Microsoft May Be Testing the Limits Again
Microsoft Corp. is relentlessly pursuing supremacy in the market for delivery of audio and video over the Internet, engaging in aggressive tactics similar to the kind that caused the Justice Department to sue the company for breaking antitrust laws, experts say.
The stakes are enormous because the outcome will determine which company’s technology will serve as the future platform for how music, television, film and other media will be delivered into homes and offices. That could mean hundreds of millions of dollars in profits for the companies that sell software to the various media distributors and content creators.
Antitrust experts see parallels between Microsoft’s conduct against Netscape Communications in the browser wars and its attempts to establish its software as the standard for what company executives say is the biggest thing since the Internet. Microsoft officials say they are not doing anything wrong.
Seattle-based RealNetworks, with approximately 110 million registered users of its RealPlayer software, has the lead, but Microsoft’s Windows Media Player is beginning to close the gap with more than 60 million users downloading its version.
Microsoft is distributing Windows Media Player technologies on Windows 98, Windows 2000 and the upcoming Windows Millennium edition so companies can broadcast over the Web at no additional charge. RealNetworks offers a basic version of its Webcasting technology free, as well, but charges for an upgraded version and earns money from added services such as out-source broadcasting and consulting.
By bundling Media Player with its Windows operating system, Microsoft again appears to be pushing legal boundaries, experts say.
Besides the bundling issue, potential violations include offering free distribution and giving the product away with no expectation of recouping profit in the future, said Glenn Manishin, a Washington antitrust attorney formerly with the Justice Department’s Antitrust Division.
“All of which the court found unlawful under the Sherman Antitrust Act,” Manishin said. “You can reach the conclusion, even without exclusionary contracts, that it is a similar set of conducts using its market power of Windows to extend its monopoly into related, adjacent markets.”
Added Donald Falk, a Washington antitrust attorney: “It appears that Microsoft once again is trying to dominate a market and set a proprietary standard by technologically tying its version of its popular Windows Media Player with its Windows operating system.”
Microsoft officials counter that its competitors offer media-player technologies in their operating systems--a feature that customers want.
“Digital media is one of the key features customers look for when selecting an operating system, whether that be from Apple, Be, Linux or Microsoft,” said Will Poole, vice president of Microsoft’s Digital Media Division. “Our new Windows Media Player is the result of the multimedia innovations we’ve offered in Windows since 1990.”
U.S. District Court Judge Thomas Penfield Jackson, who is hearing the antitrust case, identified streaming-media technologies as a “middle-ware” application that posed a potential threat to Microsoft.
The Justice Department, in its remedy proposal, suggests separating Windows Media Player technologies from the operating system and including them in a new applications company.
“That will restore middle-ware competition and make it significantly less likely that Microsoft will be able to repeat its pattern of anti-competitive behavior,” wrote Rebecca Henderson, a Massachusetts Institute of Technology professor, in the government’s 300-page proposal to break up Microsoft.
Microsoft co-founder and Chairman Bill Gates has dismissed the government’s proposed breakup, saying Microsoft could not have developed Windows without its Office software and Windows teams working together. Microsoft plans to appeal the antitrust findings and today will offer less stringent curbs on its business practices.
But the government’s breakup proposal shows just how much the software giant relies on its operating system to leverage new product.
In the streaming-media market, industry executives say that, ironically, it is market leader RealNetworks that is acting more like a monopoly by tying up potential partners with restrictive licensing agreements and failing to return customer phone calls.
“At Microsoft, if I need to talk to somebody, I will get a call right back,” said David Goldberg, chief executive of Santa Monica-based Launch.com, which uses Windows Media Player and RealPlayer formats to broadcast music and music videos over the Internet. “The only time Real executives talk to me is when they want to sell me something. We get more cooperation and assistance from Microsoft. The reason they are growing quickly is because they are doing the right things.”
The fact that the streaming-media market is still relatively new makes the field wide-open.
“Right now the market is still emerging and anyone can win,” said Rob Enderle, vice president for research firm Giga Information Group. “This is one of the most significant battles in the marketplace today.”
Microsoft’s customer-friendly approach may be a reflection of several factors, including the antitrust trial, its No. 2 market position and the moderating influence of Poole, the 38-year-old vice president in charge of the Digital Media Division.
“They are under constant scrutiny so they have to be very careful with how they deal with competitors right now, and the team is executing very well,” Enderle said. “The combination of the name and having one of the best products creates a fairly compelling argument to build against that standard.”
The results are noticeable.
Microsoft’s aggressive courting of content companies, especially in Hollywood, includes alliances with more than 80 firms. Four of the five largest record companies have adopted Windows Media Player. The largest, Seagram’s Universal Music Group, has sided with RealNetworks.
Adoption of its Media Player is growing at a faster rate than that of RealNetworks or Apple’s QuickTime, according to research firm PC Data. That’s partly because it is starting from a smaller base of users.
Recently, Microsoft has been releasing a series of improved products, including a beta version of its upgraded Windows Media Player 7 that not only plays streaming and downloaded audio and video, but also integrates a jukebox to organize downloaded music. Other improvements include support for portable music players and “visualization” graphics that bend and change color in response to the music.
RealNetworks offers separate multimedia products: RealPlayer for streaming audio and video, and RealJukebox for downloaded audio formats such as MP3.
Microsoft’s Media Player “has made tremendous strides,” said Jeremy Schwartz, a technology analyst for Forrester Research. “They seem to put into place all of the pieces: ad insertion, digital rights platform and secure delivery of content. I think these guys are trying to do more to connect with consumers.”
Microsoft last month unveiled a Media Services platform aimed at handling streaming audio and video for teleconferencing, sports and news broadcasts.
Perhaps one of Microsoft’s most significant moves was responding to music industry concerns by incorporating into the media player a drastically improved digital-rights-management system that protects copyrights. “Will Poole has done more than listen to music,” said Jay Samit, senior executive for EMI Records. “He has listened to music companies, the music fans and the artists to learn what the entire needs of the industry are.”
If Rob Glaser, founder and chief executive of RealNetworks, is feeling the pressure from his former employer, he isn’t letting on.
“There’s a lot of competition and we think that’s great,” Glaser said. “We continue to do super well by any measure.”
Glaser’s company last week displayed recent figures from audience-tracking service Media Metrix that showed RealPlayer was used by nearly 29 million people in March--more than all other rival players combined.
But experts wonder how long RealNetworks, which posted its first profit--$6.2 million--last year, can compete against a company that gives away its product and has a history of anti-competitive behavior.
In perhaps the biggest sign that Microsoft may be winning the standards battle, Glaser agreed in mid-March to license the Windows Media Player format for the company’s RealPlayer.
Glaser had no choice.
Microsoft presented the same risk to RealNetworks as it presented to Netscape in the battle for browser dominance, experts say.
If RealNetworks refused, Manishin said, Microsoft would use its “prodigious market power to squelch any innovation that wasn’t consistent with its view of how software should be distributed in a Windows-dominated world.”
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Closing the Gap
RealNetworks leads the market for media players that stream video and audio over the Internet. But Microsoft has been catching up in the last 12 months. One important gauge is the number of users on a monthly basis. The total number of unique users, in millions:
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RealPlayer
January 1999: 11.5
December 1999: 19.0
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Windows Media Player
January 1999: 5.0
December 1999: 15.5
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QuickTime
January 1999: 5.5
December 1999: 5.0
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Source: Media Metrix
