MICROSOFT'S CHOICES.
Microsoft at first stayed out of this tug-of-war. Instead, it focused on selling its software to both sides. The Toshiba camp first agreed to use a piece of Microsoft software, its VC-1 code, that squeezes content onto the disk, then decodes it for viewing. Then, in September, 2004, the Blu-ray backers adopted this chunk of code as well -- in exchange for a public pledge of neutrality from Microsoft. "We wanted them to join us," says an insider who is close to the Blu-ray Disc Assn. "But we compromised on neutrality."
That neutrality has unraveled over the past year, as Microsoft increasingly came to see Blu-ray as a risk to its fortunes. In May, Sony confirmed that it would include Blu-ray in the new PlayStation game console beginning next year. Microsoft's Xbox wouldn't have such capability.
Then on June 15, the Blu-ray camp decided against using Microsoft's IHD technology to add interactive features to Blu-ray disks, opting instead to stick with software based on Java technology.
FIGHTING PIRATES.
In July, Sony decided to refine the Blu-ray standard in a way that would have far-reaching implications for Microsoft. Sony wanted to win the support of Twentieth Century Fox Film Studios, long Hollywood's leading advocate for tough anti-piracy measures.
So Sony agreed to add safeguards developed for Fox by San Francisco's Cryptography Research, which could prevent Blu-ray movies from being ripped to a computer's hard drive.
Fox execs say their decision became a no-brainer, because of the extra protection and because as many as 30 million PlayStations might be sold in the next three years. "They have a Trojan Horse that will play a critical role in igniting the market for this product, and when they do, we intend to be in that market with them," says Michael Dunn, president of Fox Home Entertainment.
The move was a serious blow for Microsoft's Xbox. The company had decided to hold down costs by not including a next-generation DVD player in the game console. Instead, it planned to stream high-definition content from a PC sitting in one room to the console, which would be attached to a television. But Cryptography's safeguards meant studios could block their content from being taken off the DVD. That was the reason for Gates's exchange with Stringer at the conference. Gates wanted Sony to drop such technology, but Stringer wouldn't budge.
Andy Parsons, a Blu-ray spokesman, says the Cryptography technology does not block content from being moved around a network, but the association has yet to finalize details of whether it will allow for managed copying of the disk as Microsoft demands.
http://www.businessweek.com/technology/content/oct2005/tc2005106_9074_tc024.htm
