April 17, 2004

RealNetworks in Real Bind

Real reaches out to Apple with not good results. Is Microsoft next? That might impact the billion dollar lawsuit that Real has against MS?

RealNetworks Reaches Out for Ally Amid Competition
Fri Apr 16,10:04 AM ET

By Reed Stevenson

SEATTLE (Reuters) - RealNetworks Inc. (NasdaqNM:RNWK - news) is facing increasingly stiff competition in online music, analysts said on Thursday, as rivals seek deals with larger players and longtime adversary Microsoft Corp. (NasdaqNM:MSFT - news) gears up to launch an online music store later this year.

The Seattle-based company, best known as the provider of the Real audio-video format and player, also confirmed that it had reached out to Apple Computer Inc. (NasdaqNM:AAPL - news) by proposing an alliance that would allow its media format to work on Apple's popular iPod portable music player.

"Apple should open up the iPod," said Greg Chiemingo, vice president of communications at RealNetworks, "The industry is still growing, and the key for long term growth for everyone is that whenever a consumer purchases a legal song from a site, they should be able to play that on any device."

Chiemingo said that RealNetworks chief executive Rob Glaser had written to Apple chairman Steve Jobs (news - web sites) last week to suggest an alliance, confirming details first reported in the New York Times on Thursday.

RealNetworks, which 10 years ago began as a provider of software for playing music on personal computers, later used the Internet to stream audio and video and now also provides subscription services for online content.

"The key business for them is the subscription service," said A. Sasa Zorovic, analyst at Oppenheimer and Co. Inc.

"An alliance would be an important thing for RealNetworks and a positive development for them," said Zorovic, "providers will be spending considerably more money for customer acquisition and they need to ally themselves with somebody with deeper pockets."

An alliance with Apple, depending on its structure, would not only help promote RealNetworks' format over Microsoft's but also provide a key tie-in for RealNetworks' Rhapsody subscription service, which it acquired a year ago.

RealNetworks said on Thursday that it added 100,000 new subscribers for its main online music services in the first three months of 2004 to reach 450,000 paid subscribers.

At the same time, however, Musicmatch Inc., the biggest competitor to Rhapsody, an online music streaming subscription service operated by RealNetworks, said that it struck a deal with Intel Corp. (NasdaqNM:INTC - news) to get its software distributed with hardware sold by the world's largest maker of microchips.

"It's a big win for us," said Musicmatch president Peter Csathy, adding that he is expecting up to 20 million Intel motherboard to be shipped with Musicmatch software per year.

"We unseated Real to be able to win this account, so I think it shows that the Musicmatch solution is really seen as the optimal digital music solution."

RealNetworks, however, said that the number of songs streamed on Rhapsody had posted double-digit growth for ten straight months until February which, along with the other growth data "reinforce RealNetworks status as the industry leader in offering subscription-based online music services to consumers."

RealNetworks, Apple and their competitors are scrambling to reinforce their businesses as Microsoft, the world's largest software maker and Sony Corp (news - web sites). (6758.T), the world's largest consumer electronics company, set their sights on the online music market.

Microsoft has indicated that it will launch an online music platform later this year that will include offering from other companies along with its own. Sony said it will launch a service offering some 500,000 songs that will at first only work with its portable devices. (Additional reporting by Daniel Sorid in New York)

Posted by Craig at April 17, 2004 01:02 PM