According to Reuters, two people familiar with the plans have said that the software giant is considering a number of different options for establishing a subscription TV service.
Among these is the creation of a "virtual cable operator" delivered over the web, for which users would pay a monthly subscription fee. Another would be to use the Xbox Live platform to enable existing cable subscribers in the US to watch shows with enhanced interactivity, similarly to the Sky TV service that is currently available on the console in the UK.
Microsoft's potential push into the TV business comes after Apple and Google made firm strides into the market with their connected TV services.
Apple recently started offering 99-cent TV show rentals in the US on its redesigned Apple TV service, while Google partnered with Sony and Logitech to create the hybrid Google TV platform that merges TV with the open internet.
Keen not to lose ground on its main rivals, Microsoft is understood to be exploring options for creating content silos for its new TV platform, while also offering linear channels such as HBO and Showtime.
The industry sources told Reuters that the pay-TV service may not launch for another year, but that early negotiations have been productive. Microsoft declined to comment on the speculation.
Microsoft has a long-held ambition to enter the TV business, including previous forays into interactive services such as Web TV and the MSN TV set top box software.
People who have seen early demonstrations of the service said that the firm's latest TV venture would enable viewers to engage with social media networks, along with interactive advertising and motion control technology.
This month, Microsoft made its new Kinect motion control system compatible with Sky Player on Xbox Live, allowing subscribers to browse channels and access menus via hand gestures and voice recognition.