September 3, 2002 5:58 AM PDT

New "entertainment" PCs restrict copying

Microsoft and Hewlett-Packard on Tuesday released additional details about digital entertainment PCs coming for the holidays. But new anti-copying technology could hamper sales, say analysts and potential buyers.

The new consumer computers run Windows XP Media Center Edition, a variation of Microsoft's flagship operating system. Besides normal PC functions, Windows Media Center PCs offer a second user interface through which people can access the operating systems' digital media features via a remote control. HP, as well as Samsung, will start offering the new systems sometime before the holiday-shopping season, with HP's models selling in the high $1,500 range to around $2,000.

Microsoft sees Windows Media Center PCs as ideal for college students or young urbanites living in cramped spaces where a combination computing and entertainment system might be more appealing than separate devices. Besides digital photo, music and movie features already available with Windows XP, the new PCs also would serve as TV tuners and digital video recorders (DVRs) for copying TV shows to the computer's hard drive.

But Microsoft has included copy-protection with the operating system that uses encryption to lock recorded TV shows to the PC. Already, consumers can legally record television programs to VHS tapes for personal use and view them on another VCR in the household. Microsoft has taken a more conservative approach by thwarting the sharing of programs recorded digitally. That strategy might make sense as Microsoft attempts to attract Hollywood movie studios with its digital rights management and anti-copying technologies. But consumers may not react favorably to the copy protection, say analysts.

"You have to applaud their efforts (on copyright protection). But this is not a mainstream product, particularly if you're going to limit it where consumers are not going to be able to share that digital media between their DVD players and other devices," said ARS analyst Toni Duboise. "To take that (copying) flexibility away from consumers is a big mistake. There's no way consumers are going to like this proprietary way of doing business."

Von Ehman, a Windows user and an analyst for West Virginia state government in Charleston, also balked at the copy-protection mechanism.

"If you copy protect in any way, the kids will scream bloody murder," he said. "It's a young person's market, and that would be a suicide" for Microsoft in the marketplace.

Ehman, who is a musician, said that "99 percent" of all the copying he has seen is for personal use or archiving purposes. "I believe it (copying/dubbing) is, for the most part, harmless and in a positive sense actually promotes the product for the artist or business, be it music or video."

Jodie Cadiuex, marketing manager of Windows Media Center, defends Microsoft's decision to copy protect TV programs recorded to the PC's hard drive.

"Microsoft is in a leadership position here where we've got an opportunity to help Hollywood feel comfortable with digital distribution and to help them develop (digital rights management) solutions so consumers can have content everywhere," she said. "We have two relationships we have to balance here: the consumer who wants the content and Hollywood so they feel comfortable with that process and don't clamp down and make that impossible."

Convergence computing
Microsoft introduced the new version of Windows, code-named Freestyle, during January's Consumer Electronics Show in Las Vegas. The company released Window XP Media Center Edition to PC manufacturers last week, after the release of Service Pack 1--the first collection of Windows XP updates and bug fixes.

HP's version, dubbed Media Center PC, is expected to sell for $1,500 to $2,000 without a monitor, depending on the configuration. HP would not disclose final model details but said that each PC would come with at least a 2GHz Pentium 4 processor, 512MB of RAM, 100GB or more of storage, a DVD+R/RW drive, a CD-ROM drive, a 64MB Nvidia GeForce 4 graphics card, a Creative Labs Audigy sound card, five USB 2.0 and two FireWire ports, and 200-watt Klipsch speakers--Pro Media 2.1 on most models and the 5.1 version on the $2,000 PC.

The HP Media Center PC also will feature a 6-in-1 media reader, supporting Smart Media and Sony Memory Stick cards, among other portable storage options.

Besides access to the digital media features through the keyboard or remote control, the digital media user interface can be brought up by any one of five buttons on the front of the PC. These access the five main digital media features: music, pictures, photos, DVD and TV.

