(Reuters) (02/02/04)

By Brian Garrity

Edited By Michael Bennett

NEW YORK, NY, USA - The music industry is pushing bitter technology rivals -- most notably Microsoft and Apple -- to shake hands in the interest of promoting digital downloads.

Hardware makers and digital format developers, including many traditional adversaries, are engaged in private talks aimed at meeting the music industry's goal of compatibility among competing digital music devices by 2005.

"There's a substantial discussion going on among these companies about interoperability," says Paul Vidich, executive VP of strategic planning and business development for Warner Music Group.

Consumers are embracing commercial digital music in increasing numbers, and the trend is likely to be aided by a Pepsi-Apple cross-promotion that launched yesterday during Super Bowl XXXVIII.

But incompatibility among certain digital music services and portable players remains an obstacle.

"Consumers are going to demand that there be interoperability in devices and software players," Vidich says.

Executives with knowledge of the talks say much of the focus is on transcoding -- the process of converting a file from one format to another.

It is impossible right now for consumers to directly convert a file protected by one type of digital rights management (DRM) into another type of secure file.

"Everyone is motivated to crack this," says Amanda Marks, senior VP of Universal Music Group's eLabs division.

"We have to throw whatever weight we can into this issue."

BATTLE OF THE TITANS

While this is not specifically an Apple and Microsoft matter, many of the practical issues center on compatibility between the two tech giants.

Music from Apple Computer's iTunes Music Store -- the leading seller of digital tracks -- cannot be transferred directly to any portable device other than the iPod.

Those who compete with iPod by and large support Microsoft's Windows Media Audio (WMA) format.

At the same time, tracks from every other legitimate service -- a field that includes Napster, MusicMatch, RealNetworks, Wal-Mart and Sony -- are incompatible with the iPod.

To load iTunes tracks on a device other than iPod or to load songs from a rival onto Apple's device, consumers must burn the tracks to a CD and then rip the tracks from the CD back to the computer in the MP3 format.

Executives at some device makers -- such as Richard Bullwinkle, a senior product manager at Rio Audio -- have complained that Apple has been resistant to overtures about making secure iTunes files compatible with other devices.

With Apple controlling much of the nascent legitimate digital music market, the onus for concessions in the compatibility debate largely falls on the company -- a prospect one rival executive likens to "unilateral disarmament."

"Increased operability is great for consumers. But if you're in Apple's situation, it's not in your interest to do this," says a source.

Apple did not respond to requests for comment.

NO SOLUTION IN SIGHT

At a minimum, the companies behind the leading format standards would have to cut licensing deals to allow for the conversion of content and transfer of DRM rules -- something the companies have been loath to do so far.

"There has to be a handshake at some point between the technologies. That requires an exchange of some level of trade secrets," Marks acknowledges.

What's more, critics argue that transcoding makes for a clunky consumer solution.

The conversion process from one format to another is time consuming. Also, audio quality can be lost in reformatting.

"There's a lot of buzz going around about how to bridge the gap to create a seamless experience. But there are some tough issues with that," says Dave Fester, GM of Microsoft's Windows Digital Media division.

"We collectively need to do the right thing for the consumer."

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