Microsoft To Invest $1 Bn In Comcast

PC major expands cable TV reach

Microsoft Corp. Monday agreed to invest $1 billion in cable operator Comcast Corp. in what executives called a bid to speed the convergence of the television and the personal computer.

The investment, which gives Microsoft an 11.5 per cent stake in the nations No. 4 cable television company, is the biggest ever for the software giant, underscoring its determination to shape the development of both the Internet and emerging digital television technology.

What were looking at here is a vision where not only can the PC experience be better with the high-speed connection, but also there can be a new generation of TV experience, Microsoft Chairman Bill Gates said in a conference call with reporters and analysts. Industry analysts said the move reflected Microsofts interest in expanding the available bandwidth into homes to speed the development of interactive programming and drive sales of various versions of its Windows software.

They need to find new reasons for people to buy PCs or to buy TV sets with operating systems installed, said Scott McAdams of Ragen MacKenzie. This is really all a part of trying to find that market.

Both Gates and Comcast president Brian Roberts said they hoped the investment would galvanize the cable television industry to speed the rollout of interactive services.

Despite the size of the investment, the latest of several high-profile ventures into television, Gates insisted Microsoft was not becoming a media company and would remain focused on its core business of developing computer software and interactive content.

We are not in the cable business ourselves, we will never be in the cable business ourselves, Gates said. This is not an expansion of the businesses that Microsoft is in. In April Microsoft agreed to pay $425 million for WebTV Networks, and Microsoft also is investing at least $250 million over five years in MSNBC, an internet and cable news venture jointly owned with NBC.

Philadelphia-based Comcast, which serves 10 million cable subscribers, had not been looking for a capital infusion when Roberts and Gates began discussing a collaboration two months ago, Roberts said in an interview.

We sat down with Microsoft and heard their plans, and they dovetailed exactly with our plans, he said.

He said the Microsoft backing would allow the company to accelerate its deployment of cable modems, which allow high-speed Internet access, as well as reduce its debt and buy back stock.

Under the deal, which is expected to close in weeks, according to a Microsoft executive, the software giant will buy 24.6 million shares of Comcast Class A special common stock for $500 million, and $500 million of a new issue of Comcast Series B convertible preferred stock.

The Series B shares will pay a 5.25 per cent in-kind dividend and will be initially convertible into 21.2 million shares, which equals an initial conversion price of $23.54 a share. The conversion price will rise as the dividends accrue.

Comcast Class A shares surged $2.875 to $21.125 on Nasdaq, where Microsoft added $1.0625 to $125.125.

Anna-Maria Kovacs, an analyst at Janney Montgomery Scott, said the rollout of Internet services could provide a real boost to Comcast and other cable companies, which have been slow to reap the promised rewards of new interactive services.

Most of us who use the Internet are really frustrated to death by the slowness, she said. And, clearly, when you upgrade your networks for the Internet, you are also upgrading them for more video channels as well.

In the conference call, Gates referred repeatedly to the parallel developments of the connected PC and the connected TV and indicated Microsoft intends to be a player in both worlds as they converge. Microsoft is in the business of selling software and taking over the world, said Mark Carleton, director of the cable television practice of consulting firm KPMG Peat Warwick.

Having a direct line into the distribution network isnt going to contradict that view.

What were looking at here is a vision where not only can the PC experience be better with the high-speed connection, but also there can be a new generation of TV experience ...... Bill Gates