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RealNetworks, Microsoft Reach Settlement

Longtime technology rivals RealNetworks and Microsoft on Tuesday settled their antitrust case and created a new partnership in digital music and games in a deal valued at $761 million to RealNetworks.

The settlement consists of three agreements:

  • Microsoft will pay $460 million in cash to Real and give Real long-term access to Windows Media technologies to settle the antitrust issues worldwide.
  • The companies will collaborate on digital music, with Microsoft providing promotional and marketing support for Real's Rhapsody digital music subscription service on MSN.
  • Microsoft will offer RealNetworks' "casual" digital games through MSN Games and Xbox Live Arcade for Xbox 360 and collaborate with Real on the games, which include standards like "Solitaire" and "Scrabble."

    Microsoft is scheduled to pay Real $301 million in cash and provide services over 18 months in support of Real's product development, distribution and promotional activities. Part of that payment will consist of credits for subscribers delivered to Real through MSN.

    Real will take steps to support MSN Search, and the companies will jointly promote use of Windows Media technologies with Rhapsody to Go.

    The deal gives Real a large backer in the effort to take market share away from Apple's dominant iTunes music service. The Real-Apple competition is also a competition of business models. Apple iTunes sells digital songs permanently to customers. Rhapsody and other subscription services sell songs on a rental basis.

    RealNetworks chairman and CEO Rob Glaser and Microsoft chairman and chief software architect Bill Gates appeared together at the Experience Music Project in Seattle to announce the settlement.

    “Today we’re closing one chapter and opening a new one in our relationship with Microsoft,” Glaser said. “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."

    For Glaser, the new chapter resembles an old one. He left Microsoft to start the media player software company, and his company initially partnered with Microsoft. Later, as Microsoft began promoting its own Windows Media Player, Glaser became publicly critical of Microsoft's tactics.

    Glaser testified before Congress against Microsoft's business practices, and information provided by RealNetworks executives played a major role in the European Commission decision against Microsoft. Part of the EC decision required Microsoft to ship the Windows XP N edition without Windows Media Player.

    The legal agreement settles the lawsuit brought by Real against Microsoft two years ago in the United States and ends Real's participation in the European Union and Korean antitrust proceedings.

    The deal marks a major milestone in Microsoft's ongoing effort to settle pending antitrust cases. In July, Microsoft settled with IBM with an $850 million payment. Microsoft paid nearly $2 billion to Sun Microsystems last year, and paid $750 million to Time Warner in 2003 to settle Netscape-related claims.

  • About the Author

    Scott Bekker is editor in chief of Redmond Channel Partner magazine.

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