Microsoft’s WM9 Pricing to Draw Battle Lines?

Microsoft’s aggressive digital
media licensing plan
for its new Windows Media 9 Series platform is
creating ripples throughout the sector with one firm accusing the software
giant of “undermining” the industry with an “unfair” pricing strategy.

Microsoft announced that pricing for its platform
would, in some cases, be 50 percent lower than the competing MPEG-4
standard, drawing the ire of backers of the standards-based technology.
While analysts are predicting an all-out price war between the rival
standards (including RealNetworks , the MPEG LA group
overseeing the MPEG-4 patent licensing process believes pricing won’t
determine the eventual winner.

MPEG LA spokesman Larry Horn
dismissed talk of a price war. In an interview with
internetnews.com, Horn insisted pricing won’t be the determining
factor in the race to make MPEG-4 the de facto standard for digital
media.

“The marketplace is going to decide this. The licensing terms aren’t
going to be the factor that makes developers choose one over the other. At
the end of the day, it boils down to open-standards versus a proprietary
technology. Open standard has its own merits, proprietary has its own
risks. We are comfortable letting the marketplace decide this,” Horn
declared.

Not many are buying this MPEG LA stance. iVAST CEO Elliot Broadwin slammed the Microsoft
move in strong language. “In yet another barely cloaked attempt to extend
its operating system monopoly to all consumer devices, Microsoft plans to
undermine the most
promising new audio/video industry standard, MPEG-4,” Broadwin said in a
statement.

“Is this in the best interests of the consumer? Have we forgotten
Microsoft’s history of predatory practices?…This is not a time to sit back
and watch Microsoft extend its monopoly at the cost of consumer choice just
as it has done with operating systems, Web browsers, office productivity,
and streaming media software,” Broadwin declared.

But Horn is pleading for patience even as another key rival,
RealNetworks, is preparing to unveil its own Helix Server initiative, which
sources say will mirror Microsoft’s aggressive price-based licensing terms.
(The server codec and licensing terms for Real’s Helix Server will be
unveiled at the LinuxWorld show later this month).

“I don’t think we’re seeing the birth of a price war. First of all, I
don’t think [Microsoft’s] prices are half of what ours are. We have caps on
our prices and, for the small user, we have a threshold level, where no
royalty is paid. I’m not overly worried about Microsoft and its prices. We
have to mind our own knitting,” Horn insisted.

Horn did not rule out price cuts from the MPEG LA consortium to stay
competitive but he said that’s not something the industry should expect in
the short term.


“I’m not going to bash Microsoft and I’m not going to
predict what our next move will be,” Horn said, leaving the door open for the
patent holders to tinker with its own licensing plan. “Anything is
possible. We try to be responsive to the marketplace but, like I said,
licensing terms are not the only deciding factor here.”

Unit pricing for Windows Media Video 9 (WMV 9) on devices and non-Windows
platforms has been set at 10 cents per decoder, 20 cents per encoder and 25
cents for both encoder/decoder. By comparison, MPEG-4 video is more
expensive, with a unit price for decoder, encoder and encoder/decoder
licensing of 25 cents, 25 cents and 50 cents, respectively.

Subject to a $1 million annual cap, MPEG LA also has a minimum threshold
so that content owners with fewer than 50,000 subscribers aren’t subject to
royalties. Those fees are applicable to Web site operators that benefit
commercially from use of the technology, through either paid advertisements,
pay-per-view services or subscriptions.


Industry analysts discuss the pitched digital media battle… See Page 2

Despite Horn’s wait-and-see stance, analysts believe a price-war is
inevitable, especially with Real’s pricing announcement less than a month
away.

Steve Vonder Haar, an analyst with Interactive Media
Strategies
said the battle lines have been drawn and quartered. “What we
have here is a fee change in the streaming media platform business that sets
off a good old-fashioned platform war,” Vonder Haar told
internetnews.com. “Historically, the lines of battle had been drawn
around the sophistication of the technology but now it has shifted to
economics.”

Because of this new platform war, Vonder Haar expects MPEG LA to reduce
its licensing fees but he argues that the MPEG-4 standard still enjoys a
huge fan base among software developers.


“An option [for MPEG LA] would be to come back and try to slash licensing fees in response. But, there are alternatives to pricing. MPEG LA could try to think of other ways to make the standard more appealing, he said. “There’s no need for a knee-jerk reaction to Microsoft. They have to realize this is a marathon and not a sprint. The intelligent thing is for MPEG LA to make sure they support developers in an appropriate way,” Vonder Haar added.

Yankee Group analyst Adi Kishore agreed. “If you are looking for a shift
in pricing on the MPEG LA side, it will not be immediate. In the short run,
the price difference will be significant but over the long haul, MPEG-4 can
still be a better, cheaper product.”

Kishore said MPEG LA’s structure as a consortium representing the
interests of several companies puts it at a disadvantage because it cannot
match Microsoft’s every move in a timely manner, but, he still believes MPEG-4
has its own advantages, primarily because it’s based on open standards.

Because Microsoft is positioning itself as a full-fledged entertainment
provider, on and offline, Kishore suggested money can be lost on one area
without hurting the overall digital media strategy. “Microsoft has more
flexibility in terms of pricing. They can lose money in one particular area
and make it back up in another area. They can undercut pricing — they have
that luxury,” Kishore said.

On the flipside, MPEG LA has got a standards-based product with hundreds
of companies working to develop it. MPEG-4 is not going to disappear
because of Microsoft’s pricing,” he insisted.

Vonder Haar, too, pointed to MPEG LA’s popularity among developers as its
trump card. “Microsoft starts this battle in the driver’s seat, no doubt
about that. They appear committed to devoting the time and resources to making
multimedia happen but MPEG LA’s biggest advantage is that it is not
Microsoft. Don’t count out MPEG-4. These are early days.”

“Microsoft is doing exactly what they should be doing. RealNetworks is
doing exactly what they should be doing. At the end of the day, there will
be two camps. The actual fight right now is to see who is going to be the
loyal opposition to Microsoft. Is it going to be MPEG-4? Is it going to be
Real’s Helix? That’s the question that will be eventually answered,” Vonder Haar
predicted.

While the industry awaits RealNetworks’ own pricing for the Helix Server,
MPEG LA’s Horn pleaded for patience. “Before this announcement, the
marketplace was uncertain about the cost of Microsoft’s codec. There was a
time when people said it would be free but it’s not. Also, there could be
hidden costs in there, we don’t know.”

“Do you know you will be married to a proprietary technology? Will you
have to adopt to any change that Microsoft implements? Those are risks
that the industry will have to figure out,” Horn added.

He refused to rule out MPEG LA price cuts down the road. “If we
determine, based on responses from the market, that the licensing terms need
to change, we will bring that to the attention of the patent holders and make a
recommendation to that effect. But that’s not a short term thing.”

“I never say never but it’s not like I got on the phone immediately after
Microsoft’s announcement and started fixing a new price.

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