Microsoft gave IPTV a major shot in the arm Sunday night, when Bill Gates used his traditional Consumer Electronics Show keynote address to announce the company’s plans to integrate its Microsoft TV IPTV software with its Xbox 360 gaming console.

The move is likely to be a major boost to Microsoft’s 16 service provider partners, including AT&T, BT, Deutsche Telecom, Swisscom and others, as they will be in position to distribute the new capabilities in time for Christmas, 2007.

The integration brings new capabilities to the IPTV platform from the Xbox and Xbox Live arena, said Ed Graczyk, director of marketing and communications for the Microsoft TV division at Microsoft.

“This combines these two best-in-class solutions from Microsoft into a single device and enables an experience that is truly one plus one equals three,” he said in a phone interview. “It’s not just Xbox is your set-top for IPTV but the integration also takes advantage of Xbox Live and Xbox live community and exposing some of that functionality as part of the IPTV experience.”

Xbox Live is the online social community that today is engaged in using Xbox consoles in multi-player games that operate over the global Internet. With the integration of Xbox 360 and IPTV, features such as voice chat, affinity lists and presence capabilities will become part of the IPTV experience, Graczyk said.

“You will not only be able to press play and do all your normal Xbox and Xbox Live things on IPTV, you’ll also be able to do things like, while you are playing game, Xbox will be recording content on DVR in the background,” he said. “Or you can be watching a basketball game and have an Xbox Live friend send you a text message – it pops up to ask for chat on your TV screen. So while you are still watching TV, you can launch into a voice chat. You can take advantage of the buddy list and know who’s available through presence capabilities, and it’s all integrated into the TV experience.”

Consumers will be able to send and receive text messages, and access the Xbox marketplace for e-commerce as well. A headset will enable them to also do voice chats via VoIP, as Xbox Live users do today.

The new capabilities will only be available through service providers, Graczyk said, giving IPTV providers a significant edge over cable and satellite services.

“This will be available to consumers by next Christmas ’07 through our service provider partners – it is not a direct to consumer offer by Microsoft,” he said. “We are not getting into a lot of specifics [on distribution]. It is a service provider offering, whether you call up an IPTV service provider and order it directly from them or upgrade to them. This is part of their arsenal.”
Microsoft will provide more details on the new integration as it gets closer to product launch, but what the company is show at CES is a genuine product, said Ben Wong, director of strategic business planning for Microsoft IPTV.
“What we are demo’ing is fully functional – not a prototype,” he said. “It’s a real IPTV running on a real Xbox 360. We are showing a taste of what’s to come. As we get closer to launch, unveil more details.”

Gates’ CES keynote focused initially on major software platforms, including Windows Vista and a new version of Windows Office, as well as a Windows Home Server being developed by Microsoft and Hewlett Packard for launch in the second half of 2007, and aimed at multi-computer households.

Robbie Bach, president of Microsoft's Microsoft Entertainment and Devices Division, announced the combination of IPTV and Xbox 360 Live at the CES keynote. The announcement came following other gaming announcements, including the integration of Xbox Live with Windows Vista, the new operating system this summer, as well as Microsoft's efforts in music distribution and mobile phones.