Microsoft has two visions for the future of digital media: unlimited choice for consumers, and unlimited control for producers. One thing's for sure, it's unlimited opportunity for Redmond.
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| Bill Gates, Entertainment God
| Linus Torvalds: The Peacemaker
The front door on this house has no keyhole. Which is not to say it's vulnerable. Security couldn't be more important at 16100 NE 159th Avenue. There's the future to protect.
Instead of traditional locks, there's an electronic kiosk with a touchscreen, a biometric scanner, and a smartcard reader. Go ahead and make eye contact; if you're a match, you'll pass through into your future home – a time and place a half-dozen years from now when your living quarters will recognize you, communicate with you, and anticipate your every need.
Your future home may seem familiar at first. You still dig stainless steel appliances, exposed beams, blond hardwood floors, halogen track lighting, and rice-paper shades. But beyond the aesthetics, everything has changed. The lights and heat automatically fine-tune to your preference the moment you cross the threshold. A screen on the wall in the foyer reads your email aloud as you hang your coat. Your kitchen has become your own private sous chef. Run a chicken pot pie beneath the barcode reader on the microwave and it sets the time and temperature. Break out the food processor and some baking material; your home recognizes RFID tags in the bag of flour and offers to help. "How about focaccia?" you suggest. The lights dim, and a recipe shines down from above on your black Corian countertop as the oven begins to preheat.
And digital media is everywhere. "Suspicious Minds" greets you in full-home surround sound. The family's collective music library is accessible from any room, on every device. You can cue up a movie on a kitchen monitor while cooking and finish it on the plasma in the den – or the projection screen in the media room. A central media server supplies entertainment throughout, seamlessly streaming content wherever there is demand.
Sounds great, right? Microsoft is banking on it. 16100 NE 159th Avenue is also known as the Microsoft Home and is modeled on Bill Gates' own Seattle mansion. Powered by four PCs running Windows XP, it features dozens of networked monitors, Xboxes, appliances, and consumer electronics devices scattered everywhere. Life is good when you're the king of software.
There is, however, another model home on the Microsoft campus, one that offers a glimpse of a different life. It, too, has the fully outfitted living room, bedrooms, and study, but rather than custom equipment dreamed up for the geek who has everything, this faux ranch house is a showcase for products Microsoft is actually shipping as part of its eHome effort. Although the hardware is much the same – Windows XP boxes and fast networks – the result is not.
The main difference is that the notion of a media server is gone. Sure, the second showcase home has a powerful computer, called a Media Center Edition PC, which can record television like TiVo does. But it stands by itself on a desk, cut off from the rest of the house. Due to limits imposed by the operating system, there's no way to play its stored shows on another screen or TV. As a result, the would-be media server is a curiosity: too big and expensive to simply sit, TiVo-like, under a television, and too computer-like to offer much of a cinematic experience. In this house, sadly, it's every screen for itself.
These two homes represent two futures. The first is what consumers want: digital media their way, in whatever form suits. The second is what Hollywood wants: media lockdown, with every use subject to permission and often then only for a fee.
In the middle stands Microsoft, determined to navigate these extremes. In the face of a rapidly maturing business market, Microsoft needs to find a way to persuade consumers to upgrade their PCs.
The answer: films, music, and other digital media flowing from one Microsoft device to another. But Hollywood owns the content. The record labels have seen what can happen when consumers gain total control; the film studios aren't about to let file-sharing ruin them. And so Microsoft is working both ends simultaneously – on one hand, wowing consumers with next-generation PCs that can outperform consumer electronics devices; on the other, reassuring Hollywood that digital media does not have to mean digital theft.
