Already bitter competitors in the market for streaming video and audio, each company desperately wants its anti-piracy and playback technologies to be adopted by the record industry. RealNetworks sought to increase its chances last week by announcing its own open-standards, anti-piracy initiative.
The skirmish over the technology, described generically as digital rights management, does not represent a new war between the two companies. Rather, it is considered a key beachhead toward the ultimate goal: controlling the market for playing online audio and video files.
"It's hugely important," said P.J. McNealy, a Gartner analyst, noting that the companies' anti-piracy products are now a critical selling point for each company's full technology package. "It's one of the key features of their distribution infrastructures."
Stung by the rampant swapping of copyrighted music on services such as Napster, the music industry has delayed launching its own online plans. As a result, the anti-piracy efforts by RealNetworks and Microsoft are considered crucial to jump starting industry-sanctioned online services.
However, it's not clear whether consumers would pay for music on these services, choosing instead to freely swap files through Gnutella or one of the numerous Napster-like upstarts, such as Audiogalaxy.
Representatives of the major record companies declined to discuss the anti-piracy technologies proposed by RealNetworks and Microsoft, the biggest player remaining in the market. For the past few years, several companies have pushed their own DRM technologies, none of which caught on with consumers or copyright holders. As a result, smaller, early entrants such as Preview Systems and Supertracks have fallen by the wayside or changed their business models.
Microsoft's Windows Media format has included anti-piracy technology for the last several releases. This means that a record company releasing a song in the format can set flexible rules for its use, allowing a consumer an unlimited number of listens, a single listen, or barring the consumer from ever copying that song to a CD or another computer, for example.
RealNetworks launched its alternative last week when it unveiled its own anti-piracy tools and called for an open-standards drive around the technology.
"Open standards" proposal
The type of "open standards" proposed by RealNetworks, which is backed by such powerful allies as AOL Time Warner, IBM and Sony Digital Pictures, would allow different versions of the technology to be interchangeable. That would permit a company such as Time Warner Music to build its music distribution system, try one company's anti-piracy technology, and then swap it out for another version fairly easily.
By contrast, most of the anti-piracy technologies on the market now are written in their own particular codes, requiring a massive programming effort to plug them into music databases and distribution systems, or to change from one to the other.
Greater flexibility isn't necessarily in everybody's interest, however. The costs of changing technology and of making different flavors "talk" to each other has sometimes helped Microsoft, which provides everything from the database software to the music encoding technology to the anti-piracy system itself.
RealNetworks says its drive comes largely at the behest of the content owners, who don't want to be boxed into a single company's technology. This is borne out by history; record companies have balked at Microsoft's insistence that its anti-piracy technology be tied directly to use of its Windows Media audio format. In addition, they have pressed RealNetworks to include support for Windows Media in its MusicNet service.
The content owners "want to have freedom and flexibility to swap out rights management systems," said Ben Rotholtz, RealNetworks' general manager of products and services. "I hope that Microsoft...doesn't feel threatened. This wasn't intended to be threatening in any way."
The open-standards strategy is familiar in the technology wars, employed as often by Microsoft against its rivals as the other way around. The company that pushes such a tactic typically is playing catch-up.
In the instant messaging market, for example, America Online has long been the leader. In response, Microsoft has championed the concept of "open" and "interoperable" instant chat software and is a leading proponent of the IMUnified group asking for open messaging standards.
But it's far from clear that the strategy actually works. Examples of an open-standards effort unseating a market leader are few and far between.
For its part, Microsoft is playing the role of skeptic.
RealNetworks' standards proposal "doesn't seem to add any clear benefits to (earlier standards proposal) XrML," said Geordie Wilson, product manager for Microsoft's digital media division. "It seems to be a redundant and less flexible response."
Meanwhile, such efforts can easily slip into anarchy as the participants push their own agendas.
"People join standards bodies for a lot of different reasons, and they all have their own businesses to think of," McNealy said. "There's a lot of verbal support now. It remains to be seen how long that lasts."
Regardless of who wins, a settlement of the issue could prove to be as important for consumers as for the music industry. The major record labels have vowed to drag their feet over the digital distribution of music until there is a technological solution to rampant file swapping.
The vast majority of digital music is still found in the unprotected MP3 format rather than in Microsoft's technology. Both compress standard audio tracks into smaller sizes without significantly compromising sound quality. But analysts say a lack of anti-piracy alternatives has made Microsoft's DRM--and thus its Windows Media audio and video formats--look more attractive to the music industry.
With its announcements last week, RealNetworks is hoping to blunt that advantage. A series of alliances--including ones with AOL Time Warner, which has its own interests in limiting Microsoft's power--put RealNetworks back in the format game and could considerably shift the dynamics inside this once-obscure anti-piracy technology market.
The company's first coup was to bring three of the five major music labels into the MusicNet online subscription alliance, cementing its own technology as the core of the biggest digital music service on the horizon.
Meanwhile, Microsoft has sought to ease the music industry's unease about losing control to any software company. For example, Microsoft says it's also supporting the "flexibility" to allow swapping out of various technological components--even though it has been up front in the past about the tight link between its anti-piracy and the audio technology.
However, the alternative standards proposal cited by Microsoft has gained little ground, analysts say.
Either way, Microsoft's presence is critical, analysts say. The giant's market power is enough that any standards drive will be sharply diminished without Redmond's support.
"For a lot of this stuff, to be successful--right or wrong--Microsoft has to be involved," McNealy said.