Sponsor's Message

Right now, China is in an incredibly strong position to knock Microsoft right out of a market it's been eyeing for a good long time.

Forget about anti-trust law suits, battles with the EU, competition on the home front and any of the other very minor irritations MS faces right now -- China might well deal them a really stingy smack on the leg.

No, I'm not talking about China's stated intentions to develop its own hardware, OS and MS-Office equivalent software; I'm talking about consumer electronics and DRM standards.

For quite some time now, Microsoft has been pushing hard to get the music and movie studios to adopt its own audio/video formats for digital content delivery -- on disc or by other means.

Imagine getting a few cents on every CD and movie disc that was sold for the foreseeable future... That's a lot of money and Bill knows it.

Claiming to offer very strong DRM (to prevent piracy), excellent compression (to reduce the cost of delivery) and an existing user-base measured in the hundreds of millions, Microsoft would appear to be the only realistic choice for the next generation of digitally delivered music/movies right?

Well not if the Chinese wake up to the immense opportunity that they've now been presented with.

This Wired.com story reports that China is about to launch its own replacement standard for the now ubiquitous DVD. Right now, analysts believe that this standard would be unlikely to spread outside of China itself -- but I'm not so sure.

Why?

Because China is uniquely positioned to dictate exactly what the next set of digital media standards will be.

Oh sure, Microsoft can trot out all manner of slick new code -- but who makes the hardware that people buy to play their audio or video discs? China!

Right now, if China used its position as the preeminent manufacturer of consumer electronics to its advantage, it could flood the market with ultra-low-cost video and audio disc players -- all equipped with its own standards.

Faced with the choice of buying:

• The "Kamakuza 5000" for $49.95 that supported existing CD/DVD/MP3 formats and also played video and audio discs using a new higher-performance standard (programmed in India but owned by China)

• The "USAmatic 100" for $599.95 that played CD/DVD/WMA/WMV files and which incorporated Microsoft's strong DRM but offered no fidelity or performance advantage

But of course there's the issue of content. The Kamakuza 5000 will be totally useless without any popular music or movies to play on it right?

So offer free software on the Net that will allow people to record/rip movies/music on their PCs and burn it to a disc that can then be played on the Kamakuza machine. Hell, people are already doing that to create DVDs, SVCDs, VCDs, and CDs anyway.

Within a few days every media-pirate in Asia would have a copy and there'd be a tsunami of illegal bootleg movies and music discs -- just as there is now.

But here's the really clever bit -- if the Kamakuza also has its own DRM capabilities, they can firstly flood the market with their cheap hardware (and with ultra-low production costs and a massive trade surplus they can afford to almost give them away) -- then turn around to the recording/movie industry and say "now *we* control the player market so you must use *our* DRM if you want to kill piracy and reach the largest audience".

A long, long time ago, I suggested that the only way the recording industry would wean people off their CDs and onto a new format with built-in DRM was to virtually give the players away. China is probably the only country that can do this right now -- so they are holding an extremely strong hand which, if played properly, could serve them very well.

As for Microsoft -- well even Bill Gates doesn't have enough money to buy China so he ought to be quaking in his boots.

If any Aardvark readers want to share an opinion on today's column or add something, you're invited to chip in and have your say in The Aardvark Forums or, if you prefer, you can contact me directly.

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