IP: The battle for "standards" in digital media -- or

[Dave Farber <dave () farber net>]

Applications 
Will MS put clamps on digital media?
By Joe Wilcox 
Special to ZDNet News
June 25, 2002, 7:00 AM PT


    


A battle is brewing over the future of digital media that could determine
whether consumers are locked into formats controlled by Microsoft or have
access to more open standards championed by competitors.

On the one hand, Microsoft is pushing its proprietary Windows Media
technologies and its pending successor, dubbed Corona. On the other,
RealNetworks, a longstanding supporter of many digital media formats, is
joining Apple Computer and other companies in backing open-standard MPEG-4.

Microsoft faces numerous obstacles in this format war, including major
resistance among content owners and distributors--such as cable and wireless
providers, which are reluctant to hand over a crucial component of their
industries to a single technology provider. Movie studios, record labels and
cable providers have an enormous stake in backing standards to ensure
compatibility between platforms and devices as well as equitable licensing
terms.


The stakes may just make the risks of going it alone worthwhile for
Microsoft, however, which sees fertile new markets for Windows well beyond
the desktop: media servers, cable set-top boxes, handheld devices and other
components of the coming wave of digitally powered home entertainment.

"This whole shift to entertainment services will be key, as well as
controlling the servers and the file formats. That's what it's all about,"
said Jupiter Research analyst Michael Gartenberg.

MPEG-4 is a successor to MPEG-1 and MPEG-2, technologies instrumental for
delivering digital broadcast transmissions over cable, satellite and the
Web. MPEG-2 also is the video standard adopted by Hollywood for DVDs. In
addition, MPEG-4 is seen as a possible successor to MP3, the hugely popular
audio format for compressing music digitally.

On the proprietary end, RealNetworks and Microsoft each offer video and
audio codecs, or formats for encoding or condensing data. Apple is an
important player, too, as the company's QuickTime tools are the most popular
for authoring digital content.

In this arena, Microsoft's digital media formats are steadily making headway
against rivals. The latest evidence came last week, when Web statistics
company Nielsen/NetRatings published a report showing Microsoft and
RealNetworks neck and neck in the race for supremacy between their
competing, proprietary formats.

The close results are partly the result of aggressive strategies by
Microsoft that include bundling more functions within its Windows operating
system. That charge, in other contexts, has been at the center of
unfair-competition lawsuits against the company in the past.

The Microsoft way
Microsoft has yet to commit to fully supporting MPEG-4, opting instead to
push Corona and proprietary digital media technologies delivered only on
Windows. The software giant claims its new Corona codecs will deliver better
quality video and audio using smaller file sizes than MPEG-4. Technically,
its media tools will produce the open-source format, but analysts say the
process still requires the use of the company's technology to play content.

"Microsoft is positioning its technology to be the preferred technology over
Real and MPEG-4," said IDC analyst Susan Kevorkian. "And they've got the
distribution platform to do it, and they're doing it for free through
Windows server and client applications. That's a huge advantage."

Microsoft hopes to use its Windows monopoly as a launching point for making
its file formats the de facto standard for digital content, which is why the
company gives away its authoring and serving tools with Windows 2000 server
and its media playback software with Windows XP, Gartenberg said. Companies
such as Apple and RealNetworks charge for some of these products.

But both Apple's and RealNetworks' authoring and serving tools are available
for multiple operating systems, such as Linux, Unix and Windows. Microsoft's
authoring and serving software runs only on Windows.

"It's the typical Microsoft strategy, where they use this almost as a Trojan
horse to bring something into play," Gartenberg said. "The more ubiquitous
it can make its file formats, the more they think that will drive adoption
rates. This is a critical, critical effort for them."

Whoever controls the most popular file formats can harness them for selling
server software. This is something Microsoft demonstrated with its Office
productivity suite, in which the ubiquity of file formats is considered a
major catalyst for driving Windows sales.

"Microsoft's main goal with Windows Media services is to sell as many
servers as possible," said Directions on Microsoft analyst Matt Rosoff.
"That's why it's only possible to host and stream and create Windows Media
Format files on Windows servers."

In addition to server sales, Microsoft is to boost sales for Windows XP
Embedded to device manufacturers. Jonathan Usher, director of the Windows
Digital Media Division at Microsoft, estimated that more than 30 million
devices will support Windows Media formats by the end of the
year--everything from handhelds to DVD players.

"Microsoft definitely wants Windows Media supported on as many platforms,
burned into as many pieces of silicon as it can get," said Meta Group
analyst Steve Kleynhans.

