NYTimes: Digital Media Becomes Focus as Microsoft and AOL Settle (with Farber quote at end (almost farberism))

[Dave Farber <dave () farber net>]

> Digital Media Becomes Focus as Microsoft and AOL Settle
>
> June 2, 2003
> By STEVE LOHR
>
> The corporate armistice declared last week between
> Microsoft and AOL Time Warner reflected two companies
> moving from the past to the future.
>
> The abandoned past included a last lingering vestige of the
> Internet browser wars of the 1990's, a private antitrust
> suit that Microsoft has now agreed to pay AOL Time Warner
> $750 million to settle.
>
> The future involves using the Internet to deliver
> commercial program content, mainly movies and music, to
> consumers who are equipped with a growing array of digital
> devices to receive it, from personal computers to digital
> televisions to smart cellphones. And the two companies must
> do so in a way that is convenient for users and profitable
> for media companies, while keeping digital piracy to a
> manageable minimum.
>
> Both Bill Gates, the chairman of Microsoft, and Richard D.
> Parsons, his counterpart at AOL Time Warner, spoke last
> Thursday about how their collaboration could accelerate the
> adoption of digital media for the Internet while
> maintaining copyright protection.
>
> The central technology in pursuit of that goal is the
> software for handling and protecting digital media. And
> last week's pact included a long-term, nonexclusive license
> agreement allowing AOL Time Warner to use Microsoft's
> Windows Media software for distributing and playing back
> digital media.
>
> The media player is the crucial piece in the puzzle. It
> resides on the user's computer or other device and opens a
> portal to what the industry calls rich media - movies,
> music, video - delivered over the Internet, just as the
> browser is a portal for viewing Web pages. The media player
> takes on additional importance because it seems to be the
> likely vehicle for some of the vital technology in the
> emerging field of digital rights management - a fancy name
> for piracy protection.
>
> "The big battleground in software is going to be the media
> player itself," said Chris Charron, an analyst for
> Forrester Research. "The media player will become a more
> important link to own than the browser, and Microsoft
> recognizes that."
>
> Can Microsoft dominate the market for digital media
> distribution software as it came to dominate the browser
> market?
>
> The media-player market today looks quite similar in some
> ways to the browser market in, say, 1997. An early
> media-player leader, Real Networks, is under pressure from
> Microsoft, just as the commercial pioneer of the browser
> market, Netscape, was then.
>
> Microsoft bundles its digital media software with its
> Windows operating system, a monopoly product running on
> about 95 percent of all personal computers. As for user
> acceptance, at the moment Microsoft's player is neck and
> neck with Real Network's Real One Player, with each having
> more than 300 million registered users.
>
> But Real Networks, founded in Seattle in 1995 by Rob
> Glaser, a former Microsoft executive, is an embattled
> challenger. It lost $2.8 million on revenue of $47 million
> in the first quarter of this year, bringing its cumulative
> loss since it started to $261 million. A former highflier
> on Wall Street that raised a lot of money early, Real
> Networks still has $320 million in cash, so it has
> financial staying power for a while, but it must find a way
> to make money.
>
> Yet there are significant differences between the markets
> for digital media software and browser software. One is
> simply the legal legacy of the browser wars. A federal
> appeals court has ruled that Microsoft repeatedly violated
> antitrust laws in its campaign to thwart the challenge that
> Netscape at one time seemed to pose to Microsoft's desktop
> monopoly. Last week's $750 million payment was to settle a
> related private antitrust suit brought by Netscape, which
> AOL purchased in 1999.
>
> In an antitrust settlement last year with the government
> and several states, Microsoft agreed that it would no
> longer bully industry partners and others to choose its
> software over competitors' offerings. So some of the
> tactics Microsoft used in the browser battle should no
> longer be in the Microsoft arsenal.
>
> In addition, an investigation of Microsoft by the European
> Commission is still in progress, and one of the remedies
> under consideration involves forcing Microsoft to unbundle
> its media player from its Windows operating system.
> Microsoft replies that, as with the browser, consumers
> benefit from the convenience of having the media player
