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Will Media Players Swim with Marlin?

By Burt Helm iTunes, Apple's online music store, works great if you have an iPod player. But downloading and playing songs on digital music devices made by companies other than Apple (AAPL) can be a headache for consumers. The biggest reason: Different brands depend on different digital rights management (DRM) technology to protect against piracy.

Typically, songs downloaded from iTunes can't be listened to 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 and will only play legally downloaded music from Sony's Connect Music Store site.

POTENTIAL MONEY SPINNER. Now a group of the world's largest consumer-electronics makers, 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 that they're developing what they hope will become a uniform DRM software standard, called Marlin, for MP3 files and digital video.

Given that Apple and Microsoft already have a huge head start, it will be an uphill climb. But the group's goals are ambitious. 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, Marlin's backers say they will incorporate it into their devices in hopes that it will become a common encoding format for downloadable media, in much the same manner as 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 [DRM systems]."

If Marlin does become a standard, Intertrust, a research firm owned by Sony, Philips, and the investment bank Stevens Bank, stands to make a bundle because it owns many of the relevant patents. Another bonus for the consumer-electronics companies: They won't have to pay Microsoft or Apple to license digital rights management software for use in their devices, which they consider a big plus.

TOUGH AUDIO SPACE. The chances of Marlin becoming a standard depend on whether or not record labels, movie studios, and cable and satellite concerns -- the businesses that create and distribute all the content for those devices -- embrace the DRM technology.

In the downloadable music world, that's unlikely. Apple dominates the industry from the top down. It controls distribution through iTunes, the main downloading site, and it's king of the digital music player market with the iPod, which has a 63.5% share, according to the NPD Group.

With its own DRM software, called FairPlay, in place 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 by companies like Creative and SanDisk generally work with files encoded with Microsoft's DRM, which are embedded in the Windows Media Format (WMA).

"WORK IN PROGRESS". More opportunity exists in video, which has no strong leader just yet. Consumers are only just beginning to download video from the Internet and record TV programs onto their computers. But even there, Marlin will be a "nonstarter" if movie studios, broadcasters, and satellite and cable providers don't latch onto it, says Schadler. "It's a case of 'if we build it, will they come?'" he says.

Clearly, the consumer-electronics manufacturers are only part of the equation. "This will be an interesting piece of standards work?ut it would have been a more powerful statement if [the consumer-electronics outfits] had the studios in there with them." says Brett Azuma, executive vice-president at the research company RHK.

So far Fox 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 that this is a work in progress" says Intertrust's Shamoon.

PLAYING CATCH-UP.?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 common way to do business is best. But whether the big movie and music houses agree will determine whether the nascent standard sinks or swims. Helm is a reporter for BusinessWeek Online

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