Microsoft Wants to Control Your Personal Entertainment Future

The megalomania continues – Microsoft in Wired:

Microsoft has two visions for the future of digital media: unlimited choice for consumers, and unlimited control for producers. One thing’s for sure, it’s unlimited opportunity for Redmond.

….These two homes represent two futures. The first is what consumers want: digital media their way, in whatever form suits. The second is what Hollywood wants: media lockdown, with every use subject to permission and often then only for a fee.

In the middle stands Microsoft, determined to navigate these extremes. In the face of a rapidly maturing business market, Microsoft needs to find a way to persuade consumers to upgrade their PCs.

The answer: films, music, and other digital media flowing from one Microsoft device to another. But Hollywood owns the content. The record labels have seen what can happen when consumers gain total control; the film studios aren’t about to let file-sharing ruin them. And so Microsoft is working both ends simultaneously – on one hand, wowing consumers with next-generation PCs that can outperform consumer electronics devices; on the other, reassuring Hollywood that digital media does not have to mean digital theft.

Like it or not, the path Microsoft takes will determine the future of digital media – thanks to its dominant desktop market share, the company’s actions set the pace for the industry. If it pushes as quickly as the underlying technologies allow, taking a page from Apple’s “Rip. Mix. Burn.” playbook, it could create extraordinary consumer demand. Millions of people might opt for broadband in their living rooms, just as they have adopted DVDs and wide-screen TVs. But if Microsoft can’t reassure Hollywood that this isn’t all about piracy, the studios will choke off the content supply by whatever means they can, slowing the market and creating a crisis not unlike that faced by the music industry.

It’s a delicate maneuver, requiring equal parts technology and statesmanship – two words that go together like socks and sandals. As a strategy, it’s pure politics, weighing one interest group (consumers) against another (content providers). The Microsoft man at the scales: Will Poole, senior VP in charge of the company’s $10 billion Windows client division. His real title ought to be chief diplomatic officer.

….Poole followed the Media Center Edition launch by introducing Windows Media 9 earlier this year. To consumers, Media 9 is a media player – like RealPlayer or QuickTime. To Microsoft, it’s a $500 million attempt to build a platform for digital media in the same way that Windows is a platform for productivity tools. In a matter of months, Microsoft has licensed the codecs (compression-decompression algorithms) to dozens of consumer electronics manufacturers, enabling Media 9 files to play on everything from DVD and MP3 players to phones and car stereos.

The quality of Media 9 playback is amazing. Microsoft product managers and engineers boast about stuff like 24-bit audio and high-definition video, but what it comes down to is this: Media 9 digital music files play in four-speaker surround sound, instead of on only two channels like MP3s – even though the file is 50 percent smaller. Movies appear at up to six times the resolution of a DVD. And if you have broadband, you don’t have to wait for streaming files to buffer. “With Windows Media 9,” says Poole, “we’ve broken through a quality barrier that actually puts the PC platform ahead of consumer electronics devices.”

The catch: Your standard digital content (MP3 music files and MPEG-2 video files) becomes Microsoft digital content. These files are backward-compatible and work with other players, like WinAmp, but to get all the benefits, you need Media 9. With this kind of presence – from the server to the media player – the company not only sells more operating systems, it has more control. Specifically, the ability to enable or limit the portability of digital content however it sees fit. Which is where Microsoft’s digital rights management tools come in. Poole’s Digital Media Division spent $250 million developing software that on first glance seems to completely undermine the mission of the Media Center Edition. If the Media Center gives consumers control of their digital media, the DRM software takes it away.

Microsoft’s DRM allows the studios and labels to inexpensively – thanks to modest licensing fees – put a smart wrapper on their intellectual property. The DRM gift wrap carries instructions that let the gift giver (the content providers) limit or restrict when and where the gift can be opened and how it can be used. For example, Miramax could create instructions that prevent your new Gangs of New York DVD from being archived or streamed. Universal might permit one digital archive copy of a Queens of the Stone Age CD but no burning or sharing.

Why would Microsoft both giveth and taketh away? If the company can demonstrate to movie studios and record labels that they’ll be able to control their content in a PC-centric world, those content providers will be more enthusiastic about getting in the game. When that happens, consumers will be more apt to think of the PC as a media device. And that will sell more Windows.

….outsiders warn that the recording and film industries are not about to substitute marketplace experimentation for plying Capitol Hill. Microsoft may consider legislation to be poison. To Hollywood, it’s Valium. “The IT guys don’t think of integrating into the Washington power structure. The Hollywood guys do that like breathing,” says Mike Godwin, senior technology counsel for Public Knowledge, a tech policy organization. “This is a real philosophical battle between sectors. If you told the major studios they could either make twice as much money or have more control, they’d pick more control. Same for Microsoft.”

So, where does this all leave consumers – the wide-eyed masses, yearning for their content to breathe free? In Microsoft we trust.

What a coinkydink:

Digital music service MusicNet announced that its library of more than 350,000 songs from major and independent record labels are now available for download and CD burning in Microsoft’s Windows Media format. Previously, the music had only been available in RealNetworks’ format.

The move is designed to broaden the company’s appeal to potential distributors of MusicNet’s music subscription service, the company said. America Online is the only distributor of MusicNet’s service, in which subscribers pay a monthly fee for access to listen to and burn music tracks onto CDs. [AP]

And this is a stunner: Microsoft isn’t living up to the terms of its antitrust settlement agreement:

Microsoft Corp. is trying to license key pieces of its technology at inflated rates and under onerous conditions, according to competitors who charge that the software giant is thwarting its antitrust settlement with the federal government.

The actions are discouraging rivals from participating in the licensing program, which is an important element of the agreement that Microsoft struck with the Justice Department and several states 18 months ago.

The software giant’s major competitors were hoping the program would allow their systems to better interact with Microsoft’s dominant Windows operating system, which resides on 95 percent of the world’s personal computers. But none of those top rivals has signed up, and so far only four other companies are participating.

The low number of licensees concerns the Justice Department, which says it is devoting extensive resources to evaluating the program. But several companies say they fear the department is not forcefully pushing Microsoft to comply with the terms of the deal.

….”Microsoft’s implementation of the communications protocol licensing program has been and continues to be fraught with delay and commercially unreasonable terms that prevent a server manufacturer from bringing to market a competitive general purpose server under Microsoft’s license,” said Lee Patch, corporate counsel for Sun Microsystems, which has a separate civil antitrust suit against Microsoft.

….”You have to start from the position that there’s nothing industry standard about deals with Microsoft,” said Mark Ostrau, a Silicon Valley patent lawyer. “Typically . . . legal agreements with monopolists have a different bargain balance than deals in a competitive market.”

….Mike Pettit, president of ProComp, an industry trade group made up of Microsoft rivals that supported the antitrust case and criticized the settlement, said the Justice Department needs to do more.

“Sadly, DOJ seems too intimidated by Microsoft to force them to do anything the company finds inconvenient in the least,” Pettit said. [Wahsington Post]

Are we seeing a regulatory Stockholm syndrome here? Sounds like the FCC.