Like it or not, the path Microsoft takes will determine the future of digital media – thanks to its dominant desktop market share, the company's actions set the pace for the industry. If it pushes as quickly as the underlying technologies allow, taking a page from Apple's "Rip. Mix. Burn." playbook, it could create extraordinary consumer demand. Millions of people might opt for broadband in their living rooms, just as they have adopted DVDs and wide-screen TVs. But if Microsoft can't reassure Hollywood that this isn't all about piracy, the studios will choke off the content supply by whatever means they can, slowing the market and creating a crisis not unlike that faced by the music industry.
It's a delicate maneuver, requiring equal parts technology and statesmanship – two words that go together like socks and sandals. As a strategy, it's pure politics, weighing one interest group (consumers) against another (content providers). The Microsoft man at the scales: Will Poole, senior VP in charge of the company's $10 billion Windows client division. His real title ought to be chief diplomatic officer.
Will Poole is charged with increasing sales of the Windows operating system – no small task considering that Windows accounts for 30 percent of Microsoft's annual revenue. In October, he took the first major step. That's when the eHome division, which Poole helped start, teamed up with Hewlett-Packard and Samsung to unveil the Media Center Edition PC. With a 2.4-GHz processor, a TV tuner, a personal video recorder, a DVD burner, an outsize 120-Gbyte drive, and a specialized version of Windows XP, it's meant to be a media command center. The new OS allows a consumer to use a remote control to manage digital media files of all sorts and perform time-shift recording with TV shows (� la TiVo). The whole thing retails for $1,300 to $2,000, without a monitor. "We wanted something that would handle digital photos, play back selections from video and music libraries, and give you all the capabilities of the PC as well," says Poole, an almost cherubic character with bushy eyebrows beneath a dark shock of hair.
Poole followed the Media Center Edition launch by introducing Windows Media 9 earlier this year. To consumers, Media 9 is a media player – like RealPlayer or QuickTime. To Microsoft, it's a $500 million attempt to build a platform for digital media in the same way that Windows is a platform for productivity tools. In a matter of months, Microsoft has licensed the codecs (compression-decompression algorithms) to dozens of consumer electronics manufacturers, enabling Media 9 files to play on everything from DVD and MP3 players to phones and car stereos.
The quality of Media 9 playback is amazing. Microsoft product managers and engineers boast about stuff like 24-bit audio and high-definition video, but what it comes down to is this: Media 9 digital music files play in four-speaker surround sound, instead of on only two channels like MP3s – even though the file is 50 percent smaller. Movies appear at up to six times the resolution of a DVD. And if you have broadband, you don't have to wait for streaming files to buffer. "With Windows Media 9," says Poole, "we've broken through a quality barrier that actually puts the PC platform ahead of consumer electronics devices."
The catch: Your standard digital content (MP3 music files and MPEG-2 video files) becomes Microsoft digital content. These files are backward-compatible and work with other players, like WinAmp, but to get all the benefits, you need Media 9. With this kind of presence -�from the server to the media player -�the company not only sells more operating systems, it has more control. Specifically, the ability to enable or limit the portability of digital content however it sees fit. Which is where Microsoft's digital rights management tools come in. Poole's Digital Media Division spent $250 million developing software that on first glance seems to completely undermine the mission of the Media Center Edition. If the Media Center gives consumers control of their digital media, the DRM software takes it away.
Microsoft's DRM allows the studios and labels to inexpensively – thanks to modest licensing fees – put a smart wrapper on their intellectual property. The DRM gift wrap carries instructions that let the gift giver (the content providers) limit or restrict when and where the gift can be opened and how it can be used. For example, Miramax could create instructions that prevent your new Gangs of New York DVD from being archived or streamed. Universal might permit one digital archive copy of a Queens of the Stone Age CD but no burning or sharing.
Why would Microsoft both giveth and taketh away? If the company can demonstrate to movie studios and record labels that they'll be able to control their content in a PC-centric world, those content providers will be more enthusiastic about getting in the game. When that happens, consumers will be more apt to think of the PC as a media device. And that will sell more Windows.
