MICROSOFT MARCHES INTO TELEVISION : SOFTWARE GIANT BUYS WEBTV, ADDS PC-THEATER TO WINDOWS.

Byline: John Markoff The New York Times

In its most ambitious effort yet to blend the personal computer, the television and the Internet, Microsoft Corp. announced Sunday that it would spend $425 million to acquire WebTV Networks Inc., a Palo Alto, Calif., start-up company that delivers Internet information directly to television sets.

The acquisition, announced at a convention of television broadcasters in Las Vegas, is one of a series of maneuvers the software giant is making in an effort to extend its reach from the personal computer, which has found its way into almost 40 percent of American homes, into the television, which is in 98 percent of all homes in the country.

The company also announced plans to add software to permit its Windows operating system to be used in a PC-Theater, a new hybrid computer-TV that computer makers, including Compaq, plan to produce within the next few months.

Today, Microsoft, Intel Corp. and Compaq Computer Corp. were expected to announce their technical plans, which they hope will become the standard adopted by broadcasters, for digital interactive computer-TVs.

Sunday's announcement came just a few days after a Federal Communications Commission decision setting a nine-year timetable for the nation's transition from analog to digital television. It is a milestone in the challenge to the world's television manufacturers by the computer industry, which hopes to take over a substantial part of the new $150 billion market for digital televisions in the next decade.

The FCC in December modified the proposed standard for digital television to ease the computer industry's entry into this market.

``This strikes me as a baccarat table bet on the merger of PC and TV,'' said David Readerman, a computer industry analyst at Montgomery Securities in San Francisco. ``Microsoft believes it needs some momentum and presence on the TV side, and they're doing it through a device that would move the standards in their direction.''

Founded 20 months ago by computer engineers who are veterans of Apple Computer Inc. and General Magic Inc., WebTV began offering its Internet service last Christmas with two consumer electronics licensees, Sony Corp. and Philips Electronics NV. The company has been given high marks for designing a $300 set-top box that connects to a telephone line and allows television users to Web surf and send and receive e-mail.

There have been mixed reports, however, on the company's initial success. Steve Perlman, WebTV's co-founder and chief executive, said the company has significantly more than 50,000 subscribers, but he was unwilling to get more specific.

Retailers have reported in recent weeks that sales have been disappointing, compared with the expectations originally raised by the manufacturers.

Microsoft executives, however, seemed unfazed by the fact that WebTV is still tiny compared with on-line giants like America Online or even Microsoft's own MSN Internet service.

``We find that the computer and broadcast industries are both at a crossroads moving forward,'' said Craig Mundie, Microsoft's senior vice president for consumer platforms. ``We want to take the PC and its progeny and see those things penetrate much more deeply into homes.''

Microsoft and Paul Allen, Microsoft's co-founder and a Microsoft board member, were both already investors in WebTV. Perlman said that, as the two companies discussed sharing technologies, they realized they shared a common technological vision.

``Microsoft made an investment in WebTV last September,'' Perlman said. ``We agreed to work together on Microsoft's Internet Explorer and Windows CE software. Since then, the relationship has evolved into a number of different areas.''

Microsoft executives said that the deal, which is still subject to approval by government regulatory agencies, was for both stock and cash, with more than half being in Microsoft stock. Microsoft's treasurer said that Microsoft would like to write off more than half of the deal in a single quarter.