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MS drifts towards over-the-top Java services with Musiwave buy

Takes a leaf from Nokia's book

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Comment All the coverage thus far about Microsoft splashing out $46m for Musiwave, has been about how the mobile music service supplier has had a dramatic fall from grace, and has cost parent OpenWave some $80m.

But perhaps the focus should be on Microsoft buying a company that exclusively uses Java applications, mostly on Symbian handsets, selling content in non-Microsoft formats.

All of these are an increasing trend within Microsoft and more and more evidence that it has finally forgotten about the operating system wars on the handset and moved its platform targets up to the universal entertainment client – in other words downloadable, over the top services.

The DRM on the Musiwave music services is even non-Microsoft, using the Secure Digital Containers downloadable DRM which was acquired in March by Packet Video.

At the time Joel Espelien, chief business officer for Packet Video, told us that the new Microsoft PlayReady DRM system, and the OMA DRM, as well as Intertrust's Marlin DRM all require installation by the handset maker, and rely on some form of hardware based key but SDC didn't.

There is no greater clue that Microsoft has taken a leaf out of Nokia's book (now a partner on PlayReady) and wants to provide services which do not require the endorsement of a cellular operator, using the lowest common handset denominator, pure Java.

Musiwave has indeed been a financial failure for OpenWave, paying some $121m in cash and stock for the Paris based company in 2005 and putting it up for sale in June after taking a $7m impairment and an $81 million goodwill charge against the asset which has most recently been considered a "held-for-sale" assets, and its revenues filed under discontinued operations.

Musicwave offers Java based applications that allow for radio channels to the handset, Music on Demand purchases, downloadable ringback tones and a music identification service, which has to be operator supported, whereby any music heard within reach of the handset can be sent for analysis, identification and subsequent purchase. The company also has deals with all of the major record labels for the bulk of their catalog in multiple countries.

So far Microsoft has no music service which it can offer direct to a mobile, it has few Java apps at all, and the bulk of its cellular revenues come from Windows Mobile handsets and services sold through a cellular operator, not in spite of them.

Its recent breakthrough with Nokia, whereby the Nokia Music Store used the Microsoft audio formats and the entire Ovi Portal set of Nokia services use Microsoft PlayReady DRM, shows how Microsoft thinking has changed, but also how attacks on the handset by Apple and Google have unnerved market leaders like Nokia, and led to it dropping its old opposition to all things Microsoft.

We have predicted that the next step will be, and needs to be a single unified media player platform that works on any type of Java handset, and takes on Adobe’s Flash Lite with Flash Video. So the next step is to put a Silverlight video player into the same platform that Musiwave offers (or more likely merge the Musiwave function into whatever Microsoft is working on here).

But also Microsoft’s own MSN Music store is limited to PC downloads on a platform it doesn’t own and which is not unified. It used to use MusicNet in the US, and internationally used OD2’s platform in 20 plus non-US countries, which is now the basis for Nokia's Music store.

By adding all the licensing of Musiwave to the MSN efforts, a single global Microsoft music service could emerge unified for both PC and mobile download – either to rival Nokia Music Store or potentially to partner it.

Under the terms of the agreement Microsoft will acquire Musiwave for $46m in cash and assume $4m of debt and the transaction is expected to close quickly with customary closing conditions including regulatory approval.

Musiwave this year signed Telecom Italia as a partner and already has deals with more than 35 mobile operators in 25 countries including Vodafone, T-Mobile, Telefonica, Orange, SFR, 3 UK, Telus and Amena. You might want to delete each of those as viable future income, which have just launched the iPhone in their home country or taken on MusicStation, like Vodafone, but that still leaves a fair few.

Copyright © 2007, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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