The first step is helping Hollywood understand DRM's capabilities. At the Windows Hardware Engineering Conference in May, Gates, Poole, and Steve Ballmer did just that. They detailed their plans for Microsoft's so-called Next Generation Secure Computing Base, to be included in the new version of Windows, due to come to market in 2005. The NGSCB will give content providers the ability to easily keep computers from altering, printing, or forwarding digital media.
Microsoft has also been showing off its DRM tools in, of all places, the Media Center Edition – the very machine being marketed to consumers as a digital command center. When introduced last October, the Media Center had a crippled DVD burner. You could burn TV shows recorded with your PVR, but only for archival purposes – they wouldn't play anywhere but on your own machine. Microsoft freely admits that it collaborated with content providers during the design phase of the Media Center. Hollywood was "absolutely" consulted, says Jodie Cadieux, a marketing manager in Poole's eHome division. (In response to negative reviews, Microsoft relented and issued a patch that reverses the DVD crippling.)
While the company is pushing an interconnected world of Tablet PCs, Smart Displays, and its new Media2Go devices, none of them are much good in conjunction with the Media Center. The machine still won't allow users to move video from one monitor to another – never mind to your TV, as in the Microsoft Home. On a tour of Redmond in late April, I was told by company officials that the limitations were in place because it's impossible to stream quality video over today's wireless networks. Two weeks later, at WinHec, Microsoft officials showed that, in fact, it is possible to stream over wireless. They displayed just such a technology, but said it won't be available on Media Centers until late 2004.
But you don't have to wait. A small company called SnapStream is selling a piece of software for $50 that will stream video not only between networked computers but to Pocket PCs and Tablet PCs. SnapStream says it is even close to being able to stream to TVs. As far as CEO Rakesh Agrawal is concerned, technology has little to do with Microsoft's decisions to limit consumer control. "They're trying to broker between Hollywood and consumer," he says. "It's anyone's guess where they'll fall out in that process."
Brian Whiting, the stocky manager of the Guild 45th Theater in suburban Seattle, has a certain spring in his step for 10 o'clock on a Wednesday morning. It could be that he's happy to have a visitor at a time when his cinema is usually empty. Or that he's excited to show off his newest toy. "It looks even better than I thought it would," Whiting says out of nowhere as he scurries up the back steps, stopping halfway to make sure I'm coming. "If you were to scan every frame of a 35-millimeter film, it'd be 1.7 terabytes. They got it down to 7 gigs!"
He opens the door to the projection room, about the size of a walk-in closet, and makes his way around the Lightning 6000, a $75,000 DLP projector hanging upside down – "It works better that way," he says – connected to a Dell Pentium 4 outfitted with a high-end graphics card. Whiting pulls at various cables, nodding to himself and prattling about satellite hookups, DSL delivery, millions of micromirrors, and six-channel sound.
This is how Whiting is showing movies these days. His projection room is evidence that Microsoft's digital media strategy goes beyond the small screen. The Guild 45th belongs to Landmark Theatres – an indie-centric chain that signed a deal with Microsoft in April to roll out Media 9 players in its theaters nationwide. Whiting's the first on board and couldn't be happier about it. He says Media 9 could decrease distribution costs and eventually eliminate the need for expensive film. At that point, he says, his theater can focus on what it does best. "This opens up a lot of small indie films," he says. "Do you know how many of the 48 films at Cannes last year got distribution? Eight. Now we can do a Best of Cannes run, a series of one-night showings – and offer the kinds of things we're good at running."
As for Poole, he was skeptical when his team members came to him suggesting that Microsoft try to break into film projection. With the Landmark deal, and the company's success at Sundance – where several films were shown using Media 9 – he's convinced it's a great way to show the studios that he's really on their side. "Are we going to make our next fortune selling PCs to movie theaters? No," he says. "But we'll be able to show business partners in the film industry that we can change the economics of delivering their product to customers."
