Even as Microsoft is negotiating to act as an online middle man for as much of Internet commerce as possible, it is also looking to become a supplier of original content itself in the new world of interactive information and entertainment. While on-line media ventures have been notoriously unprofitable in these early years of Internet development, this has in many ways worked to Microsoft's advantage since it is one of the only companies with deep enough pockets to keep experimenting for the formula that works.
Microsoft's most notable failure has been leveraging its original content on the Microsoft Network (MSN) into a stronger position as a service provider, although its 2.3 million subscribers still makes it the second largest Internet service provider behind America Online. But it has continued to invest in original content, from "channels" to Slate magazine, and is launching new content this fall with a range of media partners, including the Disney corporation.
On the other hand, the hundreds of millions invested by Microsoft in its MSNBC venture with NBC has resulted in programming, if not profits, that have won it respect. With an online editorial staff of over 100, its interactive coverage of the news has been hailed by critics as better and more original than CNN's or ABC's news web sites. Microsoft has launched another joint service with Black Entertainment Television, MSBET, to target African Americans on-line.
Microsoft is already inking similar deals with news outlets around the world. In July, Microsoft agreed to develop an online news site with Australia's Publishing and Broadcasting Ltd. (PBL), including Nine Network TV and a magazine publishing empire - all owned by Australia's richest man, Kerry Packer (worth $3 billion). The online service will include news, sports, weather, entertainment and lifestyle shows along with access to financial and retail services, including Microsoft's Sidewalk and Expedia services. One example cited in the advantages of the combination is leveraging Channel Nine's travel shows with an instant link to Expedia's Web sites to book tickets.
While creating original content is one priority for Microsoft's Bill Gates, cornering the market on "old media" for resale in new interactive forms is seen as a key role for dominance as well. The prototype for this kind of success comes from Microsoft's sales of Encarta, a CD-ROM encyclopedia which Microsoft created through mixing a second-tier encyclopedia with pictures and multimedia pizzazz. It soon became the best-selling encyclopedia in the world and expanded versions have tied its basic content to web links around the globe.
While none of its follow-up CD-ROMs have quite matched Encarta, it has scored hits with its Cinemania CD-ROM, which bundled together movie reviews, books from top critics Leonard Maltin, Robert Ebert and Pauline Kael, and its Music Central CD-ROM with a similar mix of reprinted reviews and articles about music. Both Cinemania and Music Central have been supplemented with well-respected Web sites to expand their offerings and pull in new CD-ROM purchasers. While it has not occurred yet, there has been suggestions that both might be incorporated into Sidewalk listings.
But the most ambitious (and culturally scary) recycled content endeavor is happening not at Microsoft itself but through a company Bill Gates created himself back in 1989 called Corbis. With early anticipation, Gates began cutting bargain-basement deals with museums like the Hermitage, Philadelphia Museum of Art, and the National Gallery of London for the right to redistribute their works. Corbis has also made outright exclusive purchases of the digital rights to Ansel Adams' photographs, Leonardo da Vinci's notebooks, and, most importantly, purchase of the 16 million photo Bettmann Archive - one of the largest and most important collections of commercial photographs.
With over 18 million images and 120 employees, Corbis is already the No. 1 company in the $500 million-a-year photo licensing business that supplies pictures to books, magazines and Web sites. While the slowness of Internet download times have limited its expansion so far, the company expects explosive growth as everything from business reports to Web pages look to add quickly accessible pictures to snazz up their content, with Bill Gates collecting a toll on each download.
While it has been working to pioneer multimedia in traditional non-tech areas, Microsoft has also been refocusing on a computer market it had neglected, namely the computer game industry. Partly this new focus is due to the gaming industry's rapidly expanding revenues of $5.8 billion per year (more than Hollywood) which the company is loathe to ignore and partly the focus is due to Microsoft's ideas on combining gaming entertainment, especially on-line versions, with its other online media ventures.
The first step for Microsoft, as always, has been to seize control of the technology standards in order to make sure that whether or not Microsoft's own games win out, it will still be making money from the growth of the industry on its own computing platform. To this end, Microsoft has been investing a lot of resources in beefing up Windows graphics and 3D capabilities with technology it calls Direct X and encorporating software purchased from RenderMorphics. Using a grab-bag of technologies- from Java to video streaming--Direct X is targeting a broad range of professional game design and broadcast video markets.
A key part of its 3D graphics strategy was its $130 million purchase in 1994 of Softimage, the graphics company whose software became famous for its dinosaur animation in the movie Jurassic Park. While the software had been designed for high-powered UNIX machines, Microsoft quickly redesigned the software to run tightly within Direct X specifications on Windows NT. Working with hardware and graphics cards markers to optimize the software, by 1996 Microsoft had SoftImage 3D software delivering as good results on NT machines as on UNIX machines that cost twice as much. In order to reinforce its NT advantage as a 3D development environment, it set out to hire some of the biggest names in the industry, including Pixar (of Toy Story fame) co-founder Alvy Ray Smith who has pioneered some of the most significant advances in computer graphics. Smith and others in Softimage division are working to create an integrated multimedia applications environment called Digital Studio that aims to lock game developers into the Windows NT environment as thoroughly as Visual Studio has locked commercial applications developers into the platform. Already, over 1000 companies are using Softimage tools for game development and interactive-title creation for gaming environments including the Sega, Sony and Nintendo video game systems (environments with sales twice the personal computer market).
Microsoft's own game sales have only been moderate, with continued strength in its long-time top seller Flight Simulator (including acquisition of the company that developed it) and new titles from software partnerships, including Twisted Metal and Warhawk from its purchase of SingleTrac, a game startup by former designers of military flight simulators. It has also established publishing relationships with companies like Atomic Games and Rainbow America. Microsoft has played to its strengths with its purchase, as well, of Exos, which pioneered "force feedback" controls for joysticks. Microsoft is introducing a joystick utilizing the technology in fall of 1997. It is also investing in on-line gaming through its Internet Gaming Zone (purchased from Electric Gravity in 1996) which with 400,000 registered users is one of the stronger contenders in this emerging area.
But Microsoft's real bet on the multimedia market seems to be through its partnership (amounting to an initial $30 million from Microsoft) with Dreamworks, the studio headed by David Geffen, Steven Spielberg and Jeffery Katzenberg. The partnership, called Dreamworks Interactive, concentrated on games tied to high-profile media products, such as the "Goosebumps" game based on the titles by best-selling author R.L. Stine and a number of games based on Jurassic Park: The Lost World (many of which have been praised more than the movie). Dreamworks Interactive is also marketing "Dilbert's Desktop Games," a collection of games tied to the popular Dilbert character.
However, Microsoft has made it clear that many of these investments are just keeping time until the convergence of personal computers and television bring interactive computing into its own. Microsoft has made a direct investment in the main Dreamworks studio as well, with Microsoft's co-founder Paul Allen investing a hefty $500 million of his personal fortune in the studio. The Microsoft leaders have made it clear that the company is in prime position as movie entertainment converges with interactive multimedia. Microsoft is pushing the control of the high-speed access to the home that will make that possible.
Next: Controlling Access to the Home: Web TV, Cable and Satellites in the Sky
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