The week in review: Price wars

Sony responded to growing price pressure by cutting the North American price of its PlayStation 2 game console by $100, to $199. The move had been widely expected to happen in concurrence with next week's Electronic Entertainment Expo.

Microsoft was next, dropping the price of its Xbox system from $299 to $199 in the United States. The move puts all the major game consoles--PS2, Xbox and Nintendo's GameCube--at $199.

Nintendo said it has no plans to lower the GameCube's price.

Financially, Microsoft has the most to lose from price cuts. The PlayStation 2 has been on the market for almost two years and has sold more than 30 million units worldwide, giving Sony plenty of time to rein in production costs. Sony executives said late last year that they had reached the break-even point on PS2 hardware. Xbox has been available for less than six months and has been fairly expensive to manufacture from the start, owing to components such as a built-in hard drive.

The next battle in the video game console wars will be fought online, with Microsoft taking the biggest gamble. The company is building a subscription-only broadband network to allow Xbox owners to play against one another online. Prices and availability for the service, which will include live voice chat, are scheduled to be announced at E3.

Nintendo announced plans to bring Internet play to its GameCube, making the company the last console maker to step in to the online market. The company said it will begin selling a network adapter for broadband Internet connections and a modem for dial-up connections--both priced at $35--starting this fall.

Napster's back-and-forth
German conglomerate Bertelsmann agreed to acquire Napster in a deal that will keep the controversial file-sharing service alive for the near future.

Earlier in the week, Napster Chief Executive Konrad Hilbers, creator Shawn Fanning and several other senior executives had resigned from the company, after months of unsuccessful negotiations to sell the file-swapping company and settle lawsuits. Hilbers and Fanning will now remain with the company.

Relative newcomer Kazaa, meanwhile, has been faring comparatively well, with powerful computer and telecommunications companies deciding to ally with the upstart file-swapping service in a bid to overhaul the way record labels are paid for music and other content distributed on the Net. Stung by legislative proposals that could force computer companies and Internet service providers to become anti-piracy cops, Verizon Communications and an influential technology trade association are beginning to push a copyright proposal that could make downloading a song online as legal as listening to the radio.

In a twist, Sony Music Entertainment, one of the companies that sued file swapper Scour Exchange to the brink of extinction, will now use the service to promote some of its artists. CenterSpan Communications, which bought Scour's assets in bankruptcy court last year, said Sony would promote music from Macy Gray, B2K, Five for Fighting, Flickerstick and John Mayer through the service, which has been revamped and souped up to include multiple layers of security and digital rights management (DRM) technology to prevent theft.

Security alert
Microsoft urged Windows users to download a fix for Internet Explorer after the company's announcement that six new flaws had been found in its Web browser. The software giant called three of the flaws critical, but only one of them--a "cross-site scripting error" that affects only IE 6.0--would allow an attacker or a worm to run a program on the victim's computer.

That flaw occurs when the browser sends information within a link to another browser. The cross-site scripting technique can be abused by an attacker to get the other site to run a program specified by a malicious user. The two critical flaws that could compromise personal information occur because of the way IE handles popular site templates, known as Cascading Style Sheets, and the way it processes cookies.

A CNET News.com special report found that the Internet has bred an elite class of criminals who are organized, well funded, and far more technologically sophisticated than most law enforcement officials.

However, law enforcement and intelligence agents may have a new tool to read the data displayed on a suspect's computer monitor, even when they can't see the screen. An associate professor at Cambridge University in England showed how anybody with a brawny PC, a special light detector and some lab hardware could reconstruct what a person sees on the screen by catching the reflected glow from the monitor.

Microsoft in court
Microsoft executives apparently attempted to steer the direction of a Web services standards body away from rival Sun Microsystems, according to evidence and testimony introduced during the software giant's ongoing antitrust trial. In an e-mail sent to top executives, Chairman Bill Gates indicated that he approved of Microsoft's involvement with the Web Services Interoperability Organization (WS-I) as long as Sun's role was minimized.

"I can live with this if we have the positioning clearly in our favor. In particular, Sun not being one of the movers/announcers/founding members," Gates wrote. The information lends credence to Sun's claims that Microsoft had tried to limit Sun's involvement with the WS-I, which was launched by Microsoft and IBM in February and says it aims to promote Web services by ensuring that software from various technology makers is compatible.

The software maker may have ducked a potentially damaging bullet, as another procedural error on the part of the plaintiff states prevented evidence from getting into court. That evidence, involving an operating system called Windows XP Embedded, could have made the states' case.

Lawyers representing the nine litigating states and the District of Columbia canceled a May 15 XP Embedded demonstration after being reprimanded by the judge. The judge said the states' legal team had failed to give the court proper notice about the scope of the demonstration and the amount of information Microsoft would have to sift through to respond to it.

The demonstration could have resolved two issues: whether Microsoft could develop a "modular" version of the operating system without so-called middleware, such as the software giant's Internet Explorer browser and Windows Media Player, and whether Windows XP Embedded could be used as the basis for a custom version of XP that would run without any serious loss of performance.

In a separate case, Microsoft's claim to the word "Windows" suffered another blow when a federal judge again questioned the company's assertion that the term is not generic. The judge also repeated his denial of Microsoft's request to shut down the Lindows.com Web site and to block its owner from advertising its product.

Lindows aims to offer an alternative to Microsoft's dominant Windows operating system by selling a new program, LindowsOS, which would allow Windows programs to run on the Linux operating system.

Also of note
Mac users may want to check the labels on their music CDs, as copy-protected audio discs flooding the market may lead to serious problems when they are played on some computer systems...Apple Computer unveiled Xserve, its first rack-mountable server...Cingular Wireless says it will pay $100,000 to federal regulators for missing the Oct. 1 deadline to begin building a system that lets police locate cell phone users making 911 calls...An e-mail hoax posing as a virus advisory is surfing the Internet on a wave of PC user naivete...Amazon.com is planning to allow sellers of used goods on its site to branch out into new businesses, in a move that could put pressure on eBay...In a setback for civil liberties groups challenging a law that cracks down on Internet smut, the U.S. Supreme Court ruled that the Child Online Protection Act may not be overly broad...Internet keyword company RealNames decided to close shop because Microsoft wouldn't renew its contract with the company.

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