September 12, 2003 4:00 AM PDT

Microsoft goes to Hollywood

Microsoft's surprise decision to submit Windows Media Series 9 as a standards candidate to Hollywood underscores the software giant's ambitions to take its multimedia technology beyond the Net, as well as the considerable barriers it faces.

This week, the Redmond, Wash.-based company sent in its underlying video-compression code for vetting by the Society of Motion Picture Television Engineers (SMPTE)--a first for Microsoft and a marked departure from the company's longtime commitment to keeping its technology proprietary. In doing so, Microsoft is aiming to provide a viable successor to MPEG-2, a compression standard that is the foundation of satellite, cable, video-editing systems and DVDs.

Microsoft submitted its technology to SMPTE on Monday, but waited until Friday to officially announce both that move and a blizzard of new Windows Media partnerships. The announcments were made at the International Broadcasting Convention (IBC) in Amsterdam.

If SMPTE approves Windows Media Series 9 as a standard, Microsoft hopes its technology will become de facto for a range of set-top boxes, professional video-editing equipment, satellite transmissions and consumer electronics. Because the applications are disparate, SMPTE members are free to adopt any technology they choose.

The organization's endorsement could open doors for Microsoft and offer a sizable money-making opportunity in giving it royalty rates for usage of the technology for years to come.

What's more, industry watchers say, the move could be a first step for Microsoft in a lobbying campaign with technical standards bodies in other industries, such as wireless, where it has yet to gain a foothold for video delivery compared with rival RealNetworks. The vetting process of SMPTE would give Microsoft substantial credibility to shop its codec to partners outside of the PC business.

"Microsoft has decided to surrender the key family jewels to SMPTE to see that video engineers adopt it as an alternative to MPEG-2," said Richard Doherty, a director at research firm The Envisioneering Group.

"Windows Media 9 Series has not succeeded in as many systems or as many entertainment products as they hoped, and there's been a lot of criticism of how closed it is," Doherty added. "This is smart by them to run this up a standards flagpole."

The move comes one year after Microsoft debuted its next-generation proprietary technology with great fanfare in Hollywood. Celebrities such as James Cameron and LL Cool J were featured at the launch to underscore Microsoft's grand ambitions for its technology in Hollywood. But to date, those largely have not come to fruition.

Strategy shift
The decision also signals a shift in Microsoft's core strategy to promote a proprietary media-delivery system, which ultimately gives it a sales tool for its operating system software. In the past, some company insiders have privately pilloried rivals RealNetworks and Apple Computer for supporting open standards, suggesting that the plan is the last resort of technology companies whose products are losing in the marketplace.

Apple last year hitched its QuickTime multimedia technology to the MPEG-4 standard, while RealNetworks announced in July 2002 that it would make its source code available to developers to advance its efforts in non-PC devices.

"When you're looking at the pro audio-video space, this is a standards industry," a Microsoft's representative said. "One of the ways to continue to grow this path is to submit this to a standards body."

The draw for Microsoft, and likely many others, is the potential money from royalties to be made if one codec becomes ubiquitous in the industry. Companies in arenas such as consumer electronics and satellite communications pay license fees to patent holders each time they use a specific compression technology. Web technology companies are unaccustomed to the magnitude of usage or pay scales associated with such implementations, given the largely free culture of the Internet. If a company's video codec is chosen for every high-definition TV set--with royalty rates of 10 cents and 15 cents per decoder and encoder, respectively--it could quickly net a fortune.

"The Internet has not been a terribly good place for people to make money," said Doug McIntyre, CEO of video technology company On2 Technology. "With this, there's a dollar amount to it."

On2 plans to submit its code to SMPTE eventually, and McIntyre expects several others, including RealNetworks, to do the same.

Aside from SMPTE, several other organizations such as the DVD Forum, are considering new compression technologies for their member companies, which could be targets for Microsoft and others. Associations are belaboring new standards because they want to chose technology that will stick and be flexible.

New partnerships
If Microsoft now finds itself eager to establish a standards beachhead, it isn't waiting for SMPTE's blessing to move forward, announcing dozens of deals Friday at IBC that ostensibly would extend the reach of its Windows Media 9 technology.

Microsoft announced several partners that have signed up to use Windows Media 9 to deliver broadcasts or incorporate the format in advanced set-top boxes, including Samsung in its new SMT-7000E.

The software giant said European network operator Monaco Telecom is using Windows Media 9 to deliver video on demand (VOD) and IP television (IPTV) services to consumers who have advanced set-top boxes. Internet service provider T-Online International has also launched some VOD services based on the format, Microsoft said.

VOD system vendor SeaChange International said it is now supporting Windows Media 9.

Microsoft also won support for the format among several content-creation and video-production software developers, including Quantel, whose technology was recently used to restore a print of Ridley Scott's "Alien" for the film's 20-year anniversary.

In addition, Capital Radio, NTL Broadcast and RadioScape said they will use the format to test 5.1-channel surround sound to listeners in the United Kingdom, in a six-month digital audio broadcast (DAB) trial that's slated to begin in October.

"This trial illustrates how Windows Media 9 Series can work with current open digital-broadcast standards such as DAB to help drive new business models and consumer services," Jonathan Usher, director of the Windows Digital Media Division at Microsoft, said in a statement.

Examples aside, Microsoft is still waiting for a clear-cut endorsement from major studios. Apple, for example, has won such recognition for its Final Cut Pro video editing software.

Trip to the standards board
If endorsed by SMPTE, Microsoft's technology would gain credibility in an industry steeped in standards. That's because the process is vigorous and uninfluenced by commercial interests. Windows Media Series 9 would be Microsoft's implementation of the standard. Any changes to the standard would have to follow SMPTE's guidelines.

"The benefit from Microsoft's perspective is that if you go through the trouble and pain of the standard's process, you gain credibility that the document is fully vetted by people who don't have special interests," said Peter Symes, vice president of engineering for SMPTE. "It adds a great comfort level in terms of stability."

So far, the broadcast and entertainment industry has looked closest at MPEG-4 as a successor to MPEG-2. But the highest hurdle to its wide adoption is that it doesn't have a clear business model. There are so many different implementations and offshoots to the standard that many organizations are fuzzy on the best, most economical avenue to take.

MPEG-4 has also been hobbled by its licensing terms, which many believe could price it out of the market compared with cheaper alternatives.

"It's not something people are willing to start committing dollars to yet," Doherty said.

Doherty said Microsoft faces a problem in moving its multimedia technology from the computer desktop--where its Windows operating system controls more than 90 percent of the market--to newer devices such as set-top boxes.

Wireless is another crucial area of growth for Microsoft, according to past speeches by Chairman Bill Gates. In this market, the company is far behind chief rival RealNetworks. About 500 million cell phones will be sold this year, and only 1 million will contain Microsoft's software. In contrast, RealNetworks' software will be in tens of millions of those phones, Doherty said.

"With every passing day, every consumer-electronics product gets to be more computerlike and, yet, Microsoft does not have the (operating system) inside of those products," Doherty said. "What they're hoping is that by supplying an attractive media stream, they can influence the next generation of products to use Microsoft and Windows software."

 

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