Gates Showcases Technology Breakthroughs, Alliances and Market Momentum That Bring Microsoft's Digital Lifestyle Vision to Life

LAS VEGAS -- Jan. 5, 2005 -- In his keynote address at 2005 International CES, Microsoft Corp. Chairman and Chief Software Architect Bill Gates outlined his vision for the digital lifestyle and demonstrated a broad range of innovations that will enhance the lives of millions of people worldwide. Underscoring the importance of choice and flexibility in bringing the digital lifestyle into the mainstream, Gates showcased innovations in digital music, photos, television and movies, gaming, and communications, and showed how Microsoft and its partners are leading the industry in bringing to life the experiences consumers want.

"We are at the forefront in making broad technology investments and delivering breakthroughs that bring the digital lifestyle into the mainstream," Gates said. "Our strategy is to deliver great software and a platform for partner innovation, so consumers can choose from a vast array of devices and services that work together seamlessly and suit the way they live."

Gates unveiled groundbreaking new alliances that utilize the power and flexibility of Windows^® to make consumers' digital experiences richer and more personal. Among his announcements were these:

• An agreement with MTV Networks (MTVN) that will create new ways for consumers to access MTV content through a variety of digital entertainment products. As part of this agreement, MTV intends to launch a new PlaysForSure ^TM -compliant MTVN digital music service with portable subscription capabilities.

• New digital music and video devices that expand Microsoft's PlaysForSure logo program to more than 50 currently verified devices and seven online services, ranging from small, low-cost, flash-based players to full-featured hard-disk-based units and forthcoming network-connected high-definition televisions (HDTVs) and DVD players. Gates also announced that 90 million copies of Windows Media^® Player 10 have been downloaded since its launch in October.

• Continued momentum around interactive entertainment, with Media Center PC sales doubling year over year, surpassing 1.4 million units globally and growing by 40 percent in just three months

• An agreement with BellSouth Corp. to test next-generation TV services using Microsoft^® TV IPTV Edition

• Strong momentum for the Xbox^® system, with industry-leading sales for the 2004 holiday season, and expected sales of more than 20 million consoles by July 2005. The "Halo^® 2" game generated $125 million in revenue in its first weekend of availability, surpassing the biggest opening weekend in box-office history, for "Spiderman," which generated just under $115 million.

• A new collaboration with TiVo Inc. that will enable TiVo subscribers to easily transfer their recorded TV content from a standalone TiVo Series 2 standalone digital video recorder to their Windows XP-based and Media Center PCs, Windows Mobile ^TM -based Portable Media Centers, Pocket PCs or Smartphones using new TiVoToGo software

Gates also demonstrated the Nikon D2X digital camera with integrated 802.11 wireless networking capabilities, and two devices that use Windows Media Connect to extend the reach of digital content: a new connected HDTV from Digitrex for access to digital media in the home, and a DVD player-recorder and digital video recorder (DVR) from LG Electronics Inc. that can access music, photos and video from Windows XP-based PCs.

Capitalizing on the theme of entertainment experiences, this year's opening address was hosted by late-night talk-show personality Conan O'Brien and webcast live to millions of viewers on Microsoft.com.

Extending the Reach of Digital Media

Gates underscored Microsoft's differentiated approach to delivering the digital lifestyle: "Great software can bring consumers a vast array of devices and services that all work together seamlessly." He showcased how new digital music players from Archos Inc., iRiver, Samsung Electronics America and Gateway Inc. expand the company's PlaysForSure logo program to more than 50 currently verified devices, ranging from small, low-cost, flash-based players to full-featured, hard-disk-based units, network-connected HDTVs and DVD players. Gates also announced that consumers have downloaded 90 million copies of Windows Media Player 10 -- the equivalent of eight downloads per second since its launch in October.

Devices and services that bear the PlaysForSure logo help take the complexity and uncertainty out of digital media, effortlessly playing the digital audio and video consumers want, including more than 1 million tracks available on the MSN^® Music service, as well as other online stores currently available in the Windows Media Player 10 Digital Media Mall.

