Bill Gates’ timing was perfect. Just as BSkyB’s decision to give
away free digital set-top boxes elicited knee-jerk predictions of
satellite TV’s supremacy, Microsoft struck back with a deal that turned
the TV industry on its head.
One minute it looked like Rupert Murdoch had done it again - dealt a
killer blow which would cripple BSkyB’s competition (and Sky’s own
profits) - the next, Gates tightened his grip on global communications
and seemed to slap a sell-by date on the satellite TV industry.
From this side of the Atlantic, the enormity of Microsoft’s deal with
the telecoms giant, AT&T, might not be immediately obvious. It is
First, AT&T - which already controlled US cable operator, TCI - paid
dollars 57 billion for the cable TV company, MediaOne, beating its rival
bidder, the cable giant, Comcast.
Then Microsoft, which happens to have a stake in Comcast, ploughed
dollars 5 billion into AT&T in a new alliance which will give Microsoft
a platform for introducing internet technology via cable networks.
Microsoft now has a finger in three out of the top four US cable
In a further twist, the terms of the alliance give Microsoft a 29.9 per
cent stake in the UK cable company, Telewest, previously held by
As Microsoft already has a 5 per cent stake in the UK’s third-largest
cable operator, NTL, and Gates has held tentative talks with Cable &
Wireless, the implications for the UK TV market are enormous. Real
consolidation in cable is inevitable, with NTL, Telewest and CWC heading
for merger talks and Gates providing the glue.
Cable here has relentlessly failed to live up to its potential, with
satellite TV stealing its thunder, thanks to Murdoch’s superior business
nous and bullish marketing. This despite the fact that cable offers
cleaner, quicker access to interactive services and multi-channel TV, as
well as cheaper phone bills.
History shows that superior systems often fail in the face of better
marketing and more aggressive expansion strategies. In the UK, cable has
been beset by fragmentation, sluggish development strategies, poor
marketing and appalling customer service. And, to date, content has
driven uptake, not technology.
But for all the fireworks of last week’s Sky announcement, the content’s
the same and, ten years on, still only 3.4 million homes have signed up
to satellite. In the next round, the killer application will be
interactivity - and that’s one area where technology is key.
Microsoft has been developing software to run in TV set-top boxes,
enabling customers to access interactive services, including the
internet. Cable presents a real opportunity to turn convergence from a
buzzword into a reality. For the moment, though, Sky’s winning the hype
war and it’s surely time for cable to revisit its marketing effort.