How Microsoft, on the Brink of Defeat, Could Still Win the Streaming Video War

[Dave Farber <dave () farber net>]

> Date: Wed, 27 Aug 2003 06:42:29 -0400
> From: Barry Ritholtz <ritholtz () optonline net>
> Subject: How Microsoft, on the Brink of Defeat,
>  Could Still Win the Streaming Video War
> To: Dave Farber <dave () farber net>
>
>
> Dave,
>
> (For IP) Terrific article from Robert X. Cringley on Streaming Media and 
> Microsoft's EU/patent problems. RXC suggests that if the EU forces the 
> unbundling of Windows Media Player, it will work to the advantage of both 
> Apple and Real.
>
> If streaming media can be turned into either a "platform" or a 
> browser-like killer app, it will threaten MSFT's monopoly. RXC puts this 
> into the content of the 2 recent litigation losses for Redmond, and 
> explains why  a little followed patent/anti-trust case -- Burst.com vs 
> MSFT -- is potentially much larger than either  Intertrust v MSFT or Eola 
> v MSFT cases.
>
> Fascinating read, and a potential paradigm shift -- if MSFT loses . . 
> .  (Disclosure -- I'm on the BoD of Burst.com)
>
> Barry L. Ritholtz
> Market Strategist
> Maxim Group
> britholtz at maximgrp dot com
> (212) 895-3614
> ~~~~~~~~~~~~~~~~~~~~~~~~~~~~
> The Big Picture:  A blog of capital markets, geopolitics, with a dash of film!
> http://bigpicture.typepad.com/comments/
>
>
>
> Stream on
> How Microsoft, on the Brink of Defeat, Could Still Win the Streaming Video War
> By Robert X. Cringely
> http://www.pbs.org/cringely/pulpit/pulpit20030821.html
>
> There are several legal cases winding up right now that involve Microsoft. 
> Last week, a jury in Chicago granted Eolas $520 million in damages from 
> Microsoft for violations of its patent on certain types of web links. I 
> covered this story a couple years ago, and you can find a link to that 
> column under the "I Like It!" button on this page. While $520 million is a 
> lot of money even at Bill Gates' house, the Eolas award is actually larger 
> than that. It has been accumulating interest since 1998, and now stands at 
> $600+ million. By the time Microsoft appeals (and presumably loses), 
> according to Eolas CEO Mike Doyle, the deferred award will be up around 
> $1.3 billion.
>
> What's interesting is not that Microsoft owes all that money, but what 
> Eolas plans to do with the cash. I would move to the islands, myself, but 
> Doyle plans to pursue other infringers (that would be almost every other 
> Internet software company, so stop gloating you vendors) after Microsoft 
> is vanquished and then to develop new technology with the money. "Our 
> basic model hasn't changed," says Doyle. "[We will] build new technologies 
> as a result of applied research, license some of those technologies to 
> others, commercialize some of them ourselves, and spin others off into 
> companies that Eolas maintains a significant stake in. In terms of the 
> technologies that we plan on commercializing ourselves, the focus there 
> will be on the browser application platform and the tools and facilities 
> needed to enrich it to the point where it becomes a viable 'Web-OS.'"
>
> Uh-oh. Isn't that what Netscape was purporting to be doing (a Web OS) back 
> in the late 1990s when Microsoft decided that company had to die? Look for 
> Microsoft to fight to the death on this one. And if they lose in the end I 
> can't even imagine what will happen. Doyle swears he won't license his 
> patents to Microsoft under any terms, so maybe Eolas will become the next 
> Microsoft.
>
> But Eolas is not the end of Microsoft's legal troubles, just the 
> beginning. This is where it gets VERY interesting and where the element of 
> time comes into real play.
>
> The European Union two weeks ago announced its intention to both fine 
> Microsoft and order unbundling of Windows Media Player from all versions 
> of Windows sold in Europe. Oddly, the EU didn't order the fine and other 
> changes, just indicated that it would shortly do so. Microsoft gets one 
> last chance to comment, but it won't do any good because Microsoft won't 
> willingly change anything. So I predict the EU will impose a fine of up to 
> $3 billion and make Microsoft unbundle. Microsoft will claim it is being 
> murdered, but will grudgingly comply.
>
> Intertrust, a Digital Rights Management company owned by Philips and Sony, 
