Microsoft to stump up $750m in AOL settlement

Microsoft is paying $750m to AOL Time Warner as part of a wide-ranging settlement that also calls for the companies to cooperate jointly on software distribution and digital media.

As part of the deal announced on Thursday, the companies will drop pending litigation, including an anti-trust complaint filed by AOL Time Warner's Netscape Communications unit in January 2002 against Microsoft. AOL also agreed to a seven-year royalty-free licence of Microsoft's Internet Explorer browser.

"It seemed like an opportunity to do something smart for both companies," AOL Time Warner CEO Richard Parsons said during a conference call with reporters.

Microsoft chairman Bill Gates added during the call: "It puts any past issues behind us. It extends the technical cooperation we've had with AOL on the browser while increasing cooperation in other areas such as new ways to distribute digital content."

Besides the $750m payment and AOL's continued use of Internet Explorer, key elements of the pact and its ramifications include:

• AOL receives a long-term, non-exclusive licence to use Microsoft's Windows Media 9 software, which offers playback, delivery and rights management for digital media. Considering that AOL has 32 million subscribers worldwide, Microsoft is gaining access to a large portion of the market.

• The companies will explore ways to increase the adoption and distribution of digital media, such as making more digital content available and accessible while protecting copyrights. This is also important for Microsoft, which has been pushing its own format called Windows Media for encoding and protecting music and video files. Gaining Time Warner's confidence could help Microsoft win support from other content and hardware companies.

• AOL will receive a seven-year, royalty-free licence to continue using Internet Explorer on its flagship online service. Microsoft will provide beta tests of future Windows versions and allow AOL to participate in tests of its upcoming 'Longhorn' operating system at the same time and on the same terms as other software vendors.

• The companies will explore ways for AOL and MSN Messenger to interoperate. Microsoft has sought such access for years, while AOL has advocated walling off its millions of subscribers from competing messaging products.

• Microsoft will expand its support contract with AOL and will allow AOL engineers to work on its main Redmond, Washington, campus.

• Microsoft will help distribute AOL CD-ROMs to PC builders around the world, which could help stabilise AOL's sagging subscription numbers. Under the deal, Microsoft will provide AOL software discs worldwide to 'system builders' - smaller PC manufacturers that obtain their Windows discs from authorised Microsoft distributors.

Ian Fried and Jim Hu writes for CNET News.com.