As first reported by CNET News.com, Microsoft has changed its mind on MP3 support for its upcoming Windows XP operating system. The company originally planned to ship Windows XP with low-quality MP3 recording capabilities, leading to charges that the company favored its own Windows Media Audio (WMA) format instead.
On Monday, Microsoft said it will work with third-party companies to deliver Windows XP's MP3 ripping and DVD playback capabilities. The company announced two Windows XP add-on packs, one providing full MP3 support and the other DVD playback. CyberLink, InterVideo and Ravisent, working with Microsoft, will offer the programs--the MP3 Creation Pack and DVD Decoder Pack--for download when Windows XP launches in October.
The companies will charge for the software, although pricing has not been determined. Raul Diaz, InterVideo's vice president of marketing, said pricing "between $15 and $30" would be a reasonable guess, "depending on the features."
MP3 support might be only $15, while full DVD and MP3 capabilities could cost twice as much, he added.
Microsoft could have added the features for a lot less, but this would have intensified accusations that the company crowds out potential competitors by bundling extra features into Windows, analysts said.
"If Microsoft had put one of these capabilities in, they would have been criticized for bundling more stuff into the OS and trying to cut some of the other players," said Gartner analyst Michael Silver. "This way, only those that want the DVD and MP3 will have to pay for it."
The add-on packs could renew controversy building around Windows XP: Microsoft's apparent favoritism of the WMA format over MP3. Because consumers will have to pay extra for MP3 ripping--or the ability to turn a song into the popular music format--they may simply choose the WMA format instead, taking advantage of Windows XP's fully integrated media player.
Miles Taub, a Windows user in Chicago, said the extra cost for MP3 ripping is a "bad idea on Microsoft's part. If Microsoft were smart, they would put in a great MP3 burner for free. If I had XP without MP3, I would just download a free player...and burn them that way."
Although Microsoft has not announced Window XP pricing, Amazon.com briefly took advance orders for the new operating system: $100 for the consumer upgrade and $200 for the full version. But the online retailer has since stopped taking orders, waiting until Microsoft releases final pricing.
Rippin' and burnin'
Critics started raising concerns about Microsoft's digital music strategy soon after the Redmond, Wash.-based company released Windows XP Beta 2. Testing versions of Windows Media Player for Windows XP ripped MP3s at about half the more typical minimum quality delivered by competing products, such as RealNetworks' RealPlayer Plus. Not only did Windows Media Player for Windows XP lack good MP3 ripping capabilities, it came with no decoder for playing DVD movies.
But Shawn Sanford, Microsoft's group product manager for Windows, last month said that the low quality of ripping had nothing to do with some nefarious plan to replace MP3 with WMA. "The architecture to support third-party encoders is built in," he said. In fact, testing versions of Windows XP could rip MP3s or play DVDs as long as a third-party encoder or decoder was installed, he added.
Microsoft took the low road on supporting MP3 and DVD playback because "there's a licensing fee involved there," Sanford. "There are rights involved for DVD playback or decoders for ripping MP3s." Because Microsoft didn't want to pay licensing fees for testing versions of Windows XP, the company opted for a budget-version encoder that ripped MP3s at low quality.
"We simply wanted to make sure the technology worked," Sanford said.
Those rights aren't cheap. Thomson Multimedia, which licenses the rights to MP3, charges technology third-party encoding developers $2.50 per unit, according to the company's Web site.
"Historically, Microsoft really does try to avoid wherever possible paying royalties or licensing fees for the OS, considering they sell so many copies," Silver said. "I don?t think it's necessarily wrong for Microsoft to draw a line somewhere."
Silver noted that assuming Microsoft paid an extra $2.50 for every copy of Windows--and that would be just for MP3 encoding--that "could add as much as $10 to the retail cost."
"Microsoft would likely double to $5 the extra cost to wholesalers, who in turn would another $5 to the cost to retailers," Silver said.
While the cost of the add-on packs is probably higher than if Microsoft had folded the MP3 encoding and DVD licensing fees into Windows XP, overall it is less because not everyone wants those features, Silver said.
Still, Windows Media Player for Windows XP will rip digital music in WMA format, giving Microsoft leverage against MP3. But Taub doesn't see that as a problem because of the new devices--among them stereo components and in-car CD systems--supporting MP3.
I think these will become more popular," he said. "I'll be surprised if WMA takes off anytime soon."
A kinder monopolist?
In the end, Microsoft decided to play nice with potential Windows Media Player competitors, letting them foot the bill for the licensing fees. Adding MP3 and DVD capabilities to the product threatened previous partners CyberLink, InterVideo and Ravisent. Another potentially displaced competitor, Roxio, had already cut a deal with Microsoft. Roxio, maker of the popular CD Creater software, provides Windows XP's basic CD burning capabilities.
InterVideo and Microsoft started discussing DVD playback in January. "The majority of InterVideo's DVD players out there are not compatible with the Windows XP architecture, and Microsoft was very concerned about what would happen to customers who upgraded to Windows XP," Diaz said. The companies are negotiating an agreement in which InterVideo would provide Windows XP users with a free patch to fix the problem and "promote and sell a full-featured version product that (starts) during the Windows XP installation," Diaz said.
The timing of the add-on packs announcement could in some ways be viewed as suspicious, coming a scant three weeks after an appeals court upheld a lower-court ruling that Microsoft had illegally maintained its monopoly in Intel-based operating systems. Microsoft could have cut the deal to deflect criticism about its business practices.
Diaz dismissed those concerns. Serious discussions about add-on packs "started around three months ago," he said.
"There is no doubt that Microsoft is very ambitious about what they would like to offer, in terms of complete solutions on the OS," Diaz said. "But having said that, Microsoft has been one of InterVideo's greatest partners. They help us stay ahead at a deep engineering level."