Microsoft is expected to end months of speculation this week by announcing a $1 billion investment in the largest US cable group, Tele Communications Inc (TCI).
According to US sources, the deal - which would focus on set-top boxes for the Web TV market - will be announced on Thursday at the Consumer Electronics Show in Las Vegas.
The partnership will involve TCI upgrading its cable TV network to support the emerging breed of set-top boxes, which allow Internet access through the TV, along with online services such as email and home shopping.
Microsoft's interest is in selling the software for the set-top boxes, which are planned to ship in the first half of this year. The TCI link-up would fit in with its attempts to gain a dominant position in the Internet TV market, as it already has in PC software. Last August, it acquired WebTV for $425 million to boost its technology in this sector.
Last week share prices for both companies rose in reaction to the rumours, although both are refusing to comment.
Despite an often tense relationship between Bill Gates, head of Microsoft, and TCI chairman, John Malone, both parties could tap into a potentially huge market for Web TV, boosted by a dramatic shift in consumer lifestyle.
?The Internet is the biggest trend since the telephone,? according to Walter Winnitztki, a technology analyst with Wall Street securities house Paine Webber. ?For cable companies like TCI, they?ve got more of a problem if they don?t partner with Microsoft. It?s better the devil you know.?
He added that, although the take-up for Web TV has been relatively slow, the technology is growing faster than telephones or video recorders did in their embryonic phases. But its providers face barriers too, notably updating their networks quickly to carry high quality data.
Fees for a Web TV service are likely to be based on monthly subscription rather than a one-time purchase.
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