Imagine buying a CD at Best Buy (BBY) only to discover that it won't work on the CD player you bought at Circuit City (CC). Absurd as it sounds, this sort of situation is the rule rather than the exception in the world of legally downloaded music. This maze of incompatible standards is a threat to online services such as Apple Computer's (AAPL) iTunes Music Store.
The situation is both baffling and infuriating. My iPod can play all the MP3s I rip from CDs or pull from KaZaA (if I used it), but when it comes to legal downloads, it works only with the iTunes store. The Roku SoundBridge that connects my stereo to my computer's stash of digital music can play everything in my iTunes library that I digitized myself -- MP3s and the like -- but not iTunes Music Store purchases. Similarly, other players handle only music bought from a specific service.
No wonder the market share of legal music downloads remains tiny compared with sales of CDs and the traffic on music-swapping services such as KaZaA. Both let you play your music wherever you want. Record companies insist on using technology to limit the number and types of copies buyers can make of downloaded songs. But the problem isn't the restrictions -- it's the incompatibilities. Apple uses a digital-rights management (DRM) system called FairPlay, RealNetworks uses one called Helix, and Microsoft (MSFT) has just introduced a DRM known as Janus.
IT'S PUZZLING THAT THE INDUSTRY doesn't see how hard this is on consumers. Apple has chosen an isolationist course. It supports only FairPlay in its products, and it has been unwilling to license other companies either to build FairPlay-enabled players or to sell FairPlay-protected songs. Hewlett-Packard (HPQ) sells iPods co-branded with Apple, but it's not clear whether Apple will enter broader licensing deals. RealNetworks, as befits the smallest competitor, is eclectic, promoting a system called Harmony that supports players using its own Helix as well as Microsoft's Janus. It also sells songs for the iPod using its own, unlicensed version of FairPlay.
Microsoft holds the high cards in this game. Much as I hate to see the colossus of Redmond end up dominating yet another market, I believe that is going to happen, and given the current state of affairs, it may be the best outcome for consumers. Microsoft doesn't make player hardware, and MSN Music is a tiny part of its business. The company makes money selling the Windows Server 2003 software required to distribute music or video in Windows Media content, so it profits by having the technology as widely embraced as possible. To promote that, it offers favorable, often royalty-free, licensing of Windows Media technology to music and movie studios and device makers.
When Windows Media 10 and Janus were released in early October, Microsoft took a self-serving step that simplifies things for consumers. It created a "PlaysForSure" logo for sites that sell Windows Media music and devices that play it. In theory, PlaysForSure music you buy from sources that include Napster, Musicmatch, and Wal-Mart Stores will work on any PlaysForSure player, including products from Dell (DELL), Creative, iRiver, Gateway (GTW), and newcomer Virgin Electronics.
None of these players is as easy to use as an iPod, these Web sites aren't as easy to use as the iTunes online store, and no rival can match Apple's brilliant marketing. But the gap is narrowing. Virgin Electronics, for one, is part of an empire with proven marketing ability, especially in selling music.
In the end, what consumers care about is getting the music -- and in the not-too-distant future, the movies and video -- they want and having it play without hassles on the device of their choice. Microsoft's big-tent approach offers a way out of this morass for everyone, except perhaps Apple.
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By Stephen H. Wildstrom