Microsoft gets Real for $761m

Real Networks has reached a $761m agreement to settle worldwide antitrust actions with Microsoft and integrate the company's media player and music services with Windows and Microsoft's search services.

Microsoft is paying Real $460m to resolve claims that Microsoft abused its monopoly position by forcing PC OEMs to ship Windows Media Player instead of RealPlayer. The agreement means Real is withdrawing its support for separate antitrust actions by officials in the European Union and Korea.

Microsoft is also shelling out $301m in cash and providing Real 18 months worth of services to support product development, distribution and promotional activities.

Real launched its $1bn antitrust action against Microsoft in the US two years ago and also backed the legal actions in Europe and Asia. Microsoft vigorously denied there was merit in Real's case, so the decision to settle says a lot about how the competitive landscape for search and media has changed during that time.

Microsoft has thrown itself into a search war with Google since Real filed in 2003, a war that is placing a premium on the ability to find and access content like music. Additionally, Microsoft is facing an energized Apple who has been enjoying runaway success with the iTunes music service and iPod player.

As such, Microsoft and Real will integrate MSN Search and Real's Rhapsody service, which lists more than one million tracks and allows subscribers to listen to an entire music track that they have searched for, instead of the usual 30 second clip available on most other services.

Integration will also see users of MSN Messenger be able to swap and play each other's playlists once a Rhapsody tab is added to Microsoft's instant messenger client, and a special Rhapsody section will be introduced to MSN Music.

Bill Gates, Microsoft's chief software architect, promised this was "just the beginning" of co-operation between the two companies as Microsoft wanted to become the "prime search partner with Real." Rob Glaser, Real founder and chief executive jointly announcing the deal with Gates, promised delivery of this first set of integrated technologies and services by the first half of 2006.

In a further sign of the importance Microsoft is placing on its new partner, Microsoft has agreed to work with RealNetworks on technology. Microsoft will develop and document additional Windows media interfaces while enhancing the functionality, performance and availability of Real's products and services in Windows. Microsoft has also given Real "contractual assurances" that ensure "broad access" to the PC OEM distribution channel.

The deal further helps Microsoft because it also extends the company's digital rights management (DRM) architecture to more non-Windows portable devices and PCs. Microsoft will enable Real to playback content using Windows Media DRM. Microsoft is targeting Apple and the Mac platform by going non-Windows.

Gates called strong interoperability with the Windows DRM format "really important." "We are trying to drive that to critical mass," he said.

The agreement is not one way, though. Real gets to position itself as a media company delivering content to Windows users, although Glazer insisted RealPlayer remains an "extremely important product" and that the companies would compete for users. Real also gets to close the legal action it opened in 2003 that was expected to come to court next year with an estimated $13.5m plus price tag.®