Microsoft-Nbc Alliance Gives Software Giant An Edge Exclusive Deal Turns Up The Heat On Other Providers Of On-Line Service

At first glance, it looks like a slam dunk: Microsoft has lured NBC away from Prodigy and America Online, signing the television network to a three-year exclusive contract with Microsoft’s new on-line service.

In reality, the partnership the software company and TV conglomerate announced last week might only provide an incremental edge to Microsoft, industry leaders say.

But it still provides an edge.

Microsoft Chairman Bill Gates and NBC President Bob Wright said Tuesday they were forming an alliance to run NBC content on The Microsoft Network, the on-line service, and to develop CD-ROM material and programming for interactive television.

In making the announcement, Wright said his network would phase out its year-old services on Prodigy and America Online at about the time The Microsoft Network debuts in August.

That’s very unusual if not unique: Most companies signing up with Microsoft are staying with other on-line services as well.

Wright called The Microsoft Network a major, worldwide undertaking and praised plans to charge a low monthly fee (rumored to be as low as $3) for basic access. He likened the pricing plan to broadcasting, which draws a mass market because it’s free and pays for itself through advertising.

America Online’s stock temporarily fell by 17 percent after Wright’s comments, which came during a conference call with reporters and stock analysts. The stock closed at $38.625, down $3.125, after dropping as low as $34.50 at midday. By Thursday, it stood at $35.375.

NBC’s announcement seems to bode poorly for Prodigy and - and any other company that thinks it can compete against Microsoft for on-line customers.It hints that other big companies might abandon the established services, which charge customers about $10 a month but don’t charge extra for as many services as Microsoft would.

That might not be the case, say on-lineindustry experts.

The NBC-Microsoft deal “is a rarity,” said Mike Rinzel, an on-line-industry analyst with Jupiter Communications of New York. “I think Microsoft must have really gone that extra mile with NBC to encourage them to sign that exclusive deal.”

Peter Neupert, senior director of strategic relationships for Microsoft, said Microsoft did not go out of its way to seek exclusivity. But he said it made sense in this case, given the things NBC wanted out of the relationship.

Microsoft will make “a modest investment” in NBC, Wright said, to offset the cost of developing content. It also will lend employees to help with the effort.

Wright and Gates stressed the unique nature of their partnership.

Microsoft wanted help developing content for interactive television, the future technology that will marry computers and television. NBC, in turn, wanted Microsoft’s technical expertise in making use of the broadcast material it already creates.

Prodigy and offered distinctly different reactions.

spokeswoman Pam McGraw said only, “NBC’s a valued partner. We hope to work with them on future projects.” Then she stressed AOL’s strength in drawing entrepreneurial, creative types who want to provide original content for the service.

Prodigy’s Brian Ek, director of communications, said Prodigy wasn’t too upset about the loss. He predicted Microsoft would fail to lure as many customers as it expects because it is charging extra fees for many of the network’s services. More important, he said, NBC also is developing content for the Internet’s World Wide Web, a public network that Prodigy subscribers can now access via modem.

Even so, Ek acknowledged that no one knows for sure how Microsoft will affect its competitors when it launches its network later this year.

“I look at (The Microsoft Network) as a competitor very closely,” he said. “And with some trepidation.”