Microsoft has reason to play nice. Its future depends on developing new uses for computers. As more PC users see their current machines as good enough for everyday computing needs, they delay buying new ones, which depresses Microsoft's sales. But if PCs could become true family entertainment centers, that would kick-start sales.
"It's important to us to get the content available," Gates said. Without the studios' work, "our platforms aren't very interesting."
Taking studios' copyright concerns seriously by working on AACS was one step to reassure Hollywood skeptics. Another came after Microsoft developed a technique for compressing large video files for easy transmission.
Facing suspicion that its VC-1 technology might give it too much control, Microsoft turned over the authority to license VC-1 to the same group that administers licenses for the industry-standard MPEG digital video format. That move won it enough backing from consumer electronics companies that makers of both HD DVD and Blu-ray players will support Microsoft's technology.
Another sign that Microsoft is loosening its tight control over technology has been its willingness to negotiate where consumers can move their content within the home and even how they move it within their computers.
Fashioned with considerable input from Hollywood, the forthcoming Longhorn version of Windows will allow rights-management tools made by Microsoft and others to keep video encrypted as it moves around inside the PC and stop it from leaving the home network.
"They can feel a sense of ownership of how it got pulled together," Gates said of the studios and broadcasters. "When we say to them, 'Hey, please make more content available,' obviously we need to be able to listen to what their concerns are."
Among the trickier remaining goals for Microsoft is making it easy for people to watch cable television on Media Center PCs, or computers based on a special edition of Windows that are designed to be used in living rooms as home entertainment centers. Some cable companies see Microsoft as an emerging competitor and aren't cooperating, instead offering their subscribers advanced recording functions in an effort to make cable-equipped TVs a more compelling choice than Media Center PCs.
Gates' longer-term plan involves a technology known as IPTV, or Internet protocol television. With that, Microsoft can circumvent the cable firms and deal with their rivals, the phone companies.
