`Honey, What's On Microsoft?'

Bill Gates may turn out to be the Walt Disney of the Web

Tune in to Mungo Park and travel with adventurer Richard Bangs as his team attempts the first rafting descent of the savage Tekeze River in Ethiopia. Check out Underwire, a program for women with tips on love, sex, marriage, and fitness. Need a chuckle? Try 15 Seconds of Fame, a weekly contest of the funniest stories from viewers hosted by comedian Charles Fleisher, the voice of Roger Rabbit.

Sound like the fall TV lineup at the Discovery Channel, Lifetime, or Fox? Try Microsoft Corp. On Oct. 10, the software giant is set to take the wraps off these and 20 other glitzy new programs. It's all part of the company's ambitious effort to reinvent Microsoft Network and, in the process, turn itself into the equivalent of a media powerhouse--on the Internet.

But not an ordinary media colossus. "We're not going to be a classic media business, like Disney or NBC. We're going to stick to our knitting and create the best products for the Web," says Patty Stonesifer, senior vice-president of Microsoft's Interactive Media Div. "But is this a big play? Is this a big investment in being a big media company on the Web? You'd better believe it."

Nor is this simply a rerun for Microsoft Network. MSN, a proprietary online network competing with America Online, Prodigy, and CompuServe, came to life in August, 1995--just as the Internet was taking off. Microsoft Chairman William H. Gates III soon realized he had made a mistake--it was too late to launch a proprietary service. So last December, he ordered an about-face: MSN would be reworked for the Web. "We're going to find a form of MSN that's going to be successful," Gates vowed.

After a full Hollywood makeover, MSN is ready for its comeback. Under the creative eye of Executive Producer Bob Bejan, a former Broadway dancer with 14 years in the entertainment business, MSN has a snazzy new look and fresh fare. Microsoft has lavished $100 million on developing 25 original programs, mostly created in-house.

BIG CHANCE. For Microsoft, it's money well spent. MSN is the flagship property in the company's budding--and potentially lucrative--content business. It amounts to peanuts in revenues now, but content is critical to Microsoft's long-term plans. With growth already down to single digits in business PC sales and heading that way in home PC sales, Microsoft is seeking new revenue sources beyond the operating systems and applications software it sells for PCs.

Online content is a prime opportunity. Group Vice-President Pete Higgins says MSN and related content could be a $1 billion to $2 billion business in five years--and could turn a profit in three. What's more, monthly MSN subscriptions can give Microsoft a lucrative annuity--a predictable revenue stream to offset the ups and downs of the computer industry. MSN could also serve as a showcase for technology, such as the Internet Explorer browser. And hot content could get more consumers to buy PCs--helping Microsoft sell operating systems and applications. "We see MSN as a real foundation piece," says Higgins.

How solid a foundation? One thing is sure: It's not like the old MSN or much else online. The new programs aren't rehashes of print products or Web sites. For the most part, they are entertainment, pure and simple. A visit to each of the new areas on MSN is intended to be a 5-to 10-minute diversion--a show spiced up with graphics, animation, and attitude. There are cybersoaps, game shows, a music studio, an interactive comic book, and Retrospect 360, an animated time line of historical events.

Even the way you get around MSN has been redone. Content is grouped into six channels: "news, weather, sports" is one; "show biz, games, and drama" another. MSN has tried to make Web surfing easier, too, by creating a tab format for searching and displaying thumbnail sketches of sites before you ever click a mouse button.

It's still a network in progress--some 30 additional programs are under development. But analysts who have had early peeks are, well, gushing. "It's brilliant. They've turned the entire metaphor of an online service upside-down so it's more like broadcast," says Stephen Auditory, president of Zona Research.

Microsoft is not blazing a new trail, however, when it comes to charging consumers for content. This month, 100,000 current MSN subscribers will begin "previewing" the new service at no extra charge. On Nov. 8, the doors open to all comers. Some MSN content will be free, but for premium fare, Microsoft will charge $6.95 a month for five hours of use and $2.50 for each hour after that.

