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SEPTEMBER 1, 2004
By Jay Greene Microsoft, the Entertainer? [Page 2 of 2] HEFTY AND PRICEY. Although there are no restrictions on copying TV shows now, broadcasters could impose them in the future. To avoid all the bother, customers will need to pay companies that have partnered with Microsoft to provide content directly from the Net. That presents another problem: Microsoft has lined up only two video content providers so far, Major League Baseball and CinemaNow. MLB.com and the movie site have less than 2 million monthly customers combined. Copying hassles aside, the products are hefty and pricey, at $500 each. Adding video capabilities adds bulk and reduces battery life to at most seven hours while watching videos, vs. as many as 20 hours for music-only devices. Design is a big deal because, as Apple has proved, cool devices are the key to winning the digital media battle. Consumers pick a device first. Everything else is secondary. All of which likely will relegate the first generation of devices, about the size of a paperback book, to niche status. Especially since viable alternatives for watching videos on the go already exist. "There are a lot of them out there already. They're called notebook computers," says Mike McGuire, research director at GartnerG2. ALBUMS AVAILABLE. Analysts aren't willing to write off the long-term potential for portable video gadgets. Microsoft's partners could spiff up design, and Microsoft eventually will make video transfer more convenient. That could help the technology become much more popular toward the end of the decade, analysts say. "This is the first shot across the bow," says Jupiter's Gartenberg. "When it comes to Microsoft, the first shot is never the most important." Microsoft's work in digital music holds more immediate promise. The new Windows Media software has mimicked iTunes, letting users buy in one click songs from MSN Music and a handful of other music retailers and have the tunes automatically added to music libraries. But unlike iTunes, MSN Music has agreed to carry music from artists who want to sell only entire albums online, instead of individual songs. That's a small number of artists, including Radiohead and the Dave Matthews Band, and may not prove to be much competitive advantage. Fans of the groups who prefer the iPod can always go to a retail store to buy their music. Still, Microsoft plans to add innovations over time, including letting users hover their cursors over names in their MSN Messenger buddy list to see what songs their friends are listening to. VANISHING MUSIC. Another big innovation is a feature that for the first time lets people who use music subscription services transfer their rented tunes to portable devices. That means customers of Napster, for example, will be able to add as many songs from the service's 1 million-song library as they can fit on their portable players. The technical breakthrough, to reassure the record labels, is that songs disappear from devices when the customer's subscription expires. Still, the record labels are extracting a price for the newfound freedom. They want more money to let consumers put subscription songs on a portable device because they believe, rightly or not, that customers who subscribe will spend less money buying music. Napster Chairman and CEO Chris Gorog says his outfit will hike the monthly subscription fee from $10 to at least $15 for the portable service. That's likely to limit the market, since $180 a year is a hefty tab for music that will vanish once the subscription lapses. Gates has grand plans for how Microsoft can change the world of digital media. "Media today is so far short of what it can be," he says. But he'll have to do more work to get the company's strategy in tune with its ambition.
 With Peter Burrows and Cliff Edwards in San Mateo, Calif. Greene is BusinessWeek's Seattle bureau chief
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