Real, Microsoft reach truce

Microsoft and RealNetworks announced a sweeping deal on Tuesday that puts aside their legal differences and aims to shore up their respective digital-music strategies.

Under the deal, Microsoft will pay US$460 million in cash to RealNetworks to settle antitrust claims. It will also pay US$301 million in cash to support Real's music and game efforts, and Microsoft will promote Real's Rhapsody subscription music service on its MSN Web business. Microsoft can earn credits toward that US$301 million by signing up subscribers via MSN.

"Today, we're closing one chapter and opening a new one in our relationship with Microsoft," RealNetworks CEO Rob Glaser said in a statement. "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."

RealNetworks had alleged in its December 2003 lawsuit that Microsoft had abused its "monopoly power to restrict how PC makers install competing media players while forcing every Windows user to take Microsoft's media player, whether they want it or not." Real originally sought US$1 billion in damages.

As part of the deal, Real will also end its direct involvement in antitrust investigations across the globe, including probes in Europe and Korea.

Tuesday's move resolves yet another legal matter for Microsoft, which has already settled with rivals AOL Time Warner, IBM, Sun Microsystems, Novell and Be, among others.

RealNetworks has been one of the key companies still pushing for antitrust action against Microsoft, having been a major player in the European Union action.

"This agreement will provide MSN's millions of customers with easier access to subscription services for the music and games they love," Microsoft Chairman Bill Gates said in a statement. "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."

Some analysts said the deal would allow both companies to draw their attention away from battles that had largely already been fought and focus on the more pressing matters of the present.

"It's one of those good deals for both companies," JupiterResearch analyst Michael Gartenberg said. "For Microsoft, it frees them up to focus on the competitors of the 21st century, like Google, or Apple (Computer) in the music space."

One of the big unanswered questions is whether the agreement will help both companies as they try to take on Apple, which has grabbed the lion's share of the legal online-music market with its iTunes Music Store and its iPod players.

Both Gates and Glaser said the deal should help their companies compete against Apple.

"Apple does great products and has done a number of them in the music (realm)," Glaser said. "At the end of the day, we think consumers want choice. We think consumers want openness...Over time--it won't happen overnight--I think 'open' will beat 'closed.'"

Technology in tandem
In the MSN part of the agreement, people using Microsoft's MSN Messenger instant-messaging service will be able to share and play music while chatting using Rhapsody's library. MSN Search will also be added into RealPlayer, and Microsoft will feature Rhapsody links from within music-related search queries on MSN.

In settling the antitrust disputes, Microsoft is providing a "variety of assurances" on the design of the Windows operating