Microsoft and AOL Settle Suit Amid Broad Media Pact

Microsoft will pay $750 million and license its digital media technology to AOL Time Warner; the companies also will work together to promote digital movies and music
Microsoft will pay AOL Time Warner $750 million and license its Web browser to AOL for seven years to settle an antitrust lawsuit brought by AOL unit Netscape Communications last year. Microsoft and AOL Time Warner--heretofore fierce rivals in the market for delivering digital media--also said they've reached a broad agreement to secure digital content against piracy and deliver it to consumers.

Under the agreement, AOL will license Microsoft's Windows Media 9 and Windows Rights Management software. Microsoft chairman Bill Gates called the Windows Media pact the most comprehensive for the software Microsoft has entered into thus far. "This agreement we've reached marks a new phase of relationships between Microsoft and AOL Time Warner," Gates said during a conference call Thursday.

AOL Time Warner chairman and CEO Dick Parsons said the deal "looks to the future, and it looks to the future that I think is going to be brighter for both companies."

The agreement settles a civil suit brought against Microsoft by Netscape in January 2002. The suit alleged that Microsoft used anticompetitive practices to ensure that its Internet Explorer browser would dominate Netscape Navigator. America Online bought Netscape for $10 billion in 1999, but hasn't used its browser in AOL's client software. Microsoft said it will provide AOL with technical information to ensure that its products run well on Windows, and the companies also plan to explore how to integrate their instant-messaging software.

Gates and Parsons emphasized the importance of the deal to building a technical infrastructure that ensures consumers can conveniently purchase digitally delivered music, films, and television programming, while protecting copyright holders. Parsons said the market for these products won't expand unless AOL Time Warner creates a platform that can secure multiple forms of content, on multiple computing platforms. "The holdup has obviously been piracy," he said.

Apple Computer has seen early success with its iTunes online music service, with 3 million songs downloaded during its first month of service.

AOL and Microsoft said their licensing deal isn't exclusive, and Parsons said AOL Time Warner will continue to do business with software vendor Real Networks.

But the agreement also raised questions about the future of Netscape. AOL's client software and Internet Explorer have "worked very well" together, Parsons said. "We're exploring other opportunities with Netscape." Parsons said the company has been looking at ways to "maximize the value" of the Mountain View, Calif. unit, but has no plans "at this point" to close it.

AOL Time Warner will use the settlement payment from Microsoft to retire some of its debt, which stood at $26.3 billion at the end of the first quarter.