|
Aol joins microsoft alliance { May 30 2003 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A55960-2003May29.htmlhttp://www.washingtonpost.com/wp-dyn/articles/A55960-2003May29.html
AOL Drops Suit, Joins Microsoft In Alliance
Software Firm to Pay $750 Million
By Jonathan Krim
Washington Post Staff Writer
Friday, May 30, 2003; Page A01
Microsoft Corp. agreed yesterday to pay $750 million to AOL Time Warner Inc. to drop an antitrust suit against the software giant, in a deal that turns one-time rivals into powerful partners.
In addition to settling their legal battle, the two companies -- the world's biggest software maker and the biggest entertainment company -- agreed to collaborate on technology that could one day set the standard for how music and movies are sold over the Internet.
The deal is a surprising twist in the long-running legal saga over Microsoft's violation of antitrust laws. AOL sued Microsoft after federal courts found that one of its subsidiaries had been harmed by Microsoft's anti-competitive actions. With yesterday's settlement, the two companies could capitalize on a lucrative new market.
The companies said the deal is important for consumers because it could make much more entertainment available online by reassuring Hollywood and the music industry that their offerings could be better protected from piracy.
"With Microsoft's media technology expertise, and AOL Time Warner's content expertise, we believe we can accelerate . . . digital media for the Internet," Microsoft Chairman Bill Gates said.
But one anti-Microsoft trade group said AOL's embrace of Microsoft's digital media technology could raise new antitrust questions. "Now Microsoft gets to own another market which is critical," said Mike Pettit, executive director of ProComp. "It's worth billions and billions and billions of dollars."
The deal, struck between Gates and AOL Time Warner chief executive Richard D. Parsons, brings a badly needed cash infusion to AOL Time Warner. The company has been weighed down by $27 billion in debt and disappointing results from its online operations.
The settlement includes several parts: Microsoft agreed to renew AOL's license to use Internet Explorer, its software for surfing the World Wide Web, for seven years, royalty-free. Microsoft pledged to give AOL greater access to its Windows operating software code to ensure better performance of the AOL service. The two companies also said they would try to make their competing instant-messaging services compatible, so users of one system could trade short text messages with those of the other.
Company executives said one of the most far-reaching aspects of the agreement is the digital entertainment initiative. AOL will license Microsoft's Media 9 software, which allows users to play digital music and video and also includes features to prevent unauthorized copying and sharing.
AOL's 35 million users currently can choose to use Microsoft's media software on the AOL service, but they also have the option to use Microsoft's top competitor for playing digital content: RealNetworks. Parsons said the Microsoft deal would not shut out RealNetworks because it's a nonexclusive agreement. But Microsoft hopes that by adding its version of anti-piracy features, the entertainment industry will want to use its format for distributing music and videos.
The two firms remain head-to-head competitors when it comes to providing Internet access, with America Online's paid service vying with Microsoft's MSN, which has about 8 million subscribers.
Legal and technology analysts viewed the new alliance of the two corporate giants with wary fascination.
"All of these areas bear close watching," said Mark Cooper, director of research for the Consumer Federation of America.
He said the cyber-revolution is "stalling" because of a lack of innovation and collaboration that makes high-speed Internet access and digital content more available. Thus, he said, the deal could be helpful.
But consumers could be hurt by an anti-piracy system that is dominated by one set of players. "There are dangers," Cooper said. "They could get it wrong."
Others said that while the deal is a necessity for AOL Time Warner, it is a huge victory for Microsoft.
"They are getting off cheap," said Mark S. Ostrau, a Silicon Valley antitrust lawyer. Ostrau said AOL stood to win far more than $750 million in court because federal courts already have ruled that Microsoft broke antitrust laws.
As for AOL, Ostrau said that having Microsoft as an ally is a smart move for any struggling company.
The deal closes the chapter on one of the biggest engines of the Internet's early growth, the Netscape Navigator Web browser, which AOL bought in 1999 for $10 billion.
Netscape helped spark the Internet revolution in the early 1990s by being the first to offer consumers an easy and graphically pleasing way to navigate the Web. Microsoft, however, viewed Netscape as a potential threat to its dominance of operating systems that powered personal computers.
The company feared that consumers might one day get software and other services from the Internet, with the browser -- not Microsoft's dominant Windows program -- serving as the intermediary.
Microsoft embarked on a campaign to develop its own browser, but while that was in development it engaged in a number of business practices that antitrust regulators determined were designed to unfairly crush Netscape. Netscape went from having most of the market for browsers to having little.
The Justice Department sued in 1998, alleging that Microsoft had strong-armed developers and computer makers to favor Microsoft's Explorer browser.
After bruising court fights, a federal appeals court affirmed that Microsoft had broken antitrust laws, and it ordered the case back to a lower court judge to determine sanctions.
In late 2002, the Justice Department settled with Microsoft, striking a deal that AOL and other competitors called inadequate and filled with loopholes.
Subsequently, AOL and two other competitors sued Microsoft privately. The cases of Sun Microsystems Inc. and Be Inc. are pending.
Edward J. Black, head of the Computer & Communications Industry Association, which receives funding from AOL and supported stiff sanctions on Microsoft for antitrust violations, said his group is "pleased that AOL Time Warner was successful in extracting a substantial measure of compensation for the destruction of Netscape."
But the deal "is a relatively small price to pay for illegally crushing the company that brought the World Wide Web to most consumers," he said. "The full consequences of many of the remaining provisions will obviously need greater study."
The deal is one of several government and private class-action suits that Microsoft has worked to settle. But the company remains under investigation by antitrust enforcers in Europe for the way it bundles its media player software with its core Windows operating system.
For AOL Time Warner, the deal is yet another demonstration of the ascendance of the Time Warner side of the company, which AOL acquired in 2000.
Parsons said that while AOL and Microsoft were, and in some areas still will be, "spirited competitors," this is AOL Time Warner now. "The Time Warner side has had a long relationship with Microsoft. . . . While Bill and I don't play bridge together . . . we have great respect for each other."
© 2003 The Washington Post Company
|
|
