Microsoft Settles Suit With AOL

Music, theatrical video, television and text all will ultimately be distributed in digital form, said Parsons on the call, but the major delay in that evolution has been piracy. Until the company has the capability to securely distribute content across multiple platforms, "we aren't going to be able to really expand the market and explore the new opportunities that this technology puts at our feet," said Parsons. "That's what this is about."

Ahead of the news, both stocks fell a penny, with Microsoft finishing at $24.40 and AOL at $14.85. After the release of the news, AOL added 39 cents in postclose trading, while Microsoft slipped a dime.

Detente

In unveiling Thursday's settlement, the companies pledged to take steps designed to ensure their products work better with each other. Those moves include granting AOL a royalty-free, seven-year license of Microsoft's Internet Explorer browser -- extending a license already in place -- and giving AOL greater access to early versions of new Microsoft software. (Parsons said the company wasn't disbanding the unit behind the Netscape browser.)

The companies also said they agreed to "explore ways to establish interoperability between AOL and MSN Instant Messenger networks," though they offered no specifics and declined to put a timetable on their efforts. So-called IM interoperability has been a goal of software industry players for some time, but little progress has been made.

But much of Wall Street's interest in the deal will lie in the digital media area. To that end, the companies said they agreed to let AOL Time Warner use Microsoft's Windows Media 9 Series and future software for creating, distributing, playing back -- and controlling access to -- high-quality digital media.

Though Gates said the agreement with AOL Time Warner would speed up the development of a secure digital-distribution system acceptable to content creators, he cautioned, "We're talking a number of years before it's super-widespread." Microsoft will be shipping server software enabling digital rights management this fall, he said.