AOL in Digital Download Deal

Mammoth Internet service provider America Online announced an agreement Tuesday with InterTrust Technologies Corp. that will allow AOL’s 23 million subscribers to digitally download music and videos for a fee, while protecting copyrighted material from theft.

The Sunnyvale, California-based InterTrust specializes in so-called digital rights management (DRM), which applies customized forms of security to media files.

“This is the beginning of trying to figure out how to commercialize digital downloading,” AOL said.

AOL’s agreement with InterTrust is not exclusive, leaving open the option of adopting other applications as the technology and security features become more advanced in the future. Current plans call for AOL to release an InterTrust plug-in for its Winamp digital music player, which already has 25 million registered users.

AOL plans to release its version 6.0, which will include InterTrust’s software, by the end of this year.

Dodging The Napster Dilemma

AOL took its time in moving into digital downloads, primarily to avoid the legal headaches that have plagued online music-sharing service Napster. While Napster allows users to copy music free of charge by linking to other users’ computers via the Internet — and is facing copyright lawsuits as a result — AOL has taken steps to safeguard the copyrights of the downloaded products.

Using InterTrust’s technology, AOL will be able to sell or rent digital downloads, or even charge a monthly download subscription fee that could be added to a subscriber’s AOL bill. InterTrust makes its money in the deal by collecting one percent of each sale.

Sea of Users

The InterTrust system uses technology called “Digibox,” which allows businesses to track when, how and what they sell via programming features in the security software. The platform is not content-specific, so it can be applied to any file.

“AOL is a sea of users. All of a sudden, we can launch content into that sea. AOL consumers could be billed by the month for what they consume,” said InterTrust vice-president Talal Shamoon.

Shamoon said the technology could even allow the consumer to become a virtual distributor. For example, a user could download a song, pay for it and pass it along to other users, who would also be required to pay for it.

Shamoon even proposed a scenario in which users could be offered incentives to distribute to other users.

Perfect Timing

The announcement of the AOL-InterTrust deal comes just as AOL is on the brink of completing its much-anticipated merger with Time Warner, Inc., a company holding one of the most extensive music catalogs in the world.

For its part, Time Warner is set to expand its offerings even further with the pending merger with EMI Group. Time Warner has said it will begin to offer digitally downloaded music by the end of this year.

Response to Expanded Probe

In related news, AOL filed a 50-page response to the ongoing federal probe into the proposed merger, arguing that the combined company would speed up the deployment of new communication services.

Earlier this week, the U.S. Federal Communications Commission (FCC) expanded its probe into AOL’s planned $124 billion (US$) acquisition of the media giant.

In its second request this month, the FCC asked that the two companies provide a wide range of additional information. The agency is seeking details of the AOL’s recent purchase of a 15 percent stake in digital recording company TiVo, Inc., as well as all documents relating to business plans for the merged company.

The reports of the widening of the FCC probe came as shareholders for the two companies voted to approve the deal.

Time Warner pointed out that it would take advantage of AOL TV’s arrangements with set-top box makers to accelerate the rollout of its digital-cable service — which has been stymied by a shortage of such boxes.

AOL and Time Warner also addressed concerns raised by federal regulators regarding AOL’s stake in Hughes Electronics Corp., which owns DirecTV. The FCC is worried that AOL Time Warner might exert undue control over DirecTV’s television programming.

However, in its response, AOL tried to quell such concerns, stating that it does not have a say in DirecTV’s video-programming operations because it does not own a voting stake in the company’s parent company.