At least one studio, Artisan Entertainment – the force behind fare from The Blair Witch Project to Buena Vista Social Club – is on board. The company worked with Microsoft to develop Standing in the Shadows of Motown for Media 9. The documentary had a limited run at theaters in a few markets, and now the studio has released a two-DVD set – one disc suitable for DVD players and a hi-def DVD-ROM that will play only on Windows XP. Artisan was so pleased with the experience that it immediately went to work on a second project, Extreme T2 – a remastered, hi-def version of Terminator 2 that hit retail about a month before T3 landed in theaters. "This was a very cool opportunity," says Randy Wells, Artisan's executive director of marketing. "We're the first to do it, and we're very excited about being on the edge."
But how does the technology translate to the silver screen? Whiting tells me to make myself comfortable anywhere in his 250-seat theater. He pops in Motown, a mixed-media film whose original print includes 35-mm concert footage, interviews filmed on a consumer DV camera, old TV archive shots, black-and-white 16-mm dance footage from the '40s, and lots of what's known in Redmond as codec-busting scenery, like smoke and other random effects. We watch for 15 minutes or so, and to an untrained eye, the picture appears flawless. No pixelation as far as I can tell, even on a 22-foot screen, and the sound is exactly what you'd expect at a movie theater.
And here's the kicker: The very tool that Whiting is using, I can have at home, on my 51-inch plasma screen.
If only I had a 51-inch plasma screen.
Poole came to Microsoft in 1996, when Gates and company bought eShop, a startup he'd founded five years earlier. Before that, he was responsible for working with Microsoft products at, of all places, Sun Microsystems. He acknowledges the irony. "The majority of what I did was work on DOS and Windows," he says. "I was one of the Microsoft guys, which didn't always make me hugely popular."
His new job at Microsoft isn't designed to win any popularity contests either. In Redmond parlance, he has a "dual-facing role" – because it just wouldn't do to call him two-faced. His responsibilities boil down to pitting the DRM engineers against the OS, sound, and video software jockeys looking to improve the quality and flexibility of digital media playback – and then choosing which advancements to push at the expense of the others. If he chooses correctly, he can make content providers feel like they're in control, give consumers an improved experience, and avoid a civil war among his engineers.
So far, Poole seems to have walked the line effectively. His choices are well regarded among Microsoft partners and in the marketplace. Six months after the launch of the Media Center PC, manufacturers don't seem all that concerned with the limitations Microsoft has placed on content streaming or DVD burning. A dozen more companies have lined up alongside Samsung and HP to pay Microsoft more for the special OS and offer Media Center Editions of their own. No one's offering up sales figures, but HP claims to be so happy with the way Media Centers have moved that it predicts most Hewlett-Packard PCs will be Media Centers by next year.
But you can't have a two-faced job and not make enemies. There's still an awful lot of Microsoft bashing in Hollywood. "I spent a lot of time with Will, and I just never felt like I had a straight conversation with the guy," says a former top executive at a content provider. "He would say, 'We will do this and that, and why don't you do this,' and it was always the same thing: 'Use our stuff; don't use anybody else's.' Microsoft has a tremendous opportunity to be a choke point for personal computers, and they have used every opportunity to take control of that choke point."
Of course, the sentiment is even stronger among competitors. Rob Glaser, CEO of RealNetworks – a company that seems to be fast becoming the Netscape of streaming media – accuses Microsoft of mounting a disinformation campaign against Real. InterTrust, a competing DRM company jointly owned by Philips and Sony, has filed suit against Microsoft for patent infringement. Executives at the Internet Streaming Media Alliance – an organization devoted to developing streaming media standards, MPEG-4 in particular – will take a swing at Microsoft any chance they get. "It's easy to talk about an interconnected world when you're providing all the pieces," says Tom Jacobs, ISMA president and a director at Sun Labs. "Microsoft is buying market share, but when they run everyone else out of the market, do we think Windows Media 9 will still be free? They'll up their rates because their product will be the only thing that's left."
