Microsoft digital media chief Amir Majidimehr said AACS, which uses pieces of technology from Microsoft and other companies, would allow some content to be moved around within a home network, such as from a computer to a television.
The system would also allow the AACS group to reach into the house and change software if the system got hacked to produce unauthorized copies. That's a level of control rarely seen before the latest video game consoles.
But such control may alienate customers, analysts warn. Indeed, some consumer advocates complain that Microsoft is giving veto power over new technology to the risk-averse entertainment industry. Especially disturbing, they say, is the idea of buying a device that does something, only to have a piece of restricted content disable that feature later with a forced software "upgrade."
"The warning I'd like to see is: 'Here are all the things that can be removed from this device if someone somewhere does something naughty, and the studios decide to punish the innocent,' " said Cory Doctorow of the Electronic Frontier Foundation. "Microsoft and other technology companies are saying that the person who makes the record should be able to design the record players, and we have never given that power to copyright holders."
Gates said that such compromises were essential for drawing more content into the digital realm and that standard practices would emerge.
"Can I use it, can I lend it to my friend, can I use it in my summer home, what can I do with it? That's got to be clear," he said.
Controversy or no, AACS will be included in HD DVD, one of the two high-definition successor formats to DVDs. The competing format, Blu-ray, may follow suit.
For the negotiations with Hollywood, Microsoft last summer hired Blair Westlake, a longtime home video and television executive at Universal. Westlake advocated for some of the studios' concerns within Microsoft, said Disney Executive Vice President Salil Mehta, which made the people in Redmond "more cooperative."
Microsoft has even agreed to make architecture changes in its next-generation Windows operating system and is modifying its policy positions in Washington. Although the company previously opposed laws that would require anti-copying technology, for example, Westlake now says some might be appropriate.