> is suing Microsoft for patent infringement and seems to be making the case 
> stick. Microsoft may soon be forced to pay another huge fine, remove the 
> infringing DRM code from nearly all of its products, or license the DRM 
> code from Intertrust at horrendous expense.
>
> Those are the clues -- trouble for Microsoft in Europe, trouble for 
> Microsoft in Digital Rights Management, and legal trouble for Microsoft in 
> general. A lot is at stake here since Bill Gates has pinned the future 
> success of his company on digital content delivery. Without Windows Media 
> Player, that strategy is hobbled. I know that is only for Europe, but 
> losing Europe is a fatal blow to a strategy that assumes global dominance. 
> And without strong Digital Rights Management, Microsoft will lose the 
> support of copyrighted content providers -- another fatal blow. Finally, 
> juries are turning on Redmond as the company's modus operandi becomes 
> clear. The question in the minds of Bill Gates and Steve Ballmer has to 
> be, "How do we retake control of this strategy gone sour without getting 
> into even greater legal trouble?"
>
> There is a way, but only one way. These guys are smart and they'll 
> eventually find it.
>
> The forced unbundling of Windows Media Player in Europe will make 
> Microsoft compete on a level playing field with companies like Real 
> Networks and Apple Computer. That will be the whole point of the EU order, 
> to encourage fair competition. But Microsoft HATES fair competition and 
> hates a level playing field even more. In his heart of hearts, Bill Gates 
> feels he needs an uneven playing field and will do whatever he can to 
> create one.
>
> Another Microsoft legal battle that looms is against Burst.com, a case 
> about which I have also written in the past ("I Like It" button, 
> remember?). Burst says Microsoft stole its patented technology for 
> creating instant-on streaming and improving streaming bandwidth 
> utilization by an average of 30 percent by sending some data down the pipe 
> before it is actually needed, thus keeping the pipe 100 percent full all 
> the time. Something that looks remarkably like Burstware is a key 
> component of Windows Media Player 9, which prompted the Burst lawsuit 
> against Microsoft. Similar code (which Burst would probably say infringes 
> its patents, too) can be found in the latest versions of RealPlayer and 
> QuickTime. Right now, bursting is a key component of almost every 
> mainstream media player.
>
> The Burst v. Microsoft trial begins this fall, and it looks bad for 
> Microsoft. If Eolas had a claim, well, Burst's claim is bigger, and the 
> damages it will likely prove are greater. It might take another year or 
> more, but this trial is likely to be extremely expensive for Microsoft, 
> which could end up minus another billion or more and no longer have the 
> right to use bursting in Windows Media Player, which would effectively 
> kill the product.
>
> Until a week ago, I would have said Microsoft's only hope was to settle 
> with Burst, and in that settlement, gain a Burstware license. But now the 
> EU has revealed its hand and just buying-off Burst and taking a license 
> isn't enough. Microsoft -- which probably hasn't quite figured this out 
> yet but eventually will -- now has to OWN the 37 Burst patents.
>
> Owning the Burst patents would tilt the playing field again in Microsoft's 
> favor. Even unbundled from Windows, Windows Media Player could continue to 
> burst while RealPlayer and QuickTime could not. Microsoft's lawyers would 
> see to that. Microsoft is accused of having an illegal monopoly, but a 
> patent is by definition a LEGAL monopoly, even in Europe. Buying Burst or 
> its patents would not only help Microsoft in Europe, it would kill 
> Microsoft's competitors there and in the rest of the world while avoiding 
> another embarrassing defeat in court. Even Microsoft's Digital Rights 
> Management problems would be solved because Redmond could barter streaming 
> licenses for DRM licenses. At the end of the day, Microsoft wins, but it 
> all depends on a settlement in which Microsoft buys out Burst.
>
> There is only one event that would prevent this outcome, and that's if 
> someone else moves quicker than Microsoft to grab Burst.
>
> Let the games begin.

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