This deal could hurt AAC (Apple’s chosen delivery format for its iTunes Music Store) big time.

“Microsoft is paying $750 million to AOL Time Warner as part of a wide-ranging settlement that also calls for the companies to jointly cooperate on software distribution and digital media. As part of a wide-ranging deal announced Thursday, the companies will drop pending litigation, including an antitrust complaint filed by AOL Time Warner’s Netscape Communications unit in January 2002 against Microsoft. AOL also agreed to a seven-year royalty-free license of Microsoft’s Internet Explorer browser. ‘It seemed like an opportunity to do something smart for both companies was present,’ 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,'” report Ian Fried and Jim Hu for CNET News.

Key elements of this deal with the devil include:
– Exploring AOL and MSN Messenger interoperability
– Microsoft will help distribute AOL CD-ROMs to Wintel box assemblers
– AOL receives a long-term license to use Microsoft’s Windows Media 9
– Finding ways to increase the adoption and distribution of digital media via Windows Media format

There is no word, yet, on the fate of AOL’s plans to use Dolby Laboratories’ AAC (also the iTunes Music Store format) audio technology in its Internet radio products that we reported on earlier today. But you can draw your own conclusions as to what will happen with that plan now.

Full article here.