Microsoft knows that's a tough sell, so it is also offering a $19.95-a-month flat-rate service that also includes unlimited Internet access. That matches other Internet service deals. So, in effect, the MSN content is free. "We're not kidding ourselves that in the beginning people will pay us a tremendous premium," says MSN Vice-President Laura Jennings. "But because we are in the access business, it allows us to bring people in and expose them to our content." Microsoft officials estimate that 200,000 subscribers who use a different Internet-access service will opt for the content-only offer in the next 12 months.

Microsoft's goals for MSN overall are not so modest. Bejan figures the number of subscribers will grow from 1.6 million now to 4.5 million over the next 12 months--enough to close the gap on No.2 CompuServe and reach half the membership of No.1 AOL, which is gunning for 10 million by next summer, from more than 6 million today.

Can MSN do it? "Last year, I said MSN was irrelevant. It's not going to threaten AOL," says analyst Emily Green of Forrester Research. "But I'm getting ready to eat my words. What I didn't count on was MSN's determination to get it right. This will put another big arrow in CompuServe and give AOL a run for their money." Microsoft will spend big to make its numbers: $100 million on marketing MSN, up from $12 million last year.

For now, MSN's entertainment programming is getting center stage. But the company has other new information services, too. Under the heading of "Essentials" are two Web sites within MSN that Microsoft executives have high hopes for. Microsoft Investor has been up since July, but a jazzy new version arrives on Oct. 10. Visitors can get business news (linked from MSNBC and other news sources), view stock charts, manage portfolios, and trade online via Charles Schwab & Co. A similar service from Fidelity Investments is planned.

MORE BIGGIES. You can get to Microsoft Investor through MSN, but you don't have to be a subscriber to visit the site (investor.msn.com). Today, it's free. But MSN plans to have a premium section by mid-1997 that will require a fee for nonsubscribers. Rates have not yet been set. Microsoft's Chris Payne, group product manager in the finance division, figures Investor will be profitable and generate sales of $25 million to $30 million in three years, including ads, which he says may bring in 40% of revenues.

The other big site is Expedia, a travel area scheduled to open on Oct. 22. Using it, Web surfers can buy airline tickets, rent cars, and book rooms from a database of 30,000 hotels. It also includes travel information from 15 guide books and can spit out customized maps.

Access to Expedia will be free. Microsoft plans to make its money by collecting the roughly 9% commission travel agents get. But that doesn't make it a sure moneymaker. Online travel is being targeted by a slew of competitors, from Travelocity, an effort by American Airlines Inc., to Internet Travel Network, a startup. Expedia execs say its features are unique: more than 1,000 photos of hotels, including rooms, and "Fare Tracker," which E-mails you notices of low fares to your favorite destinations. Microsoft also is developing a corporate travel service with American Express Co. Between that and the consumer service, says Richard Barton, group marketing manager in the Travel Business Unit, Expedia could generate gross bookings of $1 billion in three years, making it potentially a $90 million business.

Like Investor, Expedia can be reached through MSN or directly at expedia.msn.com. This is part of the basic Microsoft content model. The online version of the MSNBC cable network is on MSN's news channel. But Web surfers can go directly to the MSNBC Web site, which is ad-supported, without subscribing to MSN. Microsoft's online magazine, Slate, has its own Web site, too. Starting on Nov. 1, Slate will charge a $19.95-a-year fee, but it is free to MSN subscribers. Stonesifer says the MSN umbrella for Web content is "a way to make the sum of these individual efforts be something even bigger."

What if the revamped MSN--and the other new online initiatives--don't grow that big? For MSN, this is plan B and, according to Jennings, there is no plan C. "If this doesn't work," she says, "there's going to be a lot of sitting around going: What's next?" At that point, a trip down the Tekeze River could look like a nice change of pace.