Thursday, January 06, 2005

Microsoft Corp. has watched with envy as Apple Computer Inc. and its slick iPods have stolen the digital-music spotlight. Now the software titan is fighting back.

Microsoft is enlisting a raft of new allies for its growing ambitions in digital entertainment -- and even may pursue an alliance with another industry giant galled by Apple's runaway success: Sony Corp.

In an interview earlier this week, Mr. Gates suggested that both Microsoft and Sony could benefit from a broad partnership in digital entertainment. Specifically, Mr. Gates said that both companies "have a lot of incentive to work together" in digital-music "infrastructure," including online-music services and protection against improper music copying.

The alliances, including a potential Sony relationship, are part of Microsoft's effort to portray itself as a defender of "choice" in digital entertainment, particularly against Apple. Apple controls commanding shares of both the market for digital-music players, with its iPod, and for online music sales, with its iTunes music-downloading service. But iTunes sells its songs in a format that can be played only on iPods -- not on the many brands of portable music players that are based on Microsoft's software. That puts these players at a disadvantage, Microsoft contends.

"We've got to get to the point where people see the choice -- the choice of how they buy and the choice of the device they use -- as being a huge plus," Mr. Gates said in the interview.

There are signs that the strategy is beginning to pay off. Matsushita Electric Industrial Co., maker of the Panasonic brand, said yesterday that it would adapt its SD-chip technology, used in some music players as well as digital cameras, to handle digital content that is stored in Microsoft's Windows Media format. Masayuki Kozuka, a general manager at Matsushita's audio-visual unit, said Matsushita teamed up with Microsoft in part because the software maker doesn't compete directly with his company, whereas Apple does.

Mr. Gates said more partners will follow.