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Commentary: The pace of digital media

The $750 million deal between Microsoft and AOL Time Warner to settle litigation and foster cooperation helps both companies, but will mean little for the adoption of digital media.

Commentary: The pace of digital media
By Forrester Research
Special to CNET
May 30, 2003, 11:00AM PT

By Chris Charron, Group Director

The $750 million agreement between Microsoft and AOL Time Warner to settle litigation and work together on technical issues helps both companies, but it will mean little for the adoption of digital media.

The agreement, announced Thursday, is classic Microsoft: Extend technical influence, make an enemy a friend and dish out some cash to take a legal liability off the books. AOL Time Warner's troubles are well documented, and the cash will come in handy. But here are the real impacts of the deal:

• Consumers, not Microsoft or AOL, drive digital media. Bill Gates claims that the deal will "accelerate the adoption of digital media for the Internet." Not likely--it's going too fast already. Half of all

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The software maker's deal with AOL
brings it a powerful ally in extending
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online consumers already listen to video or music regularly on their PCs, and they've done it by using alternative technologies from Kazaa, RealNetworks, Apple Computer, Streamcast Networks and Roxio. But it will take 10 years yet to work out digital rights management (DRM) issues and will require cooperation from content, cable, telephone and software companies. Even with Microsoft and AOL Time Warner on board, this pact alone will barely move the DRM needle.

• RealNetworks starts to feel lonely. The company's RealOne SuperPass shows that a media player can be used as a vehicle for content revenue. The Microsoft-AOL pact will extend the reach of Windows Media Player to close to 60 percent of households and will improve consumers' dissatisfaction rate with players. Watch for Real to cozy up to Yahoo for preferred distribution. Disney may also back Real to counterbalance AOL Time Warner's influence.

• IM interoperability gets closer to reality. Instant messaging usage grew 57 percent last year, but 97 percent of IM users can't talk to everyone because of the closed systems of AOL, MSN and Yahoo. The Microsoft-AOL collaboration will bridge the network gap, leave Yahoo IM in the dust and create a platform for actually charging consumers and businesses for a range of IM services.

© 2003, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.