April 24, 2001 2:40 PM PDT
Want Media Player 8? Buy Windows XP
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Windows Media Player 8 will be bundled with the forthcoming Windows XP--the upgrade to Windows 95, 98, Me and 2000. A similar "tying" of Internet Explorer with the OS in 1996 is credited with helping Microsoft win the browser war against Netscape's Navigator and has been a key issue in the antitrust case that is awaiting a decision by a federal Court of Appeals.
However, with Windows Media Player 8, Microsoft is going one step further than it did with Internet Explorer: the newest version of the application will only be available to consumers who upgrade to Windows XP. The older version of Media Player, version 7.0, will continue to be available as a free, separate download.
Some analysts were critical of the move, considering the legal and public relations troubles that were caused by tying Internet Explorer to the OS.
"No matter what the courts say (about the legality of bundling), Microsoft will look like a bully and get called a bully," said Frank Gillett, senior analyst with Forrester research. "It's bad PR, so why the hell are they hitting themselves in the foot again?"
Repeating the company's argument for bundling Internet Explorer with Windows, a Microsoft representative said Media Player 8 includes new features that require close integration with Windows XP for optimal performance.
"There are some features with Windows Media Player that can only be delivered with Windows XP," said Jonathan Usher, Microsoft's group product manager for Windows Media Player. These include CD burning and DVD movie playback, among other features not available with earlier versions of the product.
Microsoft's decision to couple Internet Explorer with Windows, called "tying" in legal parlance, helped shut rival Netscape out of the browser market, federal and state trustbusters contended in a case they won at trial. Microsoft is awaiting an appeals court ruling on the matter that could result in a breakup of the company.
When it tied Internet Explorer to the OS, Microsoft was attempting to boost market share for the browser. With Media Player 8, the company also could be trying to spur demand for its new OS, Windows XP, analysts said.
"I see this as trying to add value to the OS and trying to get people to move to the OS rather than upgrading to the media player for free," said Gartner analyst Mike Silver.
But he said he doesn't think it is enough of a reason to buy Windows XP. "They're grasping at straws," Silver said.
Others agreed that Microsoft appears to be using Media Player to boost acceptance of Windows XP.
"Within Microsoft, Windows Media Player 8 is very much a favorite of Jim Allchin's (the Microsoft vice president who also drove Windows and Internet Explorer development). "It's a pet project, and I'm sure from his standpoint he sees it of significant value to try and make it one of the reasons people will upgrade to Windows XP," said Guernsey Research analyst Chris LeTocq.
The new bundling move could also put further pressure on competitive products, including RealNetworks' RealPlayer 8 and Apple Computer's QuickTime 5.01, analysts said. Other companies that stand to lose from the action are Roxio, maker of Easy CD Creator 5, and InterVideo, with its WinDVD.
Jupiter Media Metrix reports that media players are pre-installed on almost all PCs, but fewer than half of consumers use the products. The research firm therefore ranks media players by usage: 28 percent for RealPlayer, 22 percent for Windows Media Player and 4 percent for QuickTime.
Meta Group says the bundling of Windows Media Player 8 with the forthcoming XP version of Windows is not an attempt by Microsoft to block competitors.
"There are no parallels with the browser," he said. "Microsoft has been shipping various versions of their media player in various flavors of their operating systems for years. We still have 85 percent of the streaming content on the Web in our format and 200 million unique users.
He noted that RealPlayer is bundled with AOL 6 and the Netscape browser.
But Emmett Stanton, an antitrust attorney with Fenwick & West in Palo Alto, Calif., said that Netscape at one time had huge browser market share and lots of users. That changed with the introduction of Internet Explorer 4, "when Microsoft sought exclusive (PC maker and Internet service provider) agreements that locked out competitors."
The media-player market popularized by RealNetworks bears striking similarities to the Web browser market of a few years ago. While media players are unlikely to pose a competitive threat to Windows, as trustbusters contended about browsers, they could provide a versatile means of extending Windows into other markets, said analysts.
Such players are most commonly used to view live or prerecorded video content on the Web. CNET News.com, for example, offers video feeds in either RealPlayer or Windows Media Player formats.
Integrating the media player with Windows XP better positions the product to compete against RealPlayer and QuickTime. It could also bolster Microsoft's development efforts for games, where DirectX and Windows Media Player are emerging as top picks by developers.
