Time Warner and Microsoft in TV talks: Proposed alliance of entertainment and electronics giants could set the pace for interactive television

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TIME WARNER, America's largest entertainment group, Microsoft, its most successful software firm, and TeleCommunications Inc, one of its biggest cable television companies, are planning to co-operate on developing interactive television in the US.

Interactive television is considered one of the most exciting high technology areas of the future. It would use cable television networks as a conduit for a wide range of activities.

'With interactive television, you could order a pizza, participate in a quiz game, dial up any movie and do your shopping over the TV set without ever setting foot outside your home,' says one industry expert.

A number of alliances have been formed to exploit the possibilities, but most of these have so far been concerned with the hardware aspects.

In particular, Microsoft is already working with with Intel, the market- leading chip maker, and General Instrument, a big supplier of hardware for the cable industry, on a device that could be used to give televisions interactive capabilities.

Moreover, Microsoft, whose operating system runs on some 90 per cent of the world's 140 million personal computers, has already demonstrated how a scaled-down version of its popular Windows operating system could work interactively.

But the presence of Time Warner would bring a vast entertainment library to feed such a system, and the Time Warner/TCI cable networks could form the conduit.

The agreement envisages Microsoft, Time Warner and TCI, possibly with other partners, such as the telephone networks, establishing a joint venture called Cablesoft.

But it is unclear whether Intel and General Instrument would participate. Time Warner and TCI have already set up a company to develop equipment to work on their 500-channel network, and TCI has said it expects to offer interactive devices within three years at dollars 300 each.

One attraction of the link-up is that that the combined presence of Microsoft, Time Warner and TCI would probably be enough to ensure their box became the standard for the transmission of interactive programmes.

Microsoft confirmed yesterday that it was in negotiations with Time. 'We're very interested in the cable TV area,' said a spokesman. But he refused to give any details about the deal.

A report in the New York Times said the deal had been personally hammered out by the top executives of the companies concerned, Gerald Levin of Time Warner, John Malone of TCI, and Bill Gates of Microsoft, and that an agreement was expected to be signed by the end of this month.

In the UK, the Canadian cable company, Videotron, has already conducted limited experiments with interactivity, offering viewers of sports programmes choices of camera angle and watching action replays.

Videotron has also signed separate deals with CNN and Hewland International, which provides programmes for the Sky One satellite channel.

Cabled CNN viewers equipped with a Videotron Videoway box will be able to choose from a selection of programmes, while on Sky, interactive viewers will be able to play blackjack, roulette and computer games.

The British satellite broadcaster BSkyB, building on its new relationship with QVC, the American home shopping network, is also thought to be working on an interactive television project.

But the really big market is in the US. The US cable industry serves around 60 million households. TCI and Time Warner are among the biggest players, with 10.2 million customers in 49 states and 7.1 customers in 36 states respectively.