Poole has heard all of this before. He says Microsoft's acting unilaterally because digital media is taking over our PCs at breakneck speed. When it comes to ensuring the quality and security of digital media, Poole maintains that Microsoft can't afford to wait for a gaggle of companies to come to terms on MPEG-4. "We have a team of people that are applying the best computer science, math, and software engineering practices possible to get everything that can be achieved out of that advancing technology," he says. "There are tremendous values to be gained from standards that are broadly adopted in the industry. But those things take a long time to implement."
As for the motivation behind spending so much money to develop tools and then giving them away for a relative pittance, Poole explains that everything comes back to his mandate. "The reality is that selling PCs is what floats our boat," he says. "Think of Windows Media 9 as the next shot in the arm for the Windows platform. It's pretty straightforward. We're making the platform better, richer, faster, and cooler, with just a simple download."
The relationship between Hollywood and Microsoft, while improving, is fraught with miscommunication and conflict. Consider a meeting that took place at Disney last summer. Poole was hoping to get the company to license Microsoft's DRM toolkit. In his view, Microsoft was offering to help expand the market for Disney movies and protect them from pirates. The Mouse house seemed open to the notion – and then asked Poole how much Microsoft would pay for the privilege of being able to play Disney content on its devices.
I ask Poole to elaborate on what I've heard. He smiles and takes a moment. "There have been times when media companies have asked us to do things that would be, from a basic business perspective, completely unnatural or unreasonable. That has happened numerous times, with Disney and with others," he says. Another pause as he leans back in his chair. "Who was the fly on the wall for that meeting, I wonder?"
More tension surfaced at the Digital Media Summit in Los Angeles this spring. Scott Dinsdale, an executive VP of the Motion Picture Association of America, told the crowd that Microsoft and HP were using the Media Center Edition to "build a business on someone else's back." Asked to summarize Hollywood's attitude toward the PC, he said, "You don't screw with me, I won't screw with you. Don't play a movie on a PC ever again, and I won't say a word."
Still, Poole points to the progress he's made with both record labels and movie studios. The music industry, once outraged by the iPod and Apple's campaign, has lined up to offer content to the company's iTunes Music Store. Yes, the labels are appealing the federal court ruling that Morpheus and Grokster cannot be held liable for the actions of their users. But lately, the labels' own Net efforts – pressplay and MusicNet – have begun to offer more robust selections and greater freedom to burn tracks.
Hollywood has also shown signs of enlightenment. Disney CEO Michael Eisner has been among the most vocal and demanding studio executives. His connections in Congress helped produce the Hollings bill, a measure that would mandate the insertion of watermark readers into PCs and consumer electronics devices to prevent digital piracy. Eisner has also publicly accused Microsoft – along with Apple, Dell, HP, and Intel – of abetting piracy.
But Disney seems to be softening. In April, Eisner told a crowd at a National Association of Broadcasters meeting that he's looking to put Disney "in the forefront of the digital transformation of the entertainment industry." Announcing Disney's plans to launch a video-on-demand service, Eisner added, "We will not let the fear of piracy prevent us from fueling the fundamental impulse to innovate. If we don't provide consumers with our product in a timely manner, the pirates will."
Truly music to Poole's ears. But outsiders warn that the recording and film industries are not about to substitute marketplace experimentation for plying Capitol Hill. Microsoft may consider legislation to be poison. To Hollywood, it's Valium. "The IT guys don't think of integrating into the Washington power structure. The Hollywood guys do that like breathing," says Mike Godwin, senior technology counsel for Public Knowledge, a tech policy organization. "This is a real philosophical battle between sectors. If you told the major studios they could either make twice as much money or have more control, they'd pick more control. Same for Microsoft."
So, where does this all leave consumers – the wide-eyed masses, yearning for their content to breathe free? In Microsoft we trust.
Ouch.
