CNET News.com: Microsoft struggles with WebTV pricing

“To gain a foothold in the potentially lucrative market of
selling online services and goods through the television,
Microsoft has pushed WebTV aggressively, even offering
manufacturers subsidies on their production costs to build a base
of WebTV subscribers…
To keep its manufacturing partners
appeased and the retail distribution channel happy, Microsoft
essentially pays these companies to stay in the market…”

“…this business model is in stark contrast to the leverage the
company enjoys with its partners in the PC market. In that segment,
Microsoft charges manufacturers relatively high,
take-it-or-leave-it prices for its software and then lets them duke
it out against each other in the marketplace.”

” ‘Subsidization has always existed,’ [analyst with The
Envisioneering Group, Richard] Doherty said. ‘Microsoft is using
its clout to compete on a level other companies can’t. WebTV is
doing something that other Internet start-ups can’t do.’ “