Microsoft Settles with RealNetworks, Promises to Promote Its Online Music
After years of cross-town feuding that drove a wedge into Seattle’s technology community, Microsoft and RealNetworks declared a truce to help them compete against Apple and Google and solidify the city’s future as a center for digital media.
Microsoft agreed to pay $761 million to RealNetworks in cash and services, which will include promoting RealNetworks’ Rhapsody online music service using MSN.com and the Windows Media Player. In exchange, RealNetworks has dropped a nearly 2-year-old antitrust lawsuit against the Redmond, Wash., software giant.
The suit, filed in late 2003, initially sought damages of more than $US1 billion.
The deal settles the claims from Real’s 2003 lawsuit in the United States and its participation in the cases in the European Union and South Korea against Microsoft.
Under the deal, Microsoft will pay RealNetworks $US460 million in cash up front, and give RealNetworks long-term access to its Windows Media Player technologies, to resolve all anti-trust disputes between the two.
Today we are closing one chapter and opening a new one in our relationship with Microsoft, said Rob Glaser, founder and chief executive of RealNetworks, in a joint news conference with Microsoft chairman Bill Gates.
During a news conference, Glaser, a onetime Microsoft employee, shook hands with his former boss turned rival Microsoft Chairman Bill Gates, who said the deal, went beyond the two rivals burying the hatchet.
The legal chapter is being closed with an appropriate and fair outcome that sets the stage for a very productive and collaborative relationship between our companies. We see this as just the beginning, Gates said, Digital entertainment is just at the beginning.
The collaboration brings together the makers of the two most widely used software programs for playing digital entertainment files on computers — Microsoft’s Windows Media Player and RealNetworks’ RealPlayer. The two companies and the media players will remain separate and continue to compete, although Microsoft also agreed to have its engineers help the RealPlayer work more smoothly within the Windows operating system.
The agreement also calls for promotional and marketing support of Real’s digital music service Rhapsody on Microsoft’s MSN networks. It also would make RealNetworks’ digital games available through MSN Games and Xbox Live Arcade for Xbox 360.
Digital music is one of the fastest-growing segments of the online entertainment industry, and by promoting Rhapsody’s subscription music services from within MSN. We will provide a better experience for our users.
Analysts said the deal does not by itself threaten Apple’s commanding lead in the digital music market. Yet Rob Glaser, chief executive of Seattle’s RealNetworks, called it the foundation to putting our two companies together around entertainment areas that allow the consumer to get what they want, where they want it, when they want it and how they want it.
Both companies hope to unseat Cupertino’s Apple Computer, which commands three-quarters of the market for both online music and portable digital music players. Songs purchased from Apple’s iTunes Music Store can be easily transferred to its popular iPod but not as easily to competing players that run on a portable version of Microsoft’s Windows.
Gates and Glaser hope to persuade consumers to switch to competing services and MP3 players that align with the Windows system. Apple does great products, has done a number of nice products in the music area, Glaser said. But at the end of the day, consumers want choice.
Analyst Mike McGuire, research director for Gartner Industry Advisory Services, said that the Microsoft-RealNetworks deal has potential but that it’s too early to tell if it poses a threat to Apple. "Right now, it’s just rhetoric,” he said.
Michael Gartenberg, research director for JupiterMedia, said neither Microsoft nor RealNetworks has the advantage of a device that is as popular as the iPod.
The question is: Can Microsoft work with a coalition with the various partners it has — that’s RealNetworks and Napster and Yahoo and people who are in the music player business like Creative and Samsung and SanDisk — to come up with an ecosystem that is as satisfying to consumers as the iPod and iTunes have been, Gartenberg said.
Among its recent settlements, Microsoft in July paid $US775 million to IBM. It also reached settlements with Sun Microsystems and with Time Warner related to Netscape and its America Online web unit.
The deal is the latest in a string of settlements in suits brought by major rivals that Microsoft, the world’s largest software company, has settled in recent years for several billion US dollars after it was found to have abused its monopoly position.