Desperate for a standard
The company may run into trouble convincing manufacturers to help it do so.
MPEG-4 also appeals to many companies that make devices using embedded
chips, such as cell phones or handhelds--a feature that helped win
RealNetworks to the MPEG-4 camp.

Content creators can use MPEG-4 and its predecessors to condense large
digital video or audio files into smaller ones, which is essential to
delivering them smoothly over the Web or to tiny devices such as cell
phones. MPEG-4, which has better compression bit-rates than MPEG-2, also
adds such features as interactivity, e-commerce and digital rights
management to audio and video files.

Forthcoming versions of RealNetworks' authoring and serving software will
fully support MPEG-4, said Sharon Goldstein, RealNetworks' product manager
for the format. The company's mobile server product already supports MPEG-4,
which along with its audio and video codecs will be used on Nokia cell
phones and some other wireless or portable devices.

Although RealNetworks is moving cautiously on MPEG-4 with its PC software
because of licensing issues, the company is backing the new standard
whole-heartedly in the wireless market, an arena where Apple also has
established an MPEG-4 beachhead.

Standards figure to play a prominent role in this arena, where manufacturers
don't have the flexibility to accommodate multiple and fast changing
formats. 

"You have devices that cannot be upgraded, where things have to be
hard-coded in," Goldstein said.

Red flags are being raised over the potential costs associated with
implementing MPEG-4 outside of the handheld market, although there are signs
that price concerns may prove short lived.

MPEG LA, the group of MPEG-4 patent holders, wants to institute a per-minute
charge for streaming that has been met with a cool reception by potential
licensees. Apple, for example, has raised a stink over proposed MPEG-4
licensing. The Cupertino, Calif.-based company introduced QuickTime 6, which
fully supports MPEG-4, in February. But Apple delayed releasing the new
version because of the licensing scuffle. Then, in an unexpected turnabout,
Apple earlier this month released a QuickTime 6 Preview, with CEO Steve Jobs
suggesting the licensing issue might soon be resolved.

In addition, RealNetworks relies on an MPEG-4 plug-in from start-up Envivio
rather than providing its own. But Goldstein said RealNetworks might
directly offer the codec depending on final licensing terms.

"We're still trying to decide what we'll do on the PC side," Goldstein said.
"It really does depend on the licensing, because of the economics. We have
over 270 million players out there. If there's going to be no cap for price
per player, that's a very expensive proposition for us."

Microsoft's Real problem
RealNetworks' support for MPEG-4 may be a crucial turning point in its
long-running battle with Microsoft, a fight that until now has focused on
its proprietary format. Having held out for years, the company now appears
more threatened than ever by Microsoft's relentless competition.

Last week's report from Nielsen/NetRatings showed RealMedia in April reached
17 million at-home viewers, compared with Windows Media at 15.1 million and
QuickTime at 7.3 million. At work, Windows Media drew about 12.2 million
unique viewers, compared with RealMedia at 11.6 million and QuickTime at 5
million. 

Nielsen/NetRatings emphasized that the report used a new methodology that
removed a large number of files from the mix, making comparisons to previous
studies moot. Nevertheless, the new study appeared to show Microsoft in a
much stronger position relative to RealNetworks than previously had been
believed. 

"We're really running about neck and neck with Real in terms of usage; I'm
talking about the number of users," Microsoft's Usher said. "Some months
we're ahead. Some months they're ahead."

RealNetworks has responded to Microsoft's bundling efforts partly by
shifting its strategy from controlling the technology delivery platform to
delivering content. RealNetworks has cut exclusive contracts with CNN, Major
League Baseball and other content providers for delivering content in
RealNetworks' format.

While Microsoft's Windows monopoly is a huge asset, it faces almost certain
rebellion from Hollywood studios and record labels fearful of leaving one
company in charge of providing a technology as fundamental as digital
formats. 

"There's going to be a huge battle for the content folks," Jupiter's
Gartenberg said. "But the content folks, the big record labels and
entertainment companies, are reluctant to get into bed with Microsoft."

Ultimately, however, analysts don't believe RealNetworks can control formats
through exclusive contracts long enough to thwart Microsoft's monopoly
leverage. Since consumers don't care about the format so much as the viewing
experience, many analysts said they believe MPEG-4 is the only possible
check on Microsoft's strategy of giving away Windows Media tools and
software for free and wooing device manufacturers into supporting its codec.

Gartenberg is not alone, particularly considering the importance of
RealNetworks getting behind and staying behind MPEG-4.

"I don't think you can distinguish competing against Real from competing
against MPEG," Kevorkian said. "I think it's all the same ball of the wax in
the end." 


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