Microsoft trades TV dreams for priorities with Comcast share dump
Returns only in profit
Comment Microsoft decision to kill its flagship $1bn investment in US cable-TV giant Comcast is a sign of strategic prioritization and financial necessity.
The company's latest Securities and Exchange Commission (SEC) filing has revealed that Microsoft no longer holds any of the 150-million-plus shares of common Comcast stock it purchased back in 1997. Those shares yielded a 7.3 per cent stake in America's largest cable TV company.
When Microsoft bought into Comcast, the cable-TV company's stock was trading at around $5 a share. Today, Comcast is trading at around $14 - down from a 2000 high of $32.
The sale means Microsoft made a 180 per cent return on its investment at today's price, or around $3.4bn. The filing did not specify the price Microsoft sold at.
In a statement posted by All About Microsoft watcher Mary Jo Foley, the company called the share dump "a routine part of Microsoft's portfolio management and was unrelated to the cost-cutting moves since reported." Microsoft was unable to respond to The Reg by the time we went press.
It's a concise statement from Microsoft, and to be sure, companies are always reviewing and pruning their investment portfolios. Like many private investors, the value of Microsoft's investments will have been impaired by the fact the markets have been diving since August 2008.
One reason for cashing out could be to prevent further losses. Microsoft doesn't want the value of its investment going underwater. Comcast's stock has fallen a third since last August.
But this could be part of a cost-saving and cash-recuperation measure.
Microsoft is looking for ways to save money. The company has already scaled back building expansion plans in the Seattle, Washington area where it's based. Layoffs are also rumored, although Microsoft has refused to comment.
That $3.5bn in cash would be a welcome thing, especially with Microsoft due to report second-quarter results on Thursday. It'll be interesting to see if, and how, this helps the quarterly tally. It's not clear exactly when Microsoft dumped its Comcast investment, but this likely occurred during the period that will be reported this week.
While Microsoft denied the stock dump was part of a cost-cutting measure, the timing is telling. The move is likely part of a series of steps that's seeing Microsoft focus on core assets and investments. TV has not been a success for the company.
The Comcast investment came in the 1990s when Microsoft was infatuated with the notion of the TV as a Windows platform beyond the PC. The idea was for Windows to power TVs, set-top-boxes, and broadcast systems delivering content, program guides, and internet access to the consumer sitting on their sofa.
In 1997, Microsoft bought WebTV Networks for $425m to deliver network services and a TV platform for cable and broadband companies, merging it with MSN.
The Comcast investment was designed to encourage deployment of Comcast TV services powered by Windows.
Bernstein Research analyst Craig Moffett is reported to have written that Comcast "dutifully" bought 500,000 boxes running Windows and then "reportedly left most of them to molder in a warehouse." Comcast also licensed a Microsoft programming guide.
It's not clear what Bernstein was referring to specifically, but in 2004, Comcast Cable - part of the Comcast mother ship serving five million US subscribers - signed up for Microsoft TV Foundation 1.7 digital cable software, then running on the brand-new Motorola DCT6412 set-top box.
Moffett said that by 2007, Microsoft's software had been deployed in just a single Comcast market - Seattle, near Microsoft's home turf of Redmond. In May 2007, Comcast pulled even this system and switched to its own programming guide. Comcast confirmed that the Windows-based system had only been deployed in Seattle and that it finally yanked the system for its own programming guide last May.
Today, whatever toehold Microsoft has in TV has been weakened, and the cable TV industry has moved past Windows. Comcast has joined companies that make the hardware that delivers TV in lining up behind Java, not Windows. Companies have committed to deliver interactive TV services using Tru2way, which will put a Java-based middleware on set-top-boxes and TVs.
Microsoft, meanwhile, is still trying to figure out an interactive strategy that combines entertainment and the internet. While WebTV still exists, the focus is on the Xbox and Xbox live and the Windows Media Center to record TV, download movies, and play photos. And the division that's home to Microsoft's TV efforts - entertainment and devices - continues to lose money. ®