Can Microsoft win the media format war?
Published: 04 Feb 2003 17:05 GMT
Can Microsoft be trusted? How music labels, Hollywood studios and consumers answer that question could determine whether the software giant dominates digital media the way it does Web browsers or desktop productivity applications, say analysts.
Microsoft is engaged in a tried-and-true tactic of giving away highly valuable technology as a means of getting a foothold in an emerging market. The strategy, which was instrumental in Microsoft's victory in the so-called browser wars, is being replayed in the digital media market.
The stakes may be as high; analysts see digital media, like the rise of the Web, as driving the next great wave of PC sales. "Microsoft, not surprisingly, wants to make sure Windows becomes a 'preferred platform' for using digital media," said Directions on Microsoft analyst Matt Rosoff.
In mid-January, Microsoft unveiled a new toolkit that would let record labels create music CDs containing, along with the normal tracks, preripped Windows Media versions suitable for uploading to a buyer's MP3-type player or PC, but protected by Microsoft's digital rights management (DRM) technology to prevent copying and swapping. The toolkit, the DRM license and the use of the Windows Media Audio format is free for the labels, despite Microsoft's $500 million investment developing what many analysts regard as the best DRM technology available today.
"Windows Media, that whole division, is an investment," Rosoff said "They're not making money on it, and they don't plan to make money on it."
By providing free use of the DRM technology and the accompanying toolkit, Microsoft hopes to make Windows Media audio and video formats more popular with record labels and eventually consumers. The strategy follows marginally successful partnerships with device makers and content creators designed to further the adoption of the format.
"Microsoft hopes that filling a perceived need by the labels to create a DRM solution will help drive Windows Media forward beyond the PC and into the arena of consumer electronics," said Jupiter Research analyst Michael Gartenberg.
At the same time, Microsoft is licensing its Windows Media 9 Series file formats for use on non-Windows operating systems and on devices. Many analysts view the low cost of the licensing as an attempt to undercut the licensing cost for MPEG-4, the successor to MPEG-2 used on Hollywood movie DVDs and the biggest potential competitive threat to Windows Media technologies.
"The long-term strategy is the ubiquity of the Windows Media Format," Rosoff said. "If that becomes the default format, suddenly they're selling a lot more Windows Servers, because you need Windows Server to administer the DRM and host and stream the files if you're doing it that way. And you need the licenses for the devices to play the files."
Giving DRM technology away for free--particularly a version that's as good as Microsoft's--also makes it that much more difficult for other companies to compete. Already, for example, RealNetworks has found it difficult to sell its server-based content creation and streaming software when Microsoft bundles Windows Media technologies for free with Windows 2000 Server and the forthcoming Windows 2003 Server.
But Microsoft's DRM toolkit giveaway and low-cost Windows Media 9 Series licensing is no assurance of success, say analysts. Record labels and Hollywood studios remain wary of Microsoft's motives. Is the software giant sincerely trying to generate interest in a compelling and useful technology or is the ultimate goal something else, such as protecting the Windows monopoly?
"The question is whether they're going to use their technology as a pawn for Microsoft proliferation or whether they're going to sell good technology," said Yankee analyst Ryan Jones. "That's really the concern."
Past behavior indicates, "it's the proliferation play," Jones said. "It would be disappointing if Microsoft screwed it up because of that. Their technology is really good."
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