Microsoft TV goes cold at CES 2012

The tech giant has been in intense talks with potential programming partners for more than a year and expected to announce the service in the coming months. But Microsoft would have backed down after verifying that the licensing costs were too high for the business model it wanted to deploy.

Microsoft would have frozen negotiations with media groups to launch a television and movie content service over the Internet, according to sources close to this negotiation that includes Reuters.

The tech giant has been in intense talks with potential programming partners for more than a year and expected to announce the service in the coming months. But Microsoft would have backed down after verifying that the licensing costs were too high for the business model it wanted to deploy.

Early versions of Microsoft's television system included a number of advanced applications, such as channel changing with voice and motion control.

Like Netflix, Microsoft's service would also have allowed users the option of paying a monthly fee for a different programming package than cable or satellite TV companies.

But unlike Netflix, Microsoft had hoped to be able to offer the shows that are now broadcast and live programs, a proposition with a much higher cost.

Xbox Live

Microsoft continues to work closely with the television business to distribute programs over the Internet, but instead of trying to get consumers to replace their cable TV packages, it is focusing on offering content through its Xbox console.

However, the content service through Xbox Live seems to be more alive than ever. In fact, at CES 2012, Microsoft and News Corp announced an agreement that will allow Fox Broadcast, Fox News, ING and The Wall Street Journal to offer applications on their Xbox Live service.

Sources from media companies also indicated that although the conversations have cooled, they still have some hope that the technology company will return to the table.

As Microsoft retreats from its original ambitions, Google, Amazon.com and others continue to try to unravel the U.S. cable TV ecosystem, a $100 billion business dominated by distributors like Comcast, DirecTV Group and content creators like Walt Disney and Time Warner.