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Microsoft buys a sandbox: small investment in China

Just as Microsoft is re-branding its IPTV software, and touting the newly named Media Room, the company has bought itself a small sandbox for experimenting further with TV integration.  Microsoft has agreed to buy approximately 1% of Chinese TV and appliance maker Sichuan Chanhong Electric Co. 

microsoftAt a reported price of only about $12m, the investment is pennies in a wishing well and not even a blip on radar tracking Microsoft expenditures.  (Microsoft’s 2006 Research and Development expenses exceeded $6.5b and that number doesn’t include equity investments that may provide R&D contributions).   Still, even a one percent stake in a state-backed business in China is significant.  Further, the investment provides Microsoft with more tools to explore linking consumer appliances to the PC with a manufacturing partner, and that is notable. 

The effort, however small, is also notable when viewed as part of the broader picture of Microsoft’s recent activities.  Between Surface Computing, Xbox developments,  the re-branding of Media Room and other moves,  Microsoft is clearly taking steps to insure it is well positioned to compete as the living room and the PC continue to converge. 

The competition is similarly focused.   Intel is promising a chip-set by mid 2008 geared toward allowing easier Internet connectivity for TV and DVD hardware.  Sony and Apple are working on streaming/distribution appliances.  Even IPTV startups like Joost are looking at embedding their application in hardware. 

Gartner, the research firm, predicts subscriptions to IPTV will rise to 50 million in 2010, from 3 million in 2005 and IPTV is just one small part of the entertainment convergence marketplace.    That, mixed with the explosive growth in gaming,  and the increasing integration of Internet, television, music and movies, creates a huge pool of opportunity and future revenue that Microsoft (and long line of others) all want (and need) to be part of.

(Regarding Media Room: The new Microsoft Media Room release, which was renamed just this week, is being sold exclusively to telecom companies (18 signed up, 10 deployed) .  It enables consumers to access music, photo’s and other computer-stored content through their set-top box and home network.)

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