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Which Format Will Win?


A pitched battle for control of the music-downloading business is raging among Apple (AAPL), Microsoft (MSFT), RealNetworks (RNWK), and Sony (SNE). Their weapons: software used to buy and listen to music downloads on computers and portable devices. Their goal: to become the industry standard for how music and movie downloads are delivered. The winner will command a lion's share of the thriving market for digital content and devices. Here's an explainer on digital media formats:

Is there a difference between the music sold at different music sites?

No, the music is the same. But each song you buy off the Net comes wrapped in two important pieces of software: copy-protection software to prevent piracy and compression technology so it can be downloaded quickly. This combination is called a format. Apple has a format that combines its FairPlay copy-protection software with compression technology called AAC. To play downloaded songs that are encoded in a format, a computer or portable device must have specially designed audio-player software.

This is where it gets tricky. Four companies are backing competing formats. Besides Apple's, there's Microsoft's WMA, which is being used by Wal-Mart Stores (WMT), Napster (ROXI), and Musicmatch. Sony and RealNetworks each have their own formats.

What's the problem with that?

Rival formats make it hard to mix and match songs bought at different online music stores. Apple's iPod, for example, can't play songs bought at Wal-Mart because Wal-Mart uses Microsoft's WMA. And Dell's DJ and Samsung's Napster digital players can't play music bought at Apple's iTunes music store.

What about my CDs at home?

No problem. All computers and portable devices can play your old CDs. Most CDs don't include any copy-protection software, so existing consumer-electronics products can play them without any trouble. It's only when people start buying music online that they may run into compatibility problems.

Is there a way around these problems?

Yes, but it's a process that induces hair-pulling and curses for nontechies. What you do is convert the songs into MP3 format, because almost all computers and devices can play those files. To do this, you copy the digital songs you bought online onto a CD. Then you load them back onto your computer, decompress them into something called a WAV file, and recompress them into MP3s. Even then, you end up with lower-quality music because MP3 lacks the fidelity of new compression software.

Will there end up being one standard for digital music?

Yes, eventually. Right now, with no single, widely accepted technology, the competing companies see an opportunity to lock customers into their format so they can sell more songs and portable music players. So each is pushing hard to get its technology to come out on top. It might take a few years, but one company likely will end up owning the standard.

Is Microsoft going to win, like always?

Not necessarily. Microsoft scares executives, even powerful record bigwigs. They're wary of being beholden to the software giant, so they're working with many different tech companies. RealNetworks is the weakest player in the bunch, and Sony is a wild card because it's late in selling downloads. Most experts think the battle will play out between Microsoft and Apple. Apple has the early advantage, with 70% of the music-download market and 25% of the music-player market. Still, Microsoft's WMA works with 60 different music devices and a handful of download services. So Apple will have to be innovative if it doesn't want to be marginalized once again. By Heather Green in New York


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