BesTV is a major Chinese Internet TV service operator. According to its website, it owns the world's largest IPTV user base of more than 16 million.

"The resources of BesTV, including its IPTV licenses, video content and user base, may aid Microsoft's family entertainment products, such as the Xbox, to land in China," said Wang Yumei, an analyst with China International Capital Corp.

Microsoft defined its latest Xbox One game console as an all-in-one home entertainment center and added a set-top box function to the system. But if the product is to be launched in China, Microsoft has to work with local partners with license and content resources. Therefore, BesTV is the right candidate, Wang said.

Lin Lin, an analyst with Shenzhen-based Guotai Junan Securities, said that if the Xbox successfully hits the Chinese market, its strong gaming capabilities and rich software resources, combined with BesTV's content and platform, will create a competitive edge over rivals in China.

BesTV's shares increased by the 10 percent daily limit on Tuesday, hitting 51.11 yuan ($8.35) per share.

In an e-mail statement sent to China Daily on Tuesday, Microsoft confirmed the cooperation project with BesTV and said it wants to explore new opportunities in Shanghai and in China.

The software company said it believes there's great market potential and partnership opportunities in the country.

"This is the first step of many to come for Microsoft and BesTV and we look forward to exploring new opportunities for bringing entertainment offerings to China," the statement said.