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Microsoft Inks Deal with Telefonica

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The world’s largest software maker, Microsoft Corp. (MSFT - Free Report) signed a multiyear agreement with Telefonica Brasil, S.A. (VIV - Free Report) to create a new Global Video Platform (GVP). The GVP will be based on Microsoft’s Mediaroom platform, created for video entertainment services. The first deployments will be in Brazil, Chile and Spain.

Mediaroom is the latest version of the Microsoft IPTV Edition platform Software. The platform makes TV viewing more flexible in that programs may be accessed from TVs via set top boxes, as well as Microsoft-driven products such as Xbox360s, Windows PCs; Web browsers via Microsoft Silverlight, Windows-based smartphones and tablets.

Being one of the more significant telecommunication companies, Telefonica has increased its focus on the digital segment. It has been expanding its scope beyond traditional voice and messaging services to live video. In October 2012, it announced the acquisition of San Francisco-based TokBox, thus bringing on board key capabilities in video communications.

The availability of better video quality is the driving force behind people’s decision to shift to Pay TV services. Hence, Telefonica’s acquisition of TokBox and its decision to use Microsoft’s GVP platform will likely bridge the gap and offer high-performance and feature-rich TV services to viewers.

Telefonica will also see its cost of operation scaling down significantly since Microsoft’s GVP platform can simplify the delivery of various TV services to multiple screens.

According to a study by ABI Research on TV platforms such as cable, satellite and IPTV, Pay-TV service revenue may reach $236.0 billion by the end of fiscal 2012 and may scale up to $281.0 billion in 2017 at a CAGR of 19.0%. Pay-TV services are poised for robust growth and this can be a good opportunity for Microsoft to scale up its operations further.

For the first quarter of fiscal 2013, Microsoft reported revenue excluding deferrals of $16.01 billion, declining 11.4% sequentially and 7.9% from last year, and missing estimates by 2.5%.

Microsoft Corp. has a Zacks #3 Rank, which implies a Hold rating in the short term (1-3 months).

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