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Friday, June 03, 2011, 10:30 pm PT (01:30 am ET)

Microsoft rumored to announce subscription TV service as Apple's iCloud looms

A new rumor claims Microsoft will announce an Xbox LIVE subscription TV service next week at the E3 conference on the heels of Apple's unveiling of its iCloud service.

Winrumors reports that, according to sources familiar with Microsoft's plans, the Redmond, Wash., software giant is set to take the wraps off an Xbox LIVE subscription TV service next week. "The company is on lockdown for its big announcement and some demos and details might be held back if agreements are not in place in time," the report noted.

The service, which will reportedly be named Xbox LIVE Diamond, will combine Microsoft's "mediaroom IPTV services" with Xbox LIVE. "Microsoft is likely to demo deeper integration of its Avatar Kinect service and the company’s new music and video services," the report added.

Microsoft has allegedly proposed a "virtual cable operator" with a monthly subscription fee to media companies. The service could also be used to authenticate existing cable subscribers, allowing them to watch shows and interact with their Xbox LIVE friends.

Frank Shaw, Microsoft's corporate vice president of corporate communications, indicated earlier this week in a company blog post that the company's entertainment strategy centers around the Xbox. "Xbox is the gateway to games, music, movies and TV shows – in short, it is central to entertainment," he wrote

"Next Monday at E3 in Los Angeles, the Xbox home entertainment pot will be boiling over during a 90-minute event," Shaw hinted, adding that the "company is turning up the heat on a whole new era of home entertainment."

The Electronic Entertainment Expo opens on Tuesday, June 7 , though Microsoft is expected to unveil the service at a media briefing on Monday. If true, the announcement will coincide with Apple's Worldwide Developer Conference. Apple confirmed on Tuesday that it will present iCloud, iOS 5 and Lion at the WWDC keynote on Monday, June 6 at 10 a.m. Pacific.

According to the report, both Microsoft and Apple are rushing to finalize deals with rights holders ahead of the big announcements. “Microsoft is currently in last minute negotiations to secure the necessary agreements in time,” said the report's source. “Apple is in a similar position, speaking to several media groups ahead of its iCloud announcement on Monday.”

For its part, Apple is said to be in the midst of negotiations with major Hollywood film and TV studios to allow customers to store content on Apple's servers via the iCloud service.