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Microsoft Deal Signals Standards Sea Change

New Orleans-In a move that may mark a new approach to marrying the IP-based interactive power of the emerging MPEG-4 standard with MPEG-2 digital TV, Microsoft Corp. and SeaChange International Inc. agreed to collaborate on extending the software giant's "Windows Media" platform into video-on-demand.

While Windows Media supports a variety of Internet-protocol streaming techniques, Microsoft is pushing ahead with implementation of MPEG-4 (version four of the Moving Picture Expert Group standard) in a major advance over previous means of achieving high quality and functionality within a low bit stream.

By bringing such capabilities to the SeaChange server platform, the two vendors will allow operators to exploit the VOD model to add highly targeted advertising, hyperlinks to Internet sites and other Internet-related components within the MPEG-2 TV stream, officials said.

At the same time, they added, operators will be able to use the VOD platform as a launch point for lower-bit-rate IP streams-whether in MPEG-4 format or other Windows Media implementations-to the PC.

"The ability to use a single server platform to deliver high- and low-bit-rate on-demand services reduces the costs to operators and leads to a much more efficient operational environment," SeaChange vice president of marketing Ed Delaney said last week after the alliance was announced at the National Show here.

MPEG-4 is designed to achieve very high-quality streaming transmissions of IP content at low bit rates and to support easy implanting of various multimedia and text elements on Web pages, down to a per-user basis.

This is especially important for advertising, where each user can be automatically targeted with specific messages suited to personal interests.

Along with agreeing to work with SeaChange in marrying the Windows Media and VOD environments, Microsoft is investing an undisclosed sum in the VOD supplier. "The investment is equivalent to a bit less than 2 percent of our market capitalization," Delaney said.

Publicly owned SeaChange saw its stock rise as high as $45.38 per share last Tuesday-the day the deal was announced-up from $41.19, but it closed that day at $40 and closed at $38.13 last Thursday.

What makes the Windows Media platform and MPEG-4 especially attractive to SeaChange is that the technologies are standards-based, vice president of research Branko Gerovak said. "Being standards-based is going to drive this technology a long way."

Various proprietary implementations of streaming and compression techniques may have produced IP-streaming capabilities superior to the proprietary system Microsoft has used as part of Windows Media. But the move to MPEG-4 levels the playing field so that there is no loss in quality associated with choosing the Microsoft system over, say, that of RealNetworks Inc., Gerovak noted.

"What we're seeing with MPEG-4 is a process by which the best of the innovations among the proprietary systems are being combined into a standards-based system that gets us away from having to worry about whether customers have the right client software embedded in their set-tops or PCs," he said.

Microsoft's pact with SeaChange represents still another approach the software company is taking in its efforts to establish itself as the leading force in the consumer market for advanced media applications.

The company last week exhibited other aspects of its strategy, including the high-end set-top version of "Microsoft TV," where computer power at the terminal creates the ability to mix digital TV and Web-based fare. The "thin-client" version is enabled by the headend-centric platform developed by Peach Networks Ltd., now a unit of Microsoft.

"If we had a perfect crystal ball, you'd see us a lot more focused on a specific strategy than we are now," said Bob Hildreth, a program manager for Microsoft who will be working closely with SeaChange in the new partnership.

In the long run, Hildreth added, Microsoft believes market support will swing behind the rich-client model, where intelligent consumer appliances move onto the life-cycle path of the PC, enabling ever-improving processing capabilities to support ever-more-advanced services.

"If we could exploit the full advantages of continuing improvements in the types of services using the thin-client model and avoiding the life-cycle model of the PC, that would be good, but we don't think that's the way it will go," he said. "As a PC-oriented company, we're always pushing the software envelope."

Notwithstanding Microsoft's considerable investment in cable-including multibillion-dollar partnerships with AT & T Corp. and Comcast Corp.-the model articulated by Hildreth is a long way from what most cable operators have in mind as they push their next-generation set-tops into the retail-distribution chain.

"To imagine that our customers will have to be running to the store to buy new devices every time we want to add new services is precisely our worst nightmare," said one senior MSO executive, speaking on background.

Nonetheless, in the scramble for market share shaping up on the broadband-services front, cable's competitors stand to gain from the Microsoft model if they can fragment the cable-dominated market by capturing niche interests in certain types of services.

Cable's best shot at minimizing this fragmentation will be to ensure that as operators move to next-generation boxes, they incorporate the most advanced capabilities possible, noted John Gleiter, product manager for Broadcom Corp.

"We've included things like advanced 3-D graphics display and high-definition television in our high-end chip sets because operators want to be prepared for future service migration," Gleiter said. "They recognize that the costs of adding these capabilities is not prohibitive anymore thanks to integration of more functionalities in the chips, so the wise thing to do is to prepare in advance."

The bigger headache for the cable industry is really on the software side. Integration of myriad components to fit any single MSO's service model is complicated by the fact that there are so many competing software platforms to work with, said Jeff Bobzin, CEO of Rachis Corp., which is serving as a systems integrator for the Microsoft TV initiative.

"We're at a point in the evolution of this technology where someone who wants to target the entire market with a particular content strategy has too many solutions to worry about," Bobzin said.

Rachis' job is to develop a reference model for developers to use in creating content for the Microsoft TV platform so that no matter what type of implementation a particular MSO wants to follow, the essential template is the same.

"In affiliating with Microsoft, we bet on the market reach of Windows as the most promising way to accomplish a uniform development platform that can scale across the industry," Bobzin said.

But even though Rachis is focusing on a single platform, there are no easy answers, he added, saying, "None of us completely understands what the model is yet."