Possible News Corp deal could boost Microsoft TV

Microsoft Corp. is reportedly in talks with Rupert Murdoch's News Corp. about investing more than $1 billion in the media empire's satellite TV unit, a move that analysts said could give a boost to the software giant's troubled interactive TV efforts.

Microsoft declined to comment on a Wall Street Journal report that said the company was talking to News Corp. about taking a 3.5 percent stake in Sky Global Networks valued at more than $1 billion. News Corp. also declined to comment.

Such an investment could give Microsoft another customer to deploy its software for interactive television, which the company has fingered as a key area it hopes to dominate in as computing moves beyond its traditional stronghold on the desktop, analysts said.

Interactive television aims to deliver Internet features such as e-mail, Web browsing, video-on-demand and online shopping through a new generation of set-top boxes supplied by cable or satellite television companies.

"It broadly fits Microsoft's strategy to make sizeable investments in cable and broadcast partners, in part to get some quid pro quo out of those partners and commit to deploying some of its software," said Dwight Davis, an analyst with Summit Strategies.

Sky Global is Murdoch's soon-to-be floated unit that consolidates News Corp.'s global satellite assets. Its main assets include British Sky Broadcasting, Asian satellite service Star TV as well as interests in Italy's Stream, Sky Latin America, News Broadcasting Japan and programmed listings company TV Guide.

Bringing Microsoft on board would be an important coup for Sky Global, which is likely to see its plans for a floatation pushed back until next year amid volatility in the technology sector, analysts said.

"This doesn't surprise me as Murdoch has been looking for minority partners who can bring something to Sky Global and Microsoft could bring its interactive TV and technology capability," said Marc Lenoux, an analyst at Commerzbank.

BACK TO THE FUTURE

Microsoft had a major interactive TV project underway in the early and mid-1990s, until the rise of the Internet forced it to shift course. Now it is gearing up those efforts again.

"This is sort of a return to the future at Microsoft," Davis said. "Microsoft is now coming back to this interactive TV agenda, looking at that as a mass market consumer space where it has always wanted to play," Davis said.

But Microsoft's new effort has stumbled as the company lags behind schedule in delivery of TV software to partners like telecommunications giant AT&T Corp. and Europe's United Pan-Europe Communications.

The delays have led UPC, in which Microsoft has an 8-percent stake, to warn that its new digital TV set-top boxes could run software from Microsoft rivals, such as OpenTV and Liberate.

AT&T, in which Microsoft has a minority stake, has said it will use Liberate software in pilot tests of its boxes. Other cable companies that Microsoft has invested in include Britain's Telewest, NTL and Portugal's TV Cabo.

Besides its hefty cable investments, Microsoft has also lined up satellite partners, such as EchoStar Communications Corp. and DirecTV, owned by Hughes Electronic Corp. Hughes is a unit of General Motors Corp..

British Sky Broadcasting, which is 37.5 percent owned by News Corp., saw its shares rise more than 6 percent on the talk of Microsoft becoming one of Sky Global's partners.

LOOKING FOR PARTNERS

News Corp. hopes to line up a number of private investors to raise cash for Sky Global before taking it public and has held talks with potential partners such as France's Vivendi SA, which owns 20 percent of BSkyB.

Murdoch said earlier this month that News Corp. had also been in talks with two possible U.S. partners - Hughes Electronic Corp and EchoStar.

Mobile phone giant Nokia has also been mentioned as a possible partner, given its valuable link to wireless technology and networks, while Yahoo! could distribute Sky Global content over the Internet.

Murdoch has already done a deal with U.S. cable TV tycoon John Malone whereby Malone's Liberty Media Group will take a 4.76 percent stake in Sky Global.

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