operated by companies such as Netflix and Hulu, which both charge $7.99 per month for streamed shows and movies. The phenomenon is called "cord-cutting."

The worry is that so-called over-the-top services could undermine the lucrative cable TV industry, whose dual-revenue stream model -- cable networks such as ESPN are paid carriage fees by pay TV operators and also earn revenue from advertisers -- has made pay-TV one of the most resilient sectors during the economic recession.

But programmers would welcome new types of competition to the cable and satellite companies, senior media executives said.

"We think the more competition the better, we will price and package it in such a way that we still make the dual revenue stream," said one of the people who spoke to Reuters. "We could probably charge more for interactive advertising."

Microsoft has long held ambitions to be a major player in the TV business and has previously invested in interactive television initiatives including Web TV and MSN TV set-top box software.

Its latest plans include offering interactivity to engage viewers through social media, interactive advertising and motion control technology, say people who have seen early demonstrations.

Microsoft has bet on new "gesture" technology that lets users of its Xbox, who buy a camera accessory called the Kinect, control on-screen functions using voice to launch channels and waving arms to fast-forward or rewind videos on ESPN.

The Redmond, Washington, company is said to be mulling feedback it has received from programmers including the expense of such a plan but it is not likely to roll out a service in the next 12 months, said one person.

The market to determine the future of television distribution and technology has accelerated over the past year.

Google has already launched Google TV, an enhanced Web-TV service with partners including Sony televisions and Logitech set-top boxes. While Google has also announced Time Warner's Turner Networks as a programing partner, it is not yet planning to offer a full suite of cable networks in the near future.

Apple has also held talks with programmers, but faced resistance industry-wide over its plans to offer a lower-cost subscription TV plan, people familiar with the talks have said. Apple has begun to offer 99-cent TV show rentals for a limited number shows through News Corp's Fox and Disney.