Shanghai — Microsoft Corp. has agreed to pay 94 million yuan ($12.3 million) for a stake in Sichuan Changhong Electric Co. and will form a cooperative alliance with the TV and electrical appliance maker, joining a race to profit from the Web’s growing status as a channel to distribute movies and other programs, the Chinese company said on Monday.
As a part of the deal, Microsoft will become a strategic investor in Changhong, buying just less than 1 percent of its shares for about $12 million, Changhong said in a prepared statement.
Microsoft and Sichuan Changhong Electric Co. will explore “a wide range of scenarios for digital entertainment needs,” said Roger Chen, a Microsoft spokesman in Beijing.
In addition to the nearly 1 percent stake sale, the two companies will cooperate to develop, make and market TVs, computers and other digital home-entertainment products, said Sichuan Changhong in a stock filing to the Shanghai Stock Exchange.
Spokespeople for the company, based in the southwestern city of Chengdu, refused to give any other information.
The Internet is emerging as a key channel for piping movies and other programming into homes. Sony Corp., Apple Inc. and other media and electronics companies have announced plans for devices to allow programs downloaded from the Web to be viewed on high-definition TV sets, rather than on computers.
The types of equipment, software and other products that might be developed, in which countries they might be sold and other details are still under discussion, Chen said. “The project focuses on in-home network digital entertainment – how to connect PCs, TVs and the Internet to provide this digital entertainment experience,’ he said.
The project will face challenges that have dogged several such collaborations in the past, but the market is now more mature and the deal gives Microsoft a foot in the door with a potentially key player, said Sigurd Leung, head of IT research at Beijing-based Analysis International.
“Changhong is a state-backed company, so for Microsoft to get 1 percent is still quite significant,” he said.
He said Microsoft’s move echoed its 1999 “Venus project,” an operating system that would allow Chinese electronics firms to combine a Web browser, PC and video compact disc player in a single box atop TVs. That project eventually failed, because of low-speed Internet connections and lack of good content, Leung said.
Microsoft’s decision to turn to China for a development partner reflects the country’s status as a major television and Internet market and a leading producer of consumer electronics.
China has the world’s second-largest population of Internet users after the United States, with 137 million people online. Its population of television viewers is already the worlds biggest at 400 million.
Redmond, Washington-based Microsoft and Changhong have been jointly exploring China’s Internet media market since 2004, according to Chen.
“Definitely China is a very important strategic market for Microsoft and on digital entertainment, a major potential market,” he said.
Under a memorandum of understanding, the Chinese company would place 15 million new shares with Microsoft at a price of 6.27 yuan each, a 43 percent discount to its last traded market price of 10.92 yuan.
Viacom Inc.’s MTV Networks launched a venture with Chinese search engine Baidu.com Inc. in October to distribute music videos and other material online. Chinese regulators have limited MTV’s presence in China to cable systems in a portion of the country’s south and syndication deals with some local broadcasters.
In China, foreign media companies have turned to Web distribution to avoid government rules that restrict the amount of foreign programming on Chinese television and its content.
Chen said he had no details on whether Microsoft was pursuing similar Internet-media development with local partners in other countries.