In the area of digital memories, Gates and O'Brien showed how the Windows platform is enabling seamless experiences by unveiling Nikon's new D2X digital camera. In a demonstration, O'Brien took photos and wirelessly transferred them to a Windows XP Media Center Edition 2005-based PC and then to a Windows Mobile-based Smartphone.

The Digital Lifestyle, Built on Windows Innovation

In his keynote address, Gates showed how the power and versatility of the Windows platform is making it possible to create PCs and consumer electronics devices that seamlessly bring together all aspects of the digital lifestyle. Noting the increased convergence of PC and TV technologies, Gates unveiled new Windows XP Media Center Edition 2005-based PCs from Alienware Corp., HP, Niveus Media Inc., Stack 9 Systems Corp. and Ricavision International Inc. that provide access to consumers' favorite TV shows as well as their photos, music and video, and advanced functionality such as Imaging Science Foundation-certified HDTV. He announced a forthcoming DVD recorder and DVR from LG Electronics, built on Windows CE, that enables consumers to record and burn DVDs of their favorite shows and share content with their Windows XP-based and Windows XP Media Center Edition-based PCs. Gates then demonstrated advanced universal remote controls from Royal Philips Electronics, Niveus and Logitech International SA that control Media Center PCs as well as consumers' existing home theater equipment.

To further show how the capabilities of Windows can enhance the devices people use today, Gates demonstrated the first network-connected television designed to support playback of music and video from online stores with the PlaysForSure logo. The new 46-inch LCD HDTV from Digitrex uses Windows Media Connect and Windows Media Digital Rights Management 10 to stream digital photos and personal media from any Windows XP-based PC, as well as download and subscription music and video from PlaysForSure online stores. He noted that this new type of TV design also is being evaluated by Pioneer for its HD plasma displays, and that these kinds of innovations are creating new opportunities for consumer electronics companies and extending the reach and choice of digital media for consumers.

The Future of Television, Rolling Out Today

Gates then focused on the tremendous potential of Internet protocol-based TV (IPTV) services, and noted how Microsoft TV IPTV Edition software is providing a platform for network operators worldwide to deliver next-generation pay-TV services. This powerful software provides the video platform for operators to offer their subscribers integrated video, voice, data and mobile services that are not available on today's TV distribution platforms.

Gates announced that BellSouth has joined the growing list of customers, including SBC Communications Inc., Bell Canada and several leading telecommunications operators worldwide, that will trial IPTV services powered by Microsoft TV software.

In addition, SBC Services recently announced an agreement with Microsoft, valued at more than $400 million over 10 years, to license and deploy Microsoft TV IPTV Edition to millions of its subscribers. Lea Ann Champion, executive vice president, SBC IP Operations & Services, took the stage to demonstrate a number of the features this software will make possible, including HD programming, DVR features, video on demand and multiple picture-in-picture capabilities.

New Content, More Choices -- at Home and on the Go

The tremendous growth in devices has been matched by an expanding range of audio and video content, as Gates demonstrated through a number of announcements and alliances. He highlighted the new collaboration between Microsoft and TiVo that will enable customers using a TiVo Series 2 standalone digital video recorder and new TiVoToGo software to easily transfer recorded TV content to their Windows XP-based PCs. TiVo expects that within 60 days, consumers also will be able to transfer the same content from the PC to Windows Mobile devices, including Portable Media Centers, Smartphones and Pocket PCs. TiVo announced that it expects its standalone TiVo Series 2 subscribers to have access to the software within 60 days.

"We share Microsoft's excitement about the possibilities for digital entertainment," said Mike Ramsay, chief executive officer of TiVo. "When we launched TiVo, it changed the way people enjoyed their favorite shows -- from prime time to anytime. When Microsoft launched Portable Media Centers, it gave people the ability to take them on the go. This gives our customers the best of both worlds -- to have their favorite programming available wherever and whenever they want it."

Gates then announced a groundbreaking agreement with MTV Networks to collaborate on long-term digital media initiatives that will create new ways for consumers to access content -- including from MTV, VH1, CMT and Comedy Central -- through a variety of digital entertainment products and scenarios. As part of the agreement, MTV will target its content offerings to Media Center PCs and Portable Media Centers and intends to launch a new PlaysForSure-compliant MTVN digital music service with portable subscription capabilities, available in the Windows Media 10 Digital Media Mall.

