Microsoft Buys Webtv Networks -- Justice Decides Not To Challenge Purchase
Microsoft yesterday wasted no time completing its largest acquisition ever - the $425 million purchase of WebTV Networks - after learning the U.S. Justice Department would not challenge the deal on antitrust grounds.
Within a few hours after Justice's decision was announced, Microsoft wired money and transferred stock ownership in a financial flurry that lands it in the middle of a hot emerging market for technology that allows people to use their televisions to browse the Internet and transmit e-mail.
The deal was done by the end of the business day, after government investigators at midday concluded Microsoft's presence would not suffocate the infant market.
Microsoft announced in April that it planned to buy WebTV, a Palo Alto, Calif., company that provides Internet access through televisions. The company, which employs about 150 permanent and 65 temporary workers, helps make Internet-ready, set-top converter boxes for televisions and runs an online service for people who buy the boxes.
"Now the real work begins," said Craig Mundie, a Microsoft senior vice president.
WebTV co-founder and chief executive Steve Perlman said the acquisition validated his company's vision, which was questioned by some industry insiders until Microsoft announced its intentions. Perlman will remain chief executive of WebTV and will report to Mundie. WebTV will become a Microsoft subsidiary and remain in California.
Justice Department spokeswoman Gina Talamona said the investigation found a number of other companies are competing or are about to, with WebTV.
The decision came just one day after Sun Microsystems, a Microsoft rival and one of the computer industry's biggest players, announced it would enter the market by buying Diba, a 2-year-old startup based in Menlo Park, Calif.
After Microsoft announced its deal last April, moreover, rival Oracle bought into the same market, acquiring Navio Communications from Netscape Communications. Both Diba and Navio make technology for consumer Internet appliances, including "Internet TVs," televisions that come with Internet capability built in or attached, and set-top boxes that connect regular televisions to the Internet.
So far, the only Internet TVs on the market are based on WebTV's technology and use its service, which offers news, sports and some entertainment programming. They are made by Sony Electronics and Philips Consumer Electronics and sell for about $320. The online services cost an additional $19.95 a month.
In the fall, sets made with Oracle's technology and using a service by NetChannel, a startup based in south San Francisco, will be released by RCA. Sun will work with manufacturer Samsung Electronics through Diba if that deal is approved.
NetChannel lobbied publicly to block the Microsoft deal, saying Microsoft would squash its competitors because it produces software to run TV-Internet devices, invests in cable and satellite companies and creates programming.
"What this acquisition means is that Microsoft is one step closer to fulfilling its strategy of controlling all aspects of the entertainment, electronic commerce and communications industries," said NetChannel's chief executive, Philip Monego, who has been circulating a "white paper" decrying Microsoft's Internet-TV intentions as anti-competitive.
Market analyst Jae Kim of Paul Kagan and Associates in Carmel, Calif., called the acquisition another piece in the puzzle for Microsoft's transformation into a communications, though not a media, company.
"We all know that Microsoft owns the desktop (computer) operating system," Kim said. "By owning WebTV, now they have a strong foothold in the consumer market, should that ever develop, which we think it will."
So far, WebTV has sold about 100,000 units - a lot for an Internet service provider but a small number for a consumer-electronics company.
Kim said two WebTV-Microsoft strategies could change that: WebTV is using a multilevel marketing company, which uses in-home salespeople, to sell the devices. Microsoft, meanwhile, is offering to pay half the cost of making set-top boxes if manufacturers will use its operating system, Windows CE.