RealNetworks fights its corner in variety of arenas

Wired on Friday Mike ButcherFew people put much thought into how they view video and listen to audio on their PCs these days. It's taken as read that to fire up a song in an MP3 player or watch "hilarious" videos sent by your office workers is as simple as clicking on the mouse button.

But the battle over how that media is delivered to your desktop is shaping up to become one of the defining moments, not only in the internet realm but also in the media world, as vast companies fight to become the provider of choice.

The latest salvo has come from RealNetworks, the first company to take streaming audio and video into the mainstream online. (Of course, the first online multimedia providers were pornographers, but few care to remember the seedier side of the birth of Web media).

This month, RealNetworks started the global roll-out of its audio and video player RealPlayer 10. Billed as the "Swiss army knife" of multimedia, it is the first free player designed to play every file format under the sun - from Apple's AAC format, designed for the famous iPod, to Windows Media, MP3 music files and many more. It also enables users to burn CDs and organise their digital music and video libraries.

Although a paid-for version of the software provides more options, RealNetworks makes most of its money from licensing its software to content providers.

The latest move means RealNetworks can allow its clients to do what is the goal of most media companies today, which is "create once" and publish across many platforms.

The timing of its launch is pivotal for Seattle-based RealNetworks, which, despite sales of $202.4 million (€170 million), has a staff of 744 and annual losses of $21.5 million. With Microsoft breathing down its neck and Apple's iTunes shifting online music by the truckload, RealNetworks badly needs its latest software to hit the right note.

This latest play is just the latest in a series of strategic shifts for RealNetworks. Its first incarnation in 1995 was as a streaming audio software company. With the software arena becoming crowded, it became a content company, streaming major US sports events such as baseball until Microsoft wrestled away the rights.

Next, RealNetworks moved into music, producing its jukebox software. Last year it bought Listen.com for $36 million and merged Listen's Rhapsody music subscription service closer with the RealOne subscription service.

Rhapsody has performed adequately but it's been largely trounced by Apple's iTunes with its iPod integration - and it does not have the sterling digital-rights management system of iTunes or the marketing panache of Apple.

Furthermore, no launch is expected for Rhapsody in Europe for at least six months to a year, cutting it off from vital growth.

The latest incarnation of RealNetworks offers a "platform" for digital-media creation and distribution across several competing formats, which puts it into the distribution business. But, in this game, it faces big and experienced opponents in Akamai and Yahoo, the latter of which owns Broadcast.com.

The battle is also extending into the mobile arena. RealNetworks dominates the market for music players on mobile phones and has already signed about 26 mobile operators. But there too Microsoft has extended its fight with its smartphone software.

RealNetworks's best hope on the horizon is a legislative assault on Microsoft's practice of bundling its media player with its operating system. Last month the European Commission fined Microsoft €497 million for just this.

RealNetworks hopes this will help it in its private lawsuits against the software giant. If the Commission's decision is upheld after Microsoft's appeal, RealNetworks hopes to convince European PC manufacturers to switch away from bundling Microsoft's media software with their machines and start bundling them with RealPlayer 10.

Meanwhile, it faces a continuing legal battle in the US against Microsoft in a $1 billion private anti-trust lawsuit. The action could cost up to $37 million, although RealNetworks chief executive Rob Glaser says he has $375 million allocated.

But, ultimately, perhaps RealNetworks should work out what business it should be in. Is it a media company or a software firm?

Mr Glaser says technology is still "the heartbeat" of RealNetworks, even if the best way to make money is via media services such as selling downloads, and subscription access to music, video, especially via broadband. In fact, it is media services which now bring in 75 per cent of the firm's revenue.

Mr Glaser's relaxed attitude about whether the company has a media or technology role is not uncommon in the internet world. Despite being a technologist, Google's chief executive has stated that Google is a media company. And, according to Nielsen//Net Ratings, some of the most popular websites in the US, including Lycos, eBay, RealNetworks and Amazon, are headed by executives with media CVs.

Meg Whitman, eBay's chief executive, once worked in Disney's publishing division. InterActiveCorp, which owns Expedia and CitySearch, is headed by Barry Diller, the archetypical TV exec, formerly of Fox Broadcasting. Terry Semel, Yahoo chief executive, was Warner Brothers' studio head for almost 25 years.

So, can RealNetworks survive offering a free media player, subscription video and music services and a distribution network for content providers? This scattergun approach may well win dividends. But the clock is ticking.

Mike Butcher edits mbites.com