to Become Part of Real

Digital media software powerhouse RealNetworks on Monday
shelled out $36 million in cash and stock to snap up in a deal
that could set off a slew of roll-up activity in the online music space.

As first
by, RealNetworks buyout of
follows a minority
it made in the company in February and now gives the
Seattle-based firm a major stake in two of the major fee-based music

RealNetworks is a major shareholder in MusicNet and now adds’s Rhapsody to its
roster of consumer-focused digital music offerings.

Under terms of the pact, RealNetworks will pay $17.3 million in cash and
about 4.1 million shares of its common stock (less than 3 percent of Real’s
outstanding shares). Based on Real’s stock price on April 18, the total
value of the acquisition is valued at approximately $36 million.

The major music labels, which have licensing deals with and minority
investments in, have all signed off on the transaction.

RealNetworks said’s CEO Sean Ryan will remain on staff as VP
of Music Services within its RealOne division. founder Bob Reid
will assume the post of VP of strategic development. The company will
maintain its headquarters in San Francisco.

The first hint that RealNetworks would completely swallow the struggling came in February when the company bought
an unknown minority stake in a transaction that came with an option for a
complete buyout, sources said.

Immediately after, it became crystal clear that all the players in the
space were hedging bets when Pressplay backer Sony invested in the rival MusicNet service.

Industry watchers expect Monday’s deal to set the contraction train in
motion in the nascent online music subscription sector. Analysts predict that Microsoft is interested in acquiring Chicago-based FullAudio and that RealNetworks may one day shed its stake in MusicNet.

When the dust settles, industry experts and analysts expect to see a complete shake-up in the space with America Online left as the primary owner of MusicNet and Pressplay falling under the control of Sