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Week in review: Dig that crazy beat

Several major forces in the music industry change their tunes, as the industry tries to stay on top of the fast-changing market.

Several major forces in the music industry changed their tunes this week, as industry giants and niche players alike try to stay on top of the fast-changing market.

The biggest surprise came from electronics giant Sony, which revealed to CNET News.com that it will drop its protectionist policy surrounding digital music and allow its players to handle straight MP3 files.

Sony, which also happens to own a good chunk of the major record labels, has been a relative latecomer to the digital music scramble, introducing a download service earlier this year and coming out with its first hard drive-based players a few months ago. Like other Sony gadgets, those devices only play files encoded in Sony's restrictive Atrac format, making them incompatible with iTunes and any other non-Sony download service.

Sony executives this week acknowledged that strategy might not be a world-beater and said the company is working on adding native MP3 support to its players, a concession to Apple Computer's continuing dominance of the digital music market.

"We want to push Atrac on our music download services, and (we) remain convinced that it is the best format on the market," a Sony Electronics representative said. "But it is clear that the industry benchmark is Apple's iPod, which is compatible with MP3."

Elsewhere in the music wars, Yahoo and Microsoft are looking at instant-messaging services as a way to deliver music. Both Yahoo Instant Messenger and MSN Messenger already have some basic music functions, but the companies want to expand those with support for sharing playlists and other features.

Neither company would offer much in the way of details, but analysts said making IM products more friendly to music would be a smart way to fend off Apple. "Here they've got this asset; it's got millions of users," said Matt Rosoff of research company Directions on Microsoft.

Meanwhile, download service eMusic relaunched its MP3 site with an emphasis on tunes from independent labels not represented by iTunes and the other major services. And speculation ratcheted up on a possible settlement in the long-running legal dispute between Apple and Apple Corps, the corporate arm of rock icons The Beatles.

The name of the game
Video games grabbed attention with several announcements coming out of the Tokyo Game Show. Sony confirmed that later this year it would begin selling a slimmed-down version of its market-leading PlayStation 2 console. The move is similar to Sony's repackaging several years ago of the original PlayStation, and executives expect similar results. "We have seen a strong sales increase after PlayStation was remodeled into PSOne. We expect the new model to help boost the game market," said Ken Kutaragi, president of Sony Computer Entertainment, Sony's game arm.

Nintendo, meanwhile, spilled a few more beans on its DS, a handheld game player with advanced graphics, wireless connectivity and other features missing from it market-leading Game Boy. The DS will go on sale for $149 in late November, Nintendo executives said, giving the company a few months' head start on Sony's PlayStation Portable.

Further off on the horizon, game publishers are starting to think about new living room consoles coming from Sony and Microsoft. Both the PlayStation 3 and Xbox 2 promise big leaps in graphics performance. Pushing all those polygons is likely to swell already puffy game development budgets, however, a prospect that could push a few studios over the financial brink. "We're seeing some publishers teetering on the edge right now," said Schelley Olhava, an analyst for researcher IDC. "It's going to get harder and harder for the small publishers because the development costs are getting so high."

What, me worry?
In the enterprise software world, PeopleSoft Connect, the company's annual user conference, struggled a little in the ambience department as loyal customers tried to digest the company's loss to Oracle last week in a court case involving Oracle's hostile takeover bid. PeopleSoft customers were sounding a little on edge before the start of the show, as the leering face of Larry Ellison hovered over their data centers.

PeopleSoft CEO Craig Conway tried to quell those fears with a vow to keep fighting and a sense of humor. "Have you ever had a bad dream that just didn't end?" an upbeat Conway asked at the start of the conference.

But that wasn't enough to stop customers from looking at alternatives or to keep PeopleSoft executives from considering exit strategies. Our corporate psychoanalysis suggests a little reality therapy may be in order.

Microsoft in motion
On the Microsoft front, security remained the big issue, with hackers circulating code to exploit a serious flaw in the way the Windows operating system handles common graphics files. Microsoft has released a slew of patches to fix the bug and included the appropriate ones in Service Pack 2, the problematic fix-fest circulating for the current Windows XP.

Microsoft confirmed that SP2 will be the only way to get security updates for Internet Explorer, the company's market-leading Web browser. Folks using older versions of Windows can either shell out $99 to make the switch to XP or learn to live with running a browser full of holes. "It's a problem that people should have to pay for a whole OS upgrade to get a safe browser," said analyst Michael Cherry of Directions on Microsoft. "It does look like a certain amount of this is to encourage upgrade to XP."

The software giant also opened up the source code for Office 2003, the latest version of the productivity software, for governments concerned about security and document archiving. The move is part of Microsoft's widening "shared source" response to the growing popularity of open-source software.

John Connors, Microsoft's chief financial officer, also said the company is likely to make several large acquisitions in the near future.

Also of note
Google appeared to be inching toward releasing its own Web browser...The former CEO of Computer Associates was indicted on criminal charges alleging fraudulent accounting practices...Gateway and other PC makers are rethinking their approaches to the consumer electronics market...Netflix and Warner Bros. are working together on a .