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Tuesday, August 15, 2006

Microsoft Sneaks In The Back Door

Stocks: (NWS)(MSFT)(AAPL)

Microsoft's deal with News Corporation to allow downloads of TV and movie content may seem to be another benign move by a content provider to get into digital distribution. News Corp's Direct2Drive site will be the hub for these downloads which will work on the Microsoft Windows Media Player. This player has been the focus of suits by the European Union and the government of South Korea. It is the most ubiquitous of all media players and has millions of pieces of content already provisioned to use it. Players like the Apple Quicktime unit and RealPlayer are far behind in content used on their players.

The move may allow the new Microsoft Zune player to move on the flanks of Apple's iPod. Windows Media will almost certainly be part of the guts of the new player, and, if so, the new News Corp content should be playable on editions of Zune that work with video. Apple has been trying to get the studios to move content onto their platform, without much success.

One reason that Microsoft may get ahead of Apple in the video content area is because the company is almost certainly willing to break-even of even lose money on content licenses to get share for its Zune product. There have even been reports that Microsoft will pay the license fees for content that consumers want to move from their iPods to the Zune. That will cost MSFT tens of millions of dollars.

Apple, which needs to keep margins up on its iPod and iTunes platform to justify its current stock price is far less likely to take the kind of haircut the studios may want it to take to license content.

Microsoft's move to get a valuable video library onto its Windows Media Player software is a very clever maneuver to begin a formidable library for the launch of Zune. Good news for MSFT but not so good for Apple.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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