"Our target audience is anyone who sees a place anywhere in the home where there's a need for a PC and a TV or an entertainment center," said Mark Bony, HP's Pavilion PC product manager. "We're also targeting consumers--students or small apartment dwellers, where space is a premium."

While the features are compelling, analysts predict that the digital-entertainment PCs will be, at best, niche products for a number reasons.

"Everyone's been waiting for the great convergence product," Duboise said. "This is putting the PC as a replacement device for the television, but it's not there yet. People are not ready to replace their televisions with their PCs."

Duboise also questioned whether the audience is simply too small to begin with. "This is a young audience, maybe those who are starting out or high-techies. It's going to be a small audience. It certainly isn't going to be mainstream."

Microsoft and HP also face a challenge because of the system's pricing, despite the abundance of high-end hardware. Consumer craving for expensive PCs has not been great, given the economy and other factors. Year to date, the average selling price of retail PCs has been $824, according to NPDTechworld. That is about half the price of the entry-level HP Media Center PC. PCs priced $1,500 and above accounted for only about 4.5 percent of the retail PC market. In that range, the average selling price is $1,577 so far this year.

"I think the numbers kind of speak for themselves," said NPDTechworld analyst Stephen Baker.

Overprotective options
Analysts and users see the built-in copy protection as a potential sales killer because it restricts the use of the built-in DVR, one of the most compelling features of the new PCs.

DVRs, which are sold as companion products for TVs by TiVo and Sonicblue's ReplayTV, are expected to become standard equipment on PCs over the next few years, say analysts.

Already Sony ships Vaio PCs with DVRs and most of the other features found on the HP Media Center PC. But Sony does not impose copy protection. So a consumer could use Sony's GigaPocket Personal Video Recorder software to record a TV show, convert the file to MPEG-2 video with another Sony application and burn the program to a DVD.

Don Simon, a Windows user from Seattle, Wash., recently bought a Vaio RX780G PC. The avid TiVo user has networked other PCs to the Vaio, so he can "seamlessly watch TV on any PC in my house. If Microsoft comes out with a product that does less than Sony's, I'd be skeptical of its success. I certainly wouldn't buy it."

Meta Group analyst Steve Kleynahans said that Microsoft made the decision to put in the copy protection fairly far along in the development of Windows XP Media Center Edition.

"I know this wasn't in the product all along," he said. "I think it was Microsoft being overcautious. I really think it's unfortunate because it does hamper the functionality and usability of the platform."

Cadiuex acknowledged Microsoft took the risk of alienating some customers with its copying restrictions.

"We don't make these decisions in a vacuum, not considering the potential responses from our consumers," she said. "They're difficult decisions to make, especially when you know somewhere down the line that certainly not the majority, but some, of the people aren't going to be thrilled."

Microsoft might have good reason to be cautious given, Hollywood's tough stance toward the computer industry and a ReplayTV lawsuit related to sharing content.

"You've got a company that itself depends on its own intellectual property not being copied taking technical steps to prevent the intellectual property of other companies from being illegally copied," said Rich Gray, a Menlo Park, Calif.-based intellectual property attorney. "There is good strong case law, mainly the Sony Betamax case, that you, a single user, can make a recording of a TV show for your own personal use. What Microsoft has done is allow that capability while imposing a technical fix that will prevent copies from being made that are clearly illegal or are at least in a gray area."

Matt Rosoff, a Directions on Microsoft analyst, sees another motivation at work and one that has more to do with future business prospects than concerns about customer dissatisfaction or potential legal problems.

"Microsoft generally believes that digital entertainment, digital media, is the thing that's going to drive the next cycle of PC upgrades," he said. "There's not that much more new you can do with your PC that you're not already doing."

Microsoft hopes to sell Hollywood its digital rights management technology. At the same time, the company doesn't want Hollywood to use its marketing or legal muscle to shut the PC out of digital entertainment.

"If the content owners look at the PC as this Wild West where the content and intellectual property is stolen, the content owners will try to get around the PC," Rosoff said. "That's something Microsoft wouldn't want to see happen."

 

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