SAN MATEO, Calif. — In a broad agreement announced Thursday (May 29), Microsoft Corp. and AOL Time Warner essentially decided to bury the hatchet on the old browser and online services wars of the past to focus on breaking the logjam holding back digital music and movies on the Internet.
Microsoft will pay AOL Time Warner $750 million to settle an outstanding antitrust suit brought by Time Warner's Netscape division. In turn, Microsoft has granted the content provider a seven-year license to its Internet Explorer and Windows Media 9 technologies and its next-generation digital rights management (DRM) software.
Perhaps most significantly, the two companies have agreed to work together on various technical and marketing fronts to accelerate the move to online digital music and video services. The cooperation appears to center around developing and promoting interoperable DRM technologies for both analog and digital content, something Microsoft hopes to build into its next generation of Windows, dubbed Longhorn.
"DRM is the fulcrum of this deal," said Richard Doherty, technology analyst with Envisioneering (Seaford, NY). "This amounts to the biggest endorsement of Microsoft DRM technology to date by one of the world's largest media companies. In the area of DRM, Microsoft is suddenly a player, not just another company with an offering," Doherty added.
In a news conference, Microsoft chairman and chief software architect Bill Gates said "this is the broadest license we've ever done with our rights management and Windows Media technologies."
Richard Parsons, chairman and chief executive of AOL Time Warner, said the deal to use Microsoft's media and browser software is not exclusive. The media giant will continue its relationship with Real Networks and is not closing its 200-person Netscape unit in Mountain View, Calif., he added.
"We will work with all players in the market," said Parsons.
Gates characterized the deal as just the beginning of a broader alliance toward breaking down walls in digital media distribution. "I think there's a real interest in a media company and a technology company working together in this market...to tackle rights issues and make [DRM] not so cumbersome to use. We hope to draw others into these activities," Gates said.]
At its Windows Hardware Engineering Conference in early May, Microsoft said it aims to make Longhorn capable of reading any DRM software and "trans-encrypt" its policies as needed so the content could be viewed or played on any permitted networked device. "There are technical and legal issues we are exploring," to allow sharing copy-protected content on a home net, said Jason Flaks, a technical evangelist in Microsoft's eHome division.
"We haven't been able to get our hands around the piracy issue," said Parsons in the news conference. "By working together on the piracy issue...we are making a real positive step in creating a world where content can be distributed digitally," he added.
William Krepick, chief executive of Macrovision Corp. (Santa Clara, Calif.) which makes its own DRM products, said the Microsoft/Time Warner deal would not hinder his company which is trying to partner rather than compete with Microsoft in DRM. Earlier this month Macrovision agreed to integrate some of its DRM technology into Windows Media and distribute the Microsoft offering along with its own.
Looking forward, Krepick said the industry needs more interoperable solutions across various operating systems and device types. "We think today's DRM solutions need to be strengthed both technically and in terms of how they are supported in copyright law," he said.
Microsoft and AOL Time Warner also agreed to collaborate on areas of public policy and legal action around online digital media as well as building consumer awareness for respecting intellectual property rights.
The deal also includes plans by the two companies to make their separate instant messaging services interoperable. The two will also collaborate to make sure Windows and AOL work more smoothly together.
Microsoft will also distribute AOL software CDs to its OEM customers. In addition, Microsoft will include AOL Time Warner in its beta release programs for next-generation software such as Longhorn.
In a prepared statement, Gates said "a lot has changed in the last few years, not only in the marketplace, but also for Microsoft and AOL Time Warner. We're pleased to reach this new agreement that's forward looking and provides for a higher level of technical cooperation while, at the same time, the companies will continue to compete in a number of areas. A particular area of importance is making it easy for consumers to get digital media on the Internet."
Parsons said the $750 million from Microsoft would be used to retire some of AOL Time Warner's massive debt load which amounts to about $24 billion.