> included with the operating system. The antitrust
> settlement in the United States did not require Microsoft
> to distribute the browser or the media player separately.
>
> More important, the nature of the market for media software
> is different. For a browser maker, the crucial relationship
> - and channel of distribution - was with the PC makers, who
> were beholden to Microsoft because of its Windows monopoly.
> In digital media software, by contrast, the crucial
> relationship is with the owners of the content, the big
> media conglomerates, who have plenty of independent power
> and are not beholden to Microsoft.
>
> Significantly, the long-term licensing deal included in the
> cooperation pact last week between Microsoft and AOL Time
> Warner was not exclusive. AOL Time Warner has been working
> with Real Networks for some time and will continue to do
> so.
>
> The chances that AOL Time Warner will adopt Microsoft's
> technology are a lot better today than they were a week
> ago. "It's hard to be a partner with someone who is holding
> a gun to your head in court," observed Will Poole, a
> Microsoft senior vice president responsible for Windows and
> its digital media software.
>
> But the agreement is by no means a guarantee that Microsoft
> will become AOL Time Warner's preferred media software
> supplier. "We don't ask for exclusive deals in this space,"
> Mr. Poole noted.
>
> Indeed, most major media companies are expected to deliver
> their movies and music formatted for both the Real Networks
> and Microsoft media players. For example, Movielink is a
> movie service set up last November by five Hollywood
> studios, including Warner Brothers. It charges $3 to $5 for
> movies sent over the Internet, and uses both Real Networks
> and Microsoft technology.
>
> Though Real Networks and Microsoft are the leaders, there
> are other competitors in the field, and some big potential
> entrants. Apple Computer offers QuickTime media software,
> and with the recent introduction of Apple Computer's iStore
> online music sales service, first for Macintosh computers
> and later for Windows PC's, the company is becoming a more
> serious competitor.
>
> Big consumer electronics companies like Sony, Phillips and
> Matsushita are also working on some software elements, like
> the MPEG-4 digital movie standard. Sony is also building up
> its capabilities in the digital rights management area; it
> created a stir in the software industry last year when it
> paid $28.5 million to license digital rights software and
> patents for InterTrust, a struggling startup.
>
> It seems doubtful that either the major media companies or
> the consumer electronics makers would allow themselves to
> become overly dependent on Microsoft technology.
>
> Another difference is that the market for digital media
> seems to be far less centered on the PC than the browser
> market was in the late 1990's. The number of cellphones
> that can receive music and video clips is growing quickly,
> though mainly in Europe and Asia so far. Cellphone makers
> have resisted Microsoft's effort to persuade them to
> incorporate its software.
>
> For example, Nokia, the industry leader, plans to ship 12
> million cellphones this year that can receive streaming
> media; they use a pared-down version of the Real Networks
> media player.
>
> Dan Sheeran, vice president of marketing for Real Networks,
> noted that nearly three times as many cellphones are
> shipped each years as PC's. "When you move beyond PC's,
> Microsoft's history in the PC business puts it at a
> disadvantage," Mr. Sheeran said.
>
> Another force that seems to work against a tilt to any
> single technology supplier, including Microsoft, is the
> thorny set of technical and business issues surrounding
> digital rights management. Technically, any copy protection
> mechanism, especially one that depends only on software, is
> susceptible to being broken. And then, any PC connected to
> the Internet can become a piracy factory - as the music
> file-sharing systems starting with Napster have shown in
> recent years. Fear of piracy has made media companies
> reluctant to offer their products on the Internet or adjust
> their business models for lower-cost Internet distribution.
>
>
> "If the media folks could put copy protection in your ears
> and eyeballs, they would," said David Farber, a computer
> scientist at the University of Pennsylvania and a former
> chief technologist at the Federal Communications
> Commission. "They don't trust software."
>
>
>
>
> http://www.nytimes.com/2003/06/02/technology/02PLAY.html?ex=1055518845&ei=1&en=ce56cf95ce32209d


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