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Windows facing loss of Media Player in EU fight ; Foreign regulators may back decoupling programs

Posted on: Saturday, 28 February 2004, 06:00 CST

SEATTLE -- In the fall of 2002, Microsoft Chairman BillGates stood on stage at Hollywood's Kodak Theater, home to the Academy Awards, and pronounced this "the digital decade."

By 2010, Gates told an audience that included director James Cameron and musician LL Cool J, everything from paying bills to seeing movies "will be done on a digital basis, and the PC with its magic software will play the central role."

He then proceeded to unveil what Microsoft considers a key part of that vision: a half-billion dollar upgrade to the Windows Media Player for music, movies and other digital content.

Eighteen months later, Gates' endeavor could be facing a big roadblock.

If Microsoft cannot settle an antitrust case brought by European Union regulators, the company may be ordered to remove Windows Media Player as an integrated feature of the dominant Windows operating system, at least for personal computers sold in Europe.

The European Commission also could order Microsoft to include rival media players with Windows to make those products as easy for users to access as Microsoft's own music and video player.

Microsoft has said it is certain to appeal any ruling against it. Still, the European case could hinder Microsoft's efforts to dominate an emerging and important technology market.

"There's a lot at stake here, because it's becoming increasingly evident to most everyone that the computer is becoming more of a media-centric device," said Phil Leigh, an analyst with Inside Digital Media.

Removing the media player from Windows may help level the playing field for competitors such as RealNetworks' RealOne player and Apple's QuickTime, Leigh said, while also costing Microsoft its default advantage.

In the fierce competition for what type of technology people use to do things like listen to music and watch movies on computers, Microsoft's primary weapon is its ability to ensure its format is found on millions of PCs every year, said Rob Helm, director of research for independent analysts Directions on Microsoft.

Now, he said, "the European Union could throw a wrench in that."

A negative ruling also could weigh on Microsoft's planned next version of Windows, code-named Longhorn. That system, which may not be available until 2006 or later, is scheduled to incorporate even more new features, such as a built-in search engine that could compete with Google, Yahoo and other companies.

Legal battles over such features might become more likely if the EU forbade Microsoft from tying its media player to its operating system, Helm said. The European regulators already have prepared a draft decision that finds Microsoft violated competition law on two counts: by bundling its media player into Windows, and by failing to provide rivals in the server market with enough information for their products to operate as well with Windows as Microsoft's own applications.

In addition to the penalties regarding the media player, the company also could be asked to pay hefty fines and to release more details on the blueprints for server software.

The EU has said it could decide the long-running case as early as this month. Microsoft has said repeatedly it hopes to settle, but analysts believe there is only so much the company is willing to concede.

"They will not agree to a settlement that forces them to change their strategy with what they're doing with the media player," said David Smith, an analyst at research firm Gartner Inc.

Smith believes the company may be more willing to give competitors more information about its server software, however.

Microsoft argues that extracting the media player would be technologically difficult since the programming code is intertwined with the operating system and cannot simply be plucked out without harming Windows' performance. Microsoft spokesman Jim Desler said that including rival players would be complicated and might create security problems.

Although a ruling against Microsoft may be a hindrance, most experts think Microsoft would successfully find other ways to make its media player available, such as over the Internet.

Microsoft also would still have the advantage that its media player looks familiar to users of Windows, which runs on about 90 percent of the world's computers, Leigh noted.

Helm said the larger issue may be whether any one company can "win" the digital media marketplace -- as Microsoft has with its dominant role in Internet browsers and operating systems -- or whether consumers will continue to use various different players.

In the United States, Windows Media Player currently controls about 34 percent of the market, compared with nearly 19 percent for RealOne player and 10 percent for QuickTime player, according to January data from Nielsen/NetRatings.

Will Poole, a senior vice president at Microsoft who has worked extensively with the Windows Media Player, concedes that customers may never choose just one type of player.

"This is not," he said, "a winner-take-all type of market."

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