February 9, 2004 6:05 AM PST

Microsoft, Disney partner on digital media

Microsoft and Walt Disney have struck an alliance that will see the two companies cooperating to develop digital media content and delivery systems, the companies announced Monday.

While containing little in the way of specifics, the deal solidifies one of the software giant's key Hollywood relationships, which it views as critical to the future of its audio and video software platform. A Microsoft executive said the two companies would be working increasingly close together on topics ranging from high-definition film to digital rights management.

"This is really designed so that we will cooperate on digital media initiatives and accelerate the flow of digital content to consumers," said Dave Fester, general manager of Microsoft's Digital Media division. "It builds a great bridge between the technology companies and Hollywood."

Microsoft has put increasing emphasis on its entertainment technology and Hollywood relationships over the past few years, as it envisions a role for the personal computer as the hub of the average home's living room entertainment center.

At January's Consumer Electronics Show in Las Vegas, Bill Gates showed off the latest versions of the company's Media Center, a version of the Windows operating system built particularly for this kind of home theater hub, aimed at letting people store music and movies, and operate with a remote control through their televisions.

Under the announced terms of the alliance, Disney will take a non-exclusive license to use Microsoft's Windows Media digital rights management software. The companies did not say exactly where Disney might use the technology, or how soon any such use might develop.

The companies said they would also work together to develop and deliver secure content, and help develop technology that lets different devices throughout the home access secure digital entertainment files. Fester said Disney may also use Microsoft's high-definition media format, which creates video content with considerably higher resolution than ordinary DVDs.

The deal's nonexclusive and open-ended terms are reminiscent of last year's alliance between Time Warner and Microsoft. While that deal did not guarantee Microsoft's Web browser a place on the AOL system, it did help close years of animosity between the two companies and set the stage for future alliances.

Securing Disney content for Windows-based machines--particularly the children's movies that are often purchased and replayed endlessly by families with small children--could be a step up for the credibility of these devices as the control center of a home entertainment system.

The relationship between the two companies stretches back some years, however. When Gates launched the latest version of MSN in late 2002, Disney Chief Executive Officer Michael Eisner was at his side touting co-branded entertainment features for families. The two companies' relationship also became an issue in the United States' antitrust case against Microsoft.

For its part, Disney has been loathe to release content in digital form without assurances that it would not be copied and distributed online. The company was one of the original backers of unsuccessful legislation that would have required all computers and other digital devices to include strong antipiracy technology.

More recently, it created a video-on-demand service called MovieBeam that would take advantage of unused capacity in the wireless digital TV spectrum to deliver videos to dedicated subscriber hardware. It also has allowed some of its films to be distributed through the Internet-based CinemaNow and Movielink services.

News of the alliance comes just a few days after one of Microsoft's biggest rivals in the technology world, Apple Computer and Pixar Chief Executive Officer Steve Jobs, openly broke with Disney after months of contract negations. Jobs said that Pixar would seek a new distribution partner for its animated films, declaring on a conference call with investors that "not even Disney's marketing and brand could turn Disney's last two animated films into successes. Both bombed at the box office."

 

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