May 23, 2003 5:22 PM PDT

Microsoft prepares reply to iTunes

While Apple Computer grabs publicity for its new 99 cent music download store, Microsoft is quietly preparing for a counterattack by improving its own technology for supporting subscription music services.

Services such as Pressplay, which uses Microsoft technology, have been put on the defensive with news that Apple has sold more than 2 million downloads since April 28, the day its iTunes Music Store launched. But Microsoft is betting that new security enhancements planned for later this year could make renting music, rather than owning it, more attractive to consumers.

Microsoft said it is developing software that makes it easier for subscription services to transfer music to portable music players. These services now provide unlimited downloads of hundreds of thousands of songs to a PC for a monthly fee, but they typically do not allow files to be moved around much. Microsoft said it will soon address this shortcoming with technology that will allow unlimited downloads to a portable device--a dramatic improvement.

"We can already support unlimited downloads tethered to the PC," said Jonathan Usher, director of Microsoft's Windows Media division. "The next step is enabling access to unlimited downloads on consumer devices."

After years of delays, the record industry is experimenting with services to combat the wide availability of free music brought on by the MP3 file format and file-swapping software such as Kazaa. Record labels and retailers have tried to lure paying customers by offering singles for sale as downloads for less than $1, and also for rent through monthly subscription services.

Microsoft has been a key player in developing the technologies behind many of these trials, but its partners so far have failed to hit on a formula that rivals the early success of Apple's music store. Record label-backed services such as Pressplay do not disclose their subscriber rates, but estimates for sign-ups hover in the tens of thousands--far short of the numbers that would suggest significant consumer interest.

Microsoft originally planned to announce the security enhancements in January at the Consumer Electronics Show in Las Vegas. But it missed that deadline, giving Apple the opportunity to take the offensive by launching the iTunes Music Store first.

"It was supposed to launch last CES, with a big announcement with the labels, but it was delayed," said Kevin Branigan, vice president of marketing for Diamond Rio MP3 players. "Once it's ready, the labels will promote this very heavily."

The delay may hurt the reception for Microsoft's enhancements, which are expected to arrive as part of its Windows Media Digital Rights Management for Devices version 9. Key features of this upgrade are designed for subscription services, an idea that was well received only months ago but has now lost luster thanks to Apple.

Apple's music product grants permanent ownership of files and relies on relatively light controls, maintained through a proprietary security format called FairPlay, that aim to be invisible to most users. People who buy tracks through Apple's iTunes music store can burn songs up to 10 times from the same playlist, share access from three different computers, and transfer tracks to Apple's iPod portable music player.

Subscription services subpar?
Subscription services, on the other hand, have typically applied heavy-handed locks that make it difficult to move files from a PC in their downloaded form, and the services may charge extra for the right to burn songs to a CD or transfer them to a device.

As of last week, at least one record label executive was ready to declare closely restricted subscription services a failure already: "I don't see the model becoming a significant part of the music industry," he said.

To be sure, it's too early to call Apple a winner in the online music market, which is still in its formative stages. Many label representatives believe the industry may gravitate toward a hybrid model that marries some elements of a download store and other elements drawn from subscription services.

Subscription services are "ahead of their time" according to a senior executive at another record label, who said a key stumbling block is providing unlimited access to subscription music away from the PC on portable music players and other devices. "Ultimately, there will be a huge audience for this, but the services need to provide portability," he said.

"Downloads are very close to an old-fashioned experience," he added. "Subscriptions are much more of a shift...but the technology isn't right for the shift to happen. We're hoping it will happen this year, that the technology companies will provide portable players that can play the music."

Microsoft's Usher said that Windows Media already supports secure playback on some 50 portable music players, including the Diamond Rio, but only for songs that are purchased, not rented. He said the company is continuing to work on enhancements to support subscription services on devices.

Microsoft plans to add support for a clock in portable music players and other consumer-electronics devices. The clock would provide a "time out" feature much like that used in PC versions of its DRM software. If customers don't pay their monthly subscription bills by a certain date, access to the files on those devices is cut off.

Time-outs can be supported relatively easily on PCs, which have plenty of memory and processing power to handle a clock and the associated DRM. But supporting clock DRM on small handheld devices poses a considerable engineering challenge, thanks to limited CPU resources and battery life. Usher said Microsoft is working with consumer-electronics device makers to add clocks that can be hooked up to its rights-management system.

"It's taken longer than we originally intended," Usher said, confirming that Microsoft had originally planned to release a security upgrade in January.

Usher said the company's DRM technology is flexible enough to be used in numerous music schemes, including $1 download stores like Apple's. He added that he's confident consumers eventually will warm up to subscription services once they support wider copying rights and their value is better understood.

"We already support a couple of business models," Usher said. "The other part of the business model that gets interesting is, what about unlimited downloads? The Apple store is not looking at or supporting anything like that."

News.com's John Borland contributed to this report.

 

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