Microsoft has yet to commit to fully supporting MPEG-4, opting instead to push Corona and proprietary digital media technologies delivered only on Windows. The software giant claims its new Corona codecs will deliver better quality video and audio using smaller file sizes than MPEG-4. Technically, its media tools will produce the open-source format, but analysts say the process still requires the use of the company's technology to play content. "Microsoft is positioning its technology to be the preferred technology over Real and MPEG-4," said IDC analyst Susan Kevorkian. "They've got the distribution platform to do it and they're doing it for free through Windows server and client applications. That's a huge advantage." Microsoft hopes to use its Windows monopoly as a launching point for making its file formats the de facto standard for digital content, which is why the company gives away its authoring and serving tools with Windows 2000 server and its media playback software with Windows XP, Gartenberg said. Companies such as Apple and RealNetworks charge for some of these products. But both Apple's and RealNetworks' authoring and serving tools are available for multiple operating systems, such as Linux, Unix and Windows. Microsoft's authoring and serving software runs only on Windows. "It's the typical Microsoft strategy, where they use this almost as a Trojan horse to bring something into play," Gartenberg said. "The more ubiquitous it can make its file formats, the more they think that will drive adoption rates. This is a critical, critical effort for them." Whoever controls the most popular file formats can harness them for selling server software. This is something Microsoft demonstrated with its Office productivity suite, in which the ubiquity of file formats is considered a major catalyst for driving Windows sales. "Microsoft's main goal with Windows Media services is to sell as many servers as possible," said Directions on Microsoft analyst Matt Rosoff. "That's why it's only possible to host, stream and create Windows Media Format files on Windows servers." In addition to server sales, Microsoft hopes to boost sales of Windows XP Embedded to device manufacturers. Jonathan Usher, director of the Windows Digital Media Division at Microsoft, estimates that more than 30 million devices will support Windows Media formats by the end of the year -- everything from handhelds to DVD players. "Microsoft definitely wants Windows Media supported on as many platforms and burned into as many pieces of silicon as it can get," said Meta Group analyst Steve Kleynhans. Desperate for a standard
But the company may run into trouble convincing manufacturers to help it do so. MPEG-4 appeals to many companies that make devices using embedded chips, such as mobile phones or handhelds -- a feature that helped win RealNetworks to the MPEG-4 camp. Content creators can use MPEG-4 and its predecessors to condense large digital video or audio files into smaller ones, which is essential to delivering them smoothly over the Web or to tiny devices such as mobile phones. MPEG-4, which has better compression bit-rates than MPEG-2, also adds such features as interactivity, e-commerce and digital rights management to audio and video files. Forthcoming versions of RealNetworks' authoring and serving software will fully support MPEG-4, said Sharon Goldstein, RealNetworks' product manager for the format. The company's mobile server product already supports MPEG-4, which along with its audio and video codecs will be used on Nokia cell phones and some other wireless or portable devices. Although RealNetworks is moving cautiously on MPEG-4 with its PC software because of licensing issues, the company is backing the new standard whole-heartedly in the wireless market, an arena where Apple also has established an MPEG-4 beachhead. Standards will play a prominent role in this arena, where manufacturers don't have the flexibility to accommodate multiple and fast-changing formats. "You have devices that cannot be upgraded, where things have to be hard-coded in," Goldstein said. Red flags are being raised over the potential costs associated with implementing MPEG-4 outside of the handheld market, although there are signs that price concerns may prove short lived. MPEG LA, the group of MPEG-4 patent holders, wants to institute a per-minute charge for streaming that has been met with a cool reception by potential licensees. Apple, for example, has raised a stink over proposed MPEG-4 licensing. The company introduced QuickTime 6, which fully supports MPEG-4, in February. But Apple delayed releasing the new version because of the licensing scuffle. Then, in an unexpected turnabout, Apple earlier this month released a QuickTime 6 Preview, with CEO Steve Jobs suggesting the licensing issue might soon be resolved. In addition, RealNetworks relies on a MPEG-4 plug-in from start-up Envivio rather than providing its own. But Goldstein said RealNetworks might directly offer the codec depending on final licensing terms. "We're still trying to decide what we'll do on the PC side," Goldstein said. "It really does depend on the licensing, because of the economics. We have over 270m players out there. If there's going to be no cap for price per player, that's a very expensive proposition for us." Microsoft's Real problem
RealNetworks' support for MPEG-4 may be a crucial turning point in its long-running battle with Microsoft, a fight that until now has focused on its proprietary format. Having held out for years, the company now appears more threatened than ever by Microsoft's relentless competition. Last week's report from Nielsen/NetRatings showed RealMedia in April reached 17m at-home viewers, compared with Windows Media at 15.1m and QuickTime at 7.3m. At work, Windows Media drew about 12.2m unique viewers, compared with RealMedia at 11.6m and QuickTime at 5m. Nielsen/NetRatings emphasized that the report used a new methodology that removed a large number of files from the mix, making comparisons to previous studies moot. Nevertheless, the new study appeared to show Microsoft in a much stronger position relative to RealNetworks than previously had been believed. "We're really running about neck-and-neck with Real in terms of usage; I'm talking about the number of users," Microsoft's Usher said. "Some months we're ahead. Some months they're ahead." RealNetworks has responded to Microsoft's bundling efforts partly by shifting its strategy from controlling the technology delivery platform to delivering content. RealNetworks has cut exclusive contracts with CNN, Major League Baseball and other content providers for delivering content in RealNetworks' format. While Microsoft's Windows monopoly is a huge asset, it faces almost certain rebellion from Hollywood studios and record labels fearful of leaving one company in charge of providing a technology as fundamental as digital formats. "There's going to be a huge battle for the content folks," Jupiter's Gartenberg said. "But the content folks, the big record labels and entertainment companies, are reluctant to get into bed with Microsoft." Ultimately, however, analysts don't believe RealNetworks can control formats through exclusive contracts long enough to thwart Microsoft's monopoly leverage. Since consumers don't care about the format so much as the viewing experience, many analysts said they believe MPEG-4 is the only possible check on Microsoft's strategy of giving away Windows Media tools and software for free and wooing device manufacturers into supporting its codec. Gartenberg is not alone, particularly considering the importance of RealNetworks getting behind and staying behind MPEG-4. "I don't think you can distinguish competing against Real from competing against MPEG," Kevorkian said. "I think it's all the same ball of the wax in the end."
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