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iPod undermines Microsoft on copy-locked CDs

Microsoft's WMA format was almost a standard on copy-protected CDs. Then along came Apple.

When a copy-protected CD hit No. 1 on the U.S. music sales charts last month, it marked a breakthrough for the antipiracy technology in all but one sense: The music still wouldn't play on Apple's iPod.

Now the two companies responsible for most copy-protected CDs are scrambling to create new versions of their technologies that are compatible with Apple's popular digital music player. In the process, they're both making substantial changes in the way CDs are digitally locked, changes that could ultimately be a setback to recent Microsoft strides into the music business.

"If you look at the 500 or 600 customer service comments we've gotten, you see that 80 percent of them have to do with iPod compatibility," said SunnComm International Chief Executive Officer Peter Jacobs, whose technology was loaded on last month's chart-topping Velvet Revolver disc. "The rest are, 'Why can't I do what I want with my music.' And a lot of those are really iPod questions too."


What's new:
Two big players in the CD copy-protection business were relying on Microsoft's Windows Media Audio format to placate consumers and create songs that could be copied in a limited way. That gave Microsoft a potentially profitable inroad into the music industry. Until, that is, Apple's iPod became a phenomenon. The iPod doesn't do WMA--thus, neither will many consumers.

Bottom line:
A copy-protected CD recently hit No. 1 on the U.S. charts--without iPod compatibility. Still, some say CDs will have to play nice with the iPod if antipiracy technology is to succeed. That means the door may be closing on Microsoft, and opening for Apple's own FairPlay technology.

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The effort on the part of record labels to protect music CDs against unauthorized copying and "ripping" has been in limbo for several years while the companies that make the technology have been trying to work out bugs that sometimes prevent discs from being played. But new discs are now finding their way into United States markets in growing numbers.

The idea continues to spark bitter criticism in many circles. For example, the release of last month's Beastie Boys album in copy-protected form in several overseas markets prompted a wave of angry comments on fan sites around the world, even provoking a response from the band on its Web site.

Nevertheless, labels see the success of BMG Music's Velvet Revolver disc, as well as a handful of other recent releases, as a good sign and say they're now likely to go ahead with more experiments. The SunnComm technology used by BMG is anything but bulletproof--simply holding down the computer's Shift key can disarm the protection on PCs--but BMG executives have said the protection is enough to dissuade many casual copiers.

Still, the fact that makers of antipiracy technology are approaching Apple and the iPod marks a new direction for copy protection.

iPod's rise squashes Microsoft advantage
For the past several years, both SunnComm and rival Macrovision have worked to put two different versions of songs on each protected album. The first set of tunes is a locked-down version of the CD's content. The second set consists of digital tracks that can be transferred to a computer or to some portable music devices.

That "second session" has been filled, to date, with songs in Microsoft's Windows Media Audio format. Both companies chose the WMA format because it's supported by virtually every PC on the market, and a large number of different portable players.

The decision, which was never warmly embraced by all the major record labels, appeared to give Microsoft the potential for powerful and profitable inroads into the music business. If songs in its format were to be included on every CD, WMA could go a long way toward becoming a de facto digital music standard.

But the subsequent meteoric rise of the iPod--which does not play Microsoft-formatted music--has forced a change in plans: no more reliance on Microsoft's technology, no more second session and an appeal to Apple for compatibility.

SunnComm and Macrovision each say that the new generations of their technology, due later this summer and early next year, respectively, will let people effortlessly create versions of songs for computers and portable players, in almost the same way people rip CDs to create MP3 files today. Software will be loaded on the music CDs that will help create a new copy-protected file in a form that can be played on an iPod, or on Microsoft-compatible players such as the Rio Karma, or on whatever else a consumer might be using.

"It's clear that because the hot portable player of (the day) is a constantly shifting target, the (era) of having fixed (digital rights management) stored on CDs is over," said Adam Gervin, senior director of marketing at Macrovision.

That's the theory, at least. The sticking point remains Apple, which has not yet licensed its iPod-compatible FairPlay digital rights management technology to anyone.

Some signs point to progress in this area. Gervin said his company has already demonstrated iPod support to record labels, although he declined to say whether Macrovision has a license to use Apple's code in a final product. Jacobs said he too was optimistic that Apple would provide the tools needed.

Indeed, if Apple is able to license its digital rights management technology for use on copy-protected CDs, it could be a promising new revenue source, depending on the terms. Apple declined to comment on the issue.

Analysts said the move toward iPod compatibility is very important if copy protection for music CDs is to succeed.

"It's fairly critical," said GartnerG2 analyst Mike McGuire. "If the labels start hearing that the reason people aren't buying an album is because it won't work on the iPod, then you'll see some reaction."

A Microsoft spokeswoman said the company had been happy with the way its tools had been used by record labels to date but that she was unfamiliar with SunnComm's most recent plans.