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Can Marlin Swim with the Sharks?

By Burt Helm iTunes works great if you have an iPod. But downloading and playing music over MP3 digital music players made by companies other than Apple (AAPL) can be confusing. The biggest reason: Different MP3 brands depend on different digital rights management (DRM) technology to protect against piracy.

That different companies are using different technologies to protect their music and movies from piracy is a major headache for consumers. Typically, songs downloaded from iTunes can't be played on, for example, a media player made by Creative (CREAF), which only uses the DRM that comes with Microsoft's (MSFT) Windows operating system. And Sony's (SNE) new MP3 player uses its own special DRM to protect content from piracy, only playing legally downloaded music from Sony's Connect Music Store site.

"COMMON PLATFORM." Now a group of the world's largest consumer-electronics companies, along with a tiny, 15-year-old, Silicon Valley software outfit called Intertrust, want to eliminate that considerable aggravation. On Jan. 19, Sony, Samsung, Philips, Matsushita, and Intertrust announced they are developing what they hope will become a uniform software standard, dubbed Marlin, for MP3 files and digital video.

Given that Apple and Microsoft already have huge head starts, it will be an uphill climb. That isn't crimping the group's ambitious goals, however. The first version of Marlin should be finished this summer, with Brett Azuma, executive vice-president at researcher RHK, expecting it to find its way into digital media players by 2006.

Eventually, the Marlin-backers aim to build it into their devices in hopes that it will become a common encoding format for downloadable media, much as is now the case with DVDs. "We're trying to build the common platform," says Talal Shamoon, CEO of Intertrust, "because people are having a problem with many of these [systems]."

PODWORLD. If Marlin does become a standard in digital music and video, Intertrust, a research firm owned by Sony, Philips, and investment outfit Stevens Bank, stands to make a bundle because it owns many of the relevant patents. Another bonus for the consumer-electronics industry: It won't have to pay Microsoft or Apple to license digital rights management software, a big plus.

The chances of that happening depend on whether or not record labels, movie studios, and cable and satellite companies -- the sources that create, distribute, and sell the content for those devices -- embrace Marlin.

In the downloadable music world, that's unlikely. Apple dominates the industry from the top down. It controls distribution through iTunes, the dominant downloading method, and it presides over the MP3-player market with its iPod, which holds a 63.5% share of the market, according to tech researcher NPD Group.

ANY TAKERS? With its own DRM software, called FairPlay, and strong relationships with many record labels, Apple has little reason to move to another standard, says Ted Schadler of Forrester Research. The handful of other MP3 players made by companies like Creative and SanDisk generally work with files encoded with Microsoft's DRM, which are embedded in the Windows Media Format, or WMA.

There is more opportunity in video, where no strong leader exists just yet. Consumers are only just beginning to download programs from the Internet and record digital TV broadcasts onto their computers. But even there, Marlin will be a "nonstarter" if movie studios, TV channels, and satellite and cable providers don't latch onto it, says Schadler, who adds, "It's a case of, 'If we build it, will they come?'"

Clearly, consumer electronics companies are only part of the equation. "This will be an interesting piece of standards work -- but it would have been a more powerful statement if [the consumer electronics companies] had the studios in there with them," says Azuma.

APPLE'S SECRETS. So far Fox (NWS) and Sony are the only major players to agree to work with the group to develop the specifications. But Marlin developers hope more will follow. "It's important to emphasize this is a work in progress," says Intertrust's Shamoon.

Nonetheless, it's already a game of catch-up, since Microsoft's DRM is already in its Windows XP Home Media operating system. On the upside, "at least Apple hasn't gotten into the digital video business," says Shyam Nagrani, principal analyst of consumer electronics at the market research firm iSuppli. "But who knows what's happening in the Apple labs? I'd be surprised if they didn't."

Marlin's backers say a standard, industrywide way of doing business is always best. Whether the big movie studios and music labels agree with that sentiment will determine whether the nascent standard sinks or swims. Helm is a reporter for BusinessWeek Online in New York

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