Swedish telecom equipment maker Ericsson struck a deal on Monday to buy Microsoft's Mediaroom IPTV business, which makes software used by phone companies to deliver television over the Internet, making it the world's leader in a growing business.
The sale marks the end of Microsoft's two-decade effort to put itself at the front of a technology shift toward internet television that did not materialize the way it expected. The world's biggest software company said it will now focus its TV ambitions on its popular Xbox game console, which is a vehicle for all types of entertainment.
Ericsson said it expected to close the deal for the business, which employs more than 400 people worldwide, during the second half of 2013. It did not disclose a purchase price, though a company official provided a ballpark figure.
"This deal is within range where we previously bought a company called Optimi for $99 million and where we also bought LG Nortel for $234 million," said Ove Anebygd, Vice President and Head of TV at Ericsson. "So this is somewhere in between the two."
Ericsson said the deal would make the company, already the world's biggest mobile networks maker, the leading provider of IPTV with a 25 percent market share. Microsoft said the Mediaroom platform was offered by more than 40 operators and powered 22 million set-top boxes around the world.
Focus on Services
Internet protocol television (IPTV) uses the same technology that powers the Internet to transmit multimedia content over telecom and cable networks. Ericsson wants to cater to phone companies that are competing with cable, satellite and web-based media providers.
"This makes a nice strategic fit, but it is hard to estimate the impact on key figures since they are providing no financial information," Alandsbanken analyst Lars Soderfjall said.
With competition from Chinese network providers stiff over the last few years, Ericsson has focused increasingly on services, such as managing networks for operators, and on software, where it has more of a competitive advantage.
It is a leading player in solutions that enable operators to charge for online services and as part of its shift from hardware-based products has also built up a presence in IPTV, a position underpinned by acquisitions such as that of video technology firm Tandberg Television in 2007.
"This completes Ericsson's IPTV offer, with ... Mediaroom nicely rounding up the Tandberg TV assets," said Alexander Peterc, analyst at Exane BNParibas.
Ericsson said the global IPTV market was estimated to reach 76 million subscribers in 2013 with revenues of $32 billion, growing to 105 million subscribers and $45 billion in 2015.
Ericsson said the deal was subject to customary regulatory approvals and that the business would be integrated into its Support Solutions unit.
Microsoft Puts Bets on Xbox
Microsoft entered the IPTV business in the mid-1990s. It never became a major source of revenue for the Seattle-based software maker as most growth in internet TV has come from widely available 'over the top' services like Netflix and Hulu rather than internet TV supplied by phone companies.
The head of Microsoft's interactive entertainment business said Monday's deal allowed his company to "commit 100 percent of its focus on consumer TV strategy with Xbox."
From its beginnings at the turn of the century as an upstart rival to Sony and Nintendo, Microsoft's Xbox has grown into the United States' best selling game center, with 76 million now in use around the world. Xbox owners can now buy TV programs, films and music through Microsoft's own store, or access content through Netflix and other suppliers.
Microsoft even set up its own studio last year to create original TV content, although it said on Monday it wants to "partner" with film studios, music labels, TV networks and content aggregators to expand offerings on the Xbox.