Microsoft Eyes Deal With Sony in Digital Music Push

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Microsoft announced a handful of new digital entertainment partnerships this week, but the software giant has yet to unveil any broad initiatives to catapult it to the center of the digital music world.

However, there are indications that the company could be pursuing a partnership with Sony to take on current digital music star Apple Computer. Apple's success with its IPod digital music player and ITunes online music store has become the envy of the industry, and Microsoft looks keen to get in on the action.

Microsoft chair Bill Gates was quoted in the Wall Street Journal today as saying that both Microsoft and Sony have incentive to work together on digital music "infrastructure," including online music services and copyright protection.

Microsoft declined to comment further on Gates' remarks Thursday, but issued a statement saying that the companies have ongoing conversations on a number of topics where their technologies intersect.

Sony declined to comment on the report of a possible partnership.

During his keynote address at the 2005 International Consumer Electronics Show in Las Vegas yesterday, Gates highlighted agreements with Fox Sports, MTV Networks, TiVo, and Yahoo aimed at increasing the amount of digital content distributed through its Web sites and mobile software. He did not mention Sony. Recently Sony set up a cross-company working group dubbed Connect Company to focus on the digital media market.

DRM Concerns

Jupiter Research digital music analyst Mark Mulligan says he is unaware of any cooperation between the two companies, but that a deal would make sense if it focused on standards for delivering music in multiple formats.

But both Mulligan and RedMonk analyst James Governor express concern over collaboration on digital rights management, or copyright-protection technology, which could lock out other digital music industry players.

"I am very worried about DRM, because if Microsoft and Sony control the future of DRM, they control the future of digital music," Governor says, noting how Sony's broad music catalog and devices could be leveraged with Microsoft's software prowess.

Current digital music market leader Apple has come under fire on the DRM front from critics who accuse the company of locking IPod users into the ITunes music store. IPods don't support songs purchased from other online music services, such as Napster, which use a different format and different DRM technology. Apple uses the AAC format and its FairPlay DRM technology, which it refuses to license.

Microsoft should be wary of any digital music deal that shuts out software partners, since it is primarily a software company, Mulligan says. And although the company clearly wants to make its Windows Media Audio format the de facto standard for digital music, it can't risk isolating partners, he says.

"Microsoft has been treading quite a delicate line," Mulligan says.

That's why a partnership involving industry standards and best practices would make the most sense, the analysts say. Governor likens a potential deal to Microsoft's cooperation with IBM on Web services.

And as with IBM, collaboration between the two formerly contentious companies would be driven by a mutual desire to get a better grip on the market.

It would be "a shotgun wedding," Governor says.

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