RealTime IT News

Real Seeks 'Tactical Alliance' with Apple

RealNetworks has made a dramatic overture to rival Apple Computer to form a "tactical alliance" in the digital music space, according to a report in the New York Times.

The newspaper said the direct appeal was made by RealNetworks CEO Rob Glaser in an April 9 e-mail correspondence to Apple chairman Steve Jobs where the growing dominance of Microsoft was mentioned.

Glaser's e-mail also hinted that a partnership with cross-town rival Microsoft was not out of the question if an Apple alliance could not be struck.

Even in the midst of a $1 billion antitrust lawsuit against Microsoft, Glaser said a Microsoft pact would present some "very interesting opportunities" because support for Microsoft's Windows Media Player has grown steadily.

Glaser's direct proposal was for Apple to license its Fairplay digital rights management system to RealNetworks, a move that would allow Real's Rhapsody music service subscribers to play tracks on Apple's iPod players.

In return, according to the newspaper report, Glaser offered to make iPod the "primary device for the RealNetworks store and for the RealPlayer software."

Officials from RealNetworks could not be reached at press time to confirm the contents of Glaser's e-mail. Apple spokespeople did not return calls.

Although Real and Apple support Advanced Audio Coding (AAC), a compression format defined by the MPEG-2 standard, Glaser hinted strongly that RealNetworks would consider using Microsoft's Windows Media (WMA) format because of the playback snafus with iPod devices.

"We are seeing very interesting opportunities to switch to WMA...Instinctively I don't want to do it because I think it leads to all kinds of complexities in terms of giving Microsoft too much long-term market momentum," the newspaper quoted Glaser as saying.

Apple's iTunes music store is by far the most popular paid download music service on the market. But a steady flow of competition from companies like Buy.com, Walmart, Microsoft, Sony and a host of e-commerce start-ups has prompted speculation that large-scale contraction is inevitable.

As news of the Glaser's startling e-mail filtered through the industry Thursday, analysts questioned Real's motives and wondered if the proposal made business sense for Apple.

"It's questionable if this makes any sense for Apple. From a revenue-generation standpoint, does Apple need RealNetworks? Apple is doing rather well with iTunes and with iPod sales without a tactical partner," Yankee Group analyst Michael Goodman told internetnews.com.

However, Goodman also noted that Real is facing a lot of pressure after losing media player dominance and such major deals as the video braodcasting contract it held with Major League Baseball to Microsoft.

If Apple allows Real to license the proprietary Fairplay DRM system, Goodman believes such a move would create competition for iTunes without offering a significant outlet for new iPod sales.

"I don't see, at this point, what the true benefit is to Apple. For Real, using the Fairplay system lets them sell music to the market that Apple already owns. Why would Apple just give that up?" Goodman questioned.