Gates said Microsoft had to beat RealNetworks By David Lawsky and Sabina Zawadzki Reuters
Monday, April 24, 2006; 3:00 PM http://www.washingtonpost.com/wp-dyn/content/article/2006/04/24/AR2006042400177_pf.html LUXEMBOURG (Reuters) - Microsoft Corp. (MSFT.O) told a European Union court on Monday that regulators had completely misunderstood thriving competition in the software market in issuing a landmark antitrust ruling against the giant U.S. company. But an internal Microsoft memo presented by a coalition of critical companies suggested founder Bill Gates was told that a strategy used to crush the rival Netscape browser could also take down the leader in streaming media, RealNetworks Inc.'s (RNWK.O) RealPlayer. The June 5, 1997, memo from Microsoft executive Jim Durkin recalled a meeting with Gates and other top executives concerning the threat of RealNetworks, which had the biggest market share for software used to listen to the radio and watch TV over the Web. Durkin said Microsoft executive Robert Muglia's comment was that RealNetworks "'is like Netscape; the only difference is we have a chance to start this battle earlier in the game."' The tactics used by Microsoft to kill Netscape and make Internet Explorer the leading browser, with more than 85 percent share, were judged illegal by a U.S. Court of Appeals Court in 2001. "Bill's comment was 'this is a strategic area and we need to win it,"' said the memo shown to a 13-judge panel at the Court of First Instance in a dramatic first day of hearings. "Bill" referred to Bill Gates, then the president of Microsoft, and the "it" was the streaming media market. Microsoft tied its streaming media to Windows a few months later. The European Commission found in its 2004 decision that the tying was an illegal way to kill competitors. "That theory is flawed at every step," Microsoft lawyer Jean-Francois Bellis told the court. Microsoft is challenging the decision, which imposed a record 497 million euro ($613 million) fine and ordered Microsoft to change the way it sold software. Bellis said consumers had benefited from Microsoft's improved Windows and competition in the streaming audiovisual software industry was thriving, contrary to the Commission's predictions that rival media player providers would become extinct. But James Flynn, speaking for the anti-Microsoft industry group ECIS, showed memos to the court in an effort to rebut Bellis. He showed a Microsoft memo of January 3, 1999, by Anthony Bay, which noted that RealNetworks "is still significantly ahead of us and not slowing down. They have not made any major mistakes." The memo said Microsoft had to change what it was doing and made the following proposal: "Our strategy 1. Change the rules: reposition streaming media battle from Network vs. Real to Windows vs. Real," using the same strategy used by Internet Explorer to defeat Netscape. Bellis and Microsoft experts argued that there was plenty of other competition for Windows Media Player and that, at least in terms of numbers of competitors, was increasing. They cited the example of Apple Computer Inc.'s (AAPL.O) iTunes, which has grown in Europe as iTunes downloads for iPod music players have increased. They also used the example of the Flash player, which Bellis said had grown so quickly that it was now on 50 percent of computers sold in Europe and would climb to 80 percent by year's end. Commission lawyer Per Hellstrom said that Apple was not a full-featured streaming media player. "It does not compete with Windows. The fact that Apple moved away from competing with Microsoft head-to-head into the music service business does not contradict foreclosure; it confirms it," he said. He said that neither was Flash a full-featured media player and that its growth was easy to explain: "It is, in fact, bundled with Windows XP." The Commission also defended its remedy, in which it ordered Microsoft to sell a version of Windows without Windows Media Player. But no computer makers took up the offer and less than 2,000 had been sent to stores. "One cannot exclude the possibility that some consumers may have bought Windows XPN to have a souvenir of the only version of Windows designed by DG Competition," the antitrust branch of the European Commission, Bellis said. ================================================= George Antunes Voice (713) 743-3923 Associate Professor Fax (713) 743-3927 Political Science Internet: antunes at uh dot edu University of Houston Houston, TX 77204-3011 Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
