May 14, 1999 2:00 PM PDT

Microsoft hears the sound of music

The online music business may have undergone a sea change this week with the marketing agreement between Sony and Microsoft.

The deal seems fairly innocuous on its face: The two said they agreed to work together essentially to cross-promote each other's Net properties and online media events. When the new version of the Windows Media Player is released this summer, listeners will be able to download the player or upgrade the old one to hear the music Sony is committing to the deal.

But few things are so simple where Microsoft is involved, especially when See news analysis: Which Net music technology will win? the stakes are so high. Given the Redmond empire's history, the deal could reflect Microsoft's initial public play toward eventually dominating the rapidly growing business of music downloads.

"With the labels all competing against each other, only Microsoft [could] end up being the winner because they could shave a few pennies off every use of their technology," said Sajai Krishnan, a principal in the communications and technology practice of Booz, Allen & Hamilton. However, he added, "they have the additional task of convincing executives that 'we will all make money.'"

Microsoft's recent investments in cable companies underscore its intention to own a large part of the wider pipelines needed to deliver music, video, and other features through the Internet. Moreover, its relentless push into TV set-top boxes and handheld computers with the Windows CE operating system show how determined it is to control the boot-up screen on whatever device consumers are using to get online.

"Microsoft's goal is to offer the consumer as much content as possible," a company spokesperson said. "They see the tremendous consumer demand for music and they say, 'How can we best meet that consumer demand?'"

The scenarios are not difficult to envision: Imagine a consumer whose first experience with the Internet is through a cable-connected TV box with high-speed Internet access. The newbie turns on the box and gets a desktop-like screen with icons representing television, the Web, telephony, and music. A click on the music button delivers songs directly or downloads them for another device, eventually appearing on a regular cable bill, similar to a pay-per-view movie. Regardless, the result is easy, seamless access to desirable content--all courtesy of Microsoft technology used somewhere along the chain of delivery.

Such a strategy would See special report: When worlds collide fall in line with Microsoft's business patterns, which have been highlighted in the browser market through the massive antitrust action brought by the Justice Department and 19 states. Whereas a Windows consumer would have to seek out and download a browser by Netscape Communications, one click on rival Internet Explorer's icon on the Microsoft desktop screen brings the Net immediately home.

Monopolistic concerns notwithstanding, it seems inevitable that Microsoft will try to dominate the Net music delivery space, now that it is beginning to clear an important barrier in an area that it does not control: content.

Content is key
Sony has not yet said which artists' music will be available when the new Windows Media Player is released this summer. The company has said it will offer music that is already commercially available and will not circumvent traditional retail channels.

Mark Hardie, a See related story: The new world order senior analyst with Forrester Research, said Sony probably isn't sure yet how committed it wants to be to Microsoft and its technology, so it isn't willing to risk upsetting retailers and offering anything exclusively.

"Who the artists are will determine how serious Sony is," Hardie said, adding that if Sony lets Microsoft deliver songs that are on the charts, it will send a clear message that it is committed. If the new Windows Media Player comes out with anything less, he said, "it was all smoke."

Hardie and Fred Ehrlich, senior vice president and general manager of Sony Music Entertainment, emphasized that the deal between the two companies is not exclusive. That is significant because Sony has developed its own Net music delivery technology, dubbed "Super MagicGate," and is participating with IBM on its Madison Project, which involves consumer trials of IBM's Electronic Music Management System among subscribers to the high-speed Road Runner cable Net service in San Diego.

So in essence, Sony has nothing to lose by signing on with Microsoft. "We are investigating a variety of ways to deliver music to the public," Ehrlich wrote in an email to CNET News.com.

What seemed to drive the major record labels to keep Microsoft at arm's length was an apparent reluctance to truly support the Recording Industry Association of America's project to create a specification for copyright-protected music downloads, the Secure Digital Music Initiative.

"We were very pleased when Microsoft decided to support the music industry's position on copy protection and to work actively to fulfill SDMI's guidelines," Ehrlich wrote. "We always felt that Microsoft's technology was good but that they needed to have a stronger position relating to copy protection."

The issue is somewhat ironic, considering Microsoft's own troubles with software piracy exascerbated on the Net.

The "leader's curse"
With all the major labels--BMG, EMI, Sony Music, Universal Music Group, and Warner Bros. Music--backing the Madison Project and Universal planning its own technology through a partnership with InterTrust Technologies, it is unclear how much support Microsoft's technology will draw. As Hardie pointed out, it could depend largely on the fate of the Sony deal.

For now, IBM's Madison Project is out in front on that score, as it has all the major labels behind it. But "just because IBM looks like it's in the lead right now doesn't mean it will prevail," Krishnan said. "These standards issues are always very complicated."

Already, "a ton" of MP3: Sound and fury independent record labels said they would back Microsoft's technology when the beta version was released last month, the Microsoft spokesperson said, including Restless Records and DreamWorks Records.

But Microsoft's reputation could be its own worst enemy in this endeavor. "Everyone gets a little nervous when Microsoft is around--it's the leader's curse," Krishnan said. A relationship with Microsoft "is not something the labels are going to walk into blindfolded."

Music must be portable
Forrester's Hardie pointed out that the listening experience has to be seamless, because that is what the mass market is accustomed to today with radios, stereos, and portable devices such as Sony's Walkman.

Already, Casio has said it will support Microsoft's technology in its E100 device, the Microsoft spokesperson said, adding that "Diamond is looking into it." Casio calls E100 a "palm-size multimedia PC" that employs the Windows CE operating system.

Microsoft has to "make its technology as invisible as possible," Hardie said. To that end, the best-case scenario for Microsoft would be all content available in its format, whether it be on a personal computer, handheld device, TV box, or anything else.

"At the end of the day, what they have to work on is making the Windows Media Player go away," Hardie said. "People's only consideration has to be what music they want to listen to, not whether they have the right technology."

 

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