The software giant's possible push into the television business comes as Google, Apple Inc and Netflix have jostled for a seat at the table of television's future.
Microsoft is also exploring the possibility of creating content silos and selling more individual channels directly such as an HBO or Showtime. It already has Walt Disney Co's ESPN on the XBox Live online service for example.
Reuters' sources added that a service may not arrive for another 12 months.
Microsoft has long held ambitions to be a major player in the TV business and has previously invested in interactive television initiatives including Web TV and MSN TV set-top box software.
Google has already launched Google TV, a Web-TV service with partners including Sony televisions and Logitech set-top boxes.
Apple has also begun to offer 99-cent TV show rentals for a limited number shows through News Corp's Fox and Disney.