US Report: New generation set-top in the works

The new set-top is tailored for EchoStar's new satellite-TV subscribers (currently there are about 1.8 million) and could boost WebTV's base of some 700,000 subscribers. The announcement could come by week's end during the Consumer Electronics Show in Las Vegas.

Terms of the deal aren't clear and are unlikely to be released, according to an individual familiar with the two companies' plans. Vertically integrated EchoStar will manufacture the boxes, but how the two companies may split the cost - indeed, who pays whom - isn't clear.

The new set-tops, endowed with digital memory and loads of software, are likely to cost substantially more than $200 (£120)each - the price of the current WebTV Plus model, which has fewer features. The price of the new boxes could be amortised over time through subscriber payments.

Under any circumstances, for WebTV, a unit of Microsoft (which is a partner in MSNBC), the new model represents an aggressive step forward, both in terms of distribution and feature set. And for EchoStar, the new interactive services could provide additional points of differentiation from competitors, particularly cable operators.

An EchoStar spokeswoman confirmed that, "we're going to do a deal with them," and that the announcement is likely to come Thursday morning, but didn't offer any details. WebTV declined to comment on the deal, though a spokeswoman said the company would have a presence at the Consumer Electronics Show and would "have news."

WebTV set-tops have been available at retail since 1996, and fewer than 1 million subscribers have signed up for the service. The company has vigorously pursued deals with cable and satellite companies that would insert WebTV technology into the millions of set-top boxes they put in the homes of their subscribers. But progress has been slow, and the EchoStar agreement may offer new signs of hope for the Microsoft unit.

Meanwhile, some industry executives believe the program-recording capability of the new box could be an important driver of demand for new set-tops. The feature essentially serves as a smart-VCR, digitally recording programs ("Ally McBeal," "Mad About You," whatever) that viewers pre-select and can return to watch at any time. At least two other companies - the fledgling Tivo Inc. and Replay Networks (in which Netscape impressario Marc Andreesen has invested) - are making set-tops focusing on such features.

To be sure, the EchoStar deal is no guarantee of mass distribution for WebTV technology. The new set-tops, for instance, will be distributed mainly to new EchoStar subscribers and likely will be offered as a premium option.

Still, the EchoStar arrangement will offer the first glimpse of how WebTV may incorporate program-recording in its future models. It's a concept that WebTV chief Steve Perlman has discussed openly for some time. That feature, however, is not expected to be available when EchoStar ships its first WebTV-enabled boxes, and plans for rolling it out were still being finalised this week. In any event, the EchoStar boxes are expected to be capable of offering such services soon.

Tivo set-tops are expected to sell at retail for less than $500 (£300). Analysts believe that the current $200 (£120) WebTV Plus units actually cost more than that to manufacture. Exactly how many boxes might be manufactured isn't clear.

For EchoStar, the WebTV interactive services could offer a new marketing advantage vs. cable competitors, who have been slow to bring such features to their subscribers. Indeed, the EchoStar deal could place added pressure on cable operators to speed their own implementation of interactive services.

EchoStar has eagerly sought to add new features. In fact, last year the company announced an arrangement with interactive-TV provider OpenTV to offer some of the same features provided by WebTV - email, updated weather pages, traffic maps and so forth.

OpenTV offers a narrower, more targeted set of features than WebTV. But even as EchoStar incorporates both companies' technology in its set-tops, the satellite provider hasn't articulated whether it will emphasise one service over the other.