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Microsoft, Real to work together in video
AFTER ANTITRUST SETTLEMENT, TWO COMPANIES PLAN VIDEO INTEROPERABILITY TO COMPETE WITH APPLE, GOOGLE
By Dean Takahashi
Mercury News
Ending its last major private antitrust case, Microsoft will pay $761 million to settle a lawsuit with RealNetworks and created a multi-pronged partnership to collaborate in digital entertainment.
Under the deal, Microsoft will pay cash or the equivalent of it in free marketing services to Seattle-based RealNetworks, which will end its antitrust litigation on a global basis and support Microsoft with music services that will help the Redmond software giant compete with rivals such as Apple Computer and Google.
Microsoft Chairman Bill Gates and RealNetworks CEO Rob Glaser joined each other on stage at a press conference to announce the settlement and said that the deal will be lead to more choice for consumers on how to access digital entertainment.
``We're ending one chapter and starting another in our relationship with Microsoft,'' said Glaser, who worked at Microsoft for a decade before founding Real in 1995. He said he has long admired Gates as a businessman and philanthropist.
Gates, calling Glaser a ``good friend,'' said, ``This goes beyond a settlement. We see this as just the beginning.''
Both said that they needed to make their products work together to take advantage of the explosion of digital music, with the unsaid subtext that rivals are doing a better job exploiting demand from consumers.
``Both companies are seeing digital media explode and recognize it's in our interests to have interoperable services so that we can give consumers the most choice,'' said Dan Sheeran, senior vice president of consumer services, in an interview.
The two companies have been working for weeks on integrating RealNetworks' Real music player into Microsoft's own software. The companies are also integrating Real's Rhapsody subscription music service so that it can be promoted through Microsoft's search software, its MSN web site, and its MSN Instant Messenger service. Real will provide games and other entertainment for Microsoft's web sites as well as its upcoming Xbox Live Arcade online gaming service for the Microsoft's Xbox 360 video game console.
Real will throw its support behind Microsoft's digital rights management technology, which is key to Real's efforts to expand beyond PCs and cell phones to other portable devices. With Microsoft's DRM, it is much easier for Real's music subscribers to take their music and move it to any device, whether it supports Real or Microsoft formats.
Microsoft will pay Real $301 million in cash and provide services over 18 months in support of Real's entertainment products. For every customer who originates from Microsoft's web sites and signs up for Real's subscription service, Microsoft gets credits toward the $301 million. Also, Microsoft will pay $460 million in cash for damages related to the antitrust claims.
RealNetworks filed the antitrust lawsuit in 2003, alleging that Microsoft used its Windows operating system monopoly to favor its own Windows Media Player, which was available for free with Windows, to freeze out RealNetworks' competing Real media player technology. But Real's business has been evolving. The company launched its music subscription service, Rhapsody, two years ago and now music, game and other subscriptions are 60 percent of its business.
As a result, RealNetworks need to promote the subscription businesses. That hasn't been easy since Apple has sold more than 20 million iPod music players with its iTunes music service. Since Apple has 70 percent of the music player market, Real needed marketing help from Microsoft, whose MSN portal draws millions of visitors a month. Consumers will start seeing the benefits of the alliance starting in the fourth quarter and through the first half of next year, Glaser said.
``Clearly, this is a coordinated attack against Apple's dominance in the digital music arena,'' said Aram Sinnreich, an analyst at Radar Research.
The settlement follows similar deals with Time Warner, Sun Microsystems, and others who tangled with Microsoft on antitrust issues in the 1990s. And as with the Sun and Time Warner deals, the partnership allows Microsoft to turn a one-time foe into an ally against other rivals.
``The enemy of my enemy is my friend,'' said Michael Gartenberg, an analyst at Jupiter Research. ``A competitor from the last century is joining ranks of IBM, Sun, Netscape and others and Microsoft can now focus on going forward against competitors for the next century like Google, Yahoo and Apple.''
It remains to be seen if the European Union will continue with its investigation of Microsoft. That last major investigation was instigated with the help of RealNetworks, but Sheeran said Real would no longer participate in that investigation.
``Our industry is very dynamic and it's an important milestone to put the issues from the 1990s behind us,'' said Brad Smith, general counsel at Microsoft, who said he expected European regulators to review the settlement but make their own decision on continuing.
Sheeran said that the deal to promote Real's subscription services is set for 18 months, but both companies will try their best to make the relationship mutually profitable so the agreement can be extended.
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