As a result, some analysts believe integrating Windows Media Player with Windows could help the company woo more developers for its forthcoming Xbox gaming console.
"This is clearly a content leverage play," said LeTocq. "The question is will Xbox drive the standards here? You've got DirectX on the Xbox and the PC. What you have there is a cross-platform environment feeding Xbox and Windows XP supported by DirectX and Windows Media Player."
The Real impact
At the same time, through its much-touted .Net software-as-a-service initiative, Microsoft increasingly is focusing on subscription revenue rather than software sales to sustain growth. Whether the company can succeed at this is uncertain. But as the company looks to deliver more content through the Web, controlling video-streaming standards would be a valuable asset, LeTocq said.
By integrating Windows Media Player 8 with Windows XP, Microsoft could make it more difficult for competitors to distribute their players. On the one hand, this is a consumer benefit, said NPD Intelect analyst Stephen Baker.
"The biggest advantage to doing that is that most consumers have dial-up modems," he said. "They don't have the capacity or the time to download great big add-ins and plug-ins like that."
By that reasoning, consumers also might be less willing to download competing products from RealNetworks and Apple. Another difference: Both RealNetworks and Apple offer free media players, but if consumers want a full-featured version, they must pay for it.
If fewer people are using competing media players, more Web sites could start offering content only viewable with Microsoft's product, Stanton said.
"Getting your (product) selected as the standard is a time-honored way of succeeding in the market," he said. "That builds in a huge advantage, obviously. Normally, people wouldn't get excited about it but for the market power Microsoft has."
Betting on the court
Meanwhile, Microsoft's antitrust case, which had tying as a central issue, is still wending its way through the court. Whether tying is considered anticompetitive under U.S. law will likely be determined by the U.S. Court of Appeals for the District of Columbia Circuit.
In the antitrust case brought by the Justice Department and 19 states, U.S. District Judge Thomas Penfield Jackson ruled that Microsoft had illegally tied Internet Explorer to Windows. The issue: Using a monopoly in one market as leverage into another.
But the Court of Appeals ruled in favor of Microsoft on this issue in a previous trial and could choose to do so again.
"What this signals with XP and the media player is Microsoft's confidence that they're going to win that issue on appeal," Stanton said. "If they thought they were going back to the trial court on that kind of issue, they would be foolish to be flaunting their intentions right now."
A ruling against Microsoft could be used against the company's Windows Media Player 8 plans, said Bill Kovacic, an antitrust professor with George Washington University Law School. But he predicted the court would likely side with Microsoft.
"If they do win the tying claim, it's going to be extraordinarily difficult for anyone to attack bundling," he said. "This shows incredible confidence on Microsoft's part that they will win the tying claim."
In but out
While the ultimate impact on the media-player market is unclear, companies offering technologies competing with Media Player 8 could pay an immediate price.
Roxio's CD burning software and InterVideo's WinDVD are bundled with most PCs packing CD rewritable and DVD drives. Compaq Computer, Dell Computer and Gateway are among the PC makers offering the software.
Consumers get the software for free, but PC makers must pay for it, something they might not continue to do if Windows Media Player 8 is already installed and performs similar functions.
"What that does is pretty much give away Roxio's software free," said Gillett of Forrester research.
"The biggest impact of including Windows Media Player is going to be, as we've seen time and time again, on the third-party software developers who produce utilities that get sucked into the operating system," Baker said.
PC makers would not comment on product plans, but several said that given declining sales they would do what economically makes the most sense. Because PC makers already pay a license fee for Windows XP, it's likely they would favor using the bundled Media Player 8 over products that must be licensed at additional cost.
While consumers will have to pay for Windows XP to get the newest version of Windows Media Player, the company has no intention of ceding the market for standalone products.
Product manager Usher said Microsoft would "continue to upgrade features to Windows Media Player 7 to remain competitive, and we will be looking at bringing some features from Windows Media Player 8."
Microsoft also will ensure that older versions of Windows Media Player will be able to view content created for newer versions.
But Microsoft also is clearly differentiating the two versions of Media Player. The bundled version will include better video quality and other features intended to drive Windows XP sales, Gartner's Silver said.
"Microsoft has a problem describing to consumers why they want to upgrade from whatever version of Windows they're using today to Windows XP," he said. "Windows Media Player is probably fairly well known by consumers, so anything they can do that seems to add value to Windows XP is a good thing to do."