RealNetworks Goes With the Web


The race to bring digital music to the Web is on -- and it's picking up pace. The latest sign comes Dec. 5, when RealNetworks (RNWK) is due to announce that its Rhapsody music service will be extended to the Web as Rhapsody.com and made available to any user with a Web browser. That's a switch from the current setup, which requires users to access music online through a dedicated software application.

THE REAL DEAL. While many commercial music services, including the market leading iTunes by Apple Computer (AAPL), still rely on dedicated software, more are beginning to migrate to the Web. In November Time Warner's (TWX) America Online acquired MusicNow from electronics retailer Circuit City (CC), saying it would move offerings to a Web-based platform rather than through a separate application. Napster (NAPS) is also thought to be nearing a shift toward a Web-based approach.

RealNetworks' move comes in the wake of a $761 million legal settlement reached in October with Microsoft (MSFT), whereby the software titan agreed to give users access to music on Rhapsody through its MSN Messenger software. Real had accused Microsoft of using its Windows monopoly to win customers in the digital music business (see BW Online 11/12/05, "Finally, Gates and Real Make Nice").

RealNetworks also is responding to growing demand from customers who want to access songs quick and easy. They're relying more on the Internet and spending less on CDs (see BW Online 11/21/05, "Online Music's Elusive Bottom Line").

"HACKER TACTICS." RealNetworks, a distant second to Apple in digital music, is eager to make its service available to a wider audience. Apple's most recent count pegs sales of downloaded music north of 600 million tracks, but the company doesn't typically disclose the number of customers. In its most recent quarter, RealNetworks said it had 1.3 million paid subscribers to its music service. Sales in the music division for the quarter ended Sept. 30 amounted to $25 million, more than 30% of sales.

Making Rhapsody available via the Web also means it will be compatible with Apple Computer's Mac OS. That's the latest salvo by RealNetworks in an on-again off-again compatibility war with Apple. Having initially sought an agreement under which songs from the Rhapsody service would be compatible with Apple's ubiquitous iPod music player, Real went ahead and made its songs compatible with the iPod anyway. This naturally drew Apple's ire, which accused the Seattle-based outfit of "hacker tactics." Apple didn't immediately comment on Real's latest move.

Currently, songs bought via Real's Rhapsody are still compatible via Harmony, a translation system that makes them playable on an iPod. But that could change at any time. Apple regularly issues updates to the software that runs the iPod.

LINUX, TOO. While in theory Real's Harmony scheme only adds to the pool of potential iPod buyers -- Apple sold nearly 23 million iPods in the year ended September 24 -- Apple has zealously guarded the iPod-iTunes combination, rarely opening it to third parties, the one notable exception being wireless phone concern Motorola (MOT), which built the iTunes-compatible ROKR phone (see BW Online, 11/23/05, "The Rokr's Flat Notes").

Rhapsody will soon be an option with Microsoft's Windows Media Player 10 software, and Microsoft will include Rhapsody into its MSN Search, MSN Messenger, and MSN Music services. The new version of the Real service will also work with certain versions of the Linux operating system.

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