"MTV Networks shares Microsoft's vision for making it easier for consumers to get the entertainment and information they want, and this agreement is a major step toward that goal," said Judy McGrath, chairman and CEO of MTV Networks. "Using Microsoft's technology, we'll be able to give our consumers a deeper, more connected experience by providing them with the ability to enjoy MTV, VH1, CMT and Comedy Central content whenever and wherever they choose."

Gates then highlighted the new MSN Video Downloads service, which provides a single source for sports, news and entertainment content for Portable Media Centers and other Windows Mobile-based devices, including daily video downloads from a wide range of leading content providers including MSNBC, CNBC, FOX Sports, HGTV, Cookie Jar Entertainment and IFILM Corp. MSN Video Downloads (http://video.msn.com/downloads ) has launched a preview of the service offering both free and premium memberships, and the site is expected to launch in final form within a few months.

Xbox Leading the Way in Interactive Entertainment

Gates noted the continued momentum around Xbox and the Xbox Live ^TM service, announcing the industry-leading sales of the Xbox console for the critical 2004 holiday season in the United States, garnering a projected 40 percent market share for the months of November and December. The much-anticipated "Halo 2" title, launched Nov. 9, has sold more than 6.3 million copies to date, surpassing the sales to date of the first "Halo" title. "Halo 2"'s opening-day revenue of $125 million in the United States and Canada surpassed the biggest opening weekend in box-office history, for "Spiderman," which generated just under $115 million. The hot Xbox role-playing game title "Fable" also broke the 1 million sales mark in only two months.

Xbox Live experienced the highest activity levels ever, with more than 1 million unique users playing on the service and "Halo 2" gamers spending a record-breaking 69 million hours on the service to date -- more than any other Xbox Live game.

Gates outlined three major trends driving the gaming phenomenon today: HDTV, ubiquitous broadband and wireless connectivity, and rich personalization. To demonstrate the latter point, he joined O'Brien to play "Forza Motorsport ^TM ," an auto racing game from Microsoft Game Studios scheduled to launch in April 2005. Gates and O'Brien raced through Manhattan in customized cars, showing off the title's immersive, engaging gaming experiences -- and their lack of online driving skills.

Communication and Content on More Devices Every Day

Turning to communications and mobility, Gates highlighted that Microsoft Windows Mobile-based Smartphones are now available from 61 mobile operators in 28 countries and that 37 partners are shipping more than 25 Windows Mobile-based phone designs.

Gates demonstrated how the Windows Mobile-based Audiovox SMT5600 Smartphone can synchronize audio and video content using Windows Media Player 10, enabling users to play audio from subscription services and access video content from their PC. He also announced that Microsoft, Cingular Wireless LLC and Garmin International Inc. will deliver new consumer devices running Windows Mobile software this year, and that Ecast Inc., Universal Electronics Inc. and Akimbo Systems are shipping new consumer devices using Windows Embedded technology. Gates demonstrated prototype technology from Microsoft Research that enables users of Windows Mobile-based Smartphones to remotely browse and display photos stored on their home or office PC.

Gates then highlighted the momentum behind Microsoft's Smart Personal Objects Technology and Smart Watches for MSN Direct by introducing three new wristwatches from Fossil Inc. and Suunto, and alliances with Oregon Scientific Inc. and M.Z. Berger and Co. to develop alarm clocks featuring MSN Direct weather content. Gates also announced that the amount of content available to consumers has doubled since last year's launch, and noted expanded network coverage in metropolitan areas throughout the United States and Canada.

Gates concluded his keynote address by looking back at the year's amazing progress in consumer technologies and outlining a number of key trends that will shape the future of the consumer electronics industry. Noting the continued growth in storage capacity and network bandwidth, he predicted that individual devices will soon be able to store as much data as today's largest music services, and how ultrawideband networking will make it possible to create even more diverse and innovative smart devices.

"This holiday season was a milestone for Microsoft and its partners -- we've seen how the power of software can enhance consumers' digital experiences, help ensure that they work together seamlessly, and offer people more choices than ever," Gates said. "The digital lifestyle is here to stay."

Founded in 1975, Microsoft (Nasdaq "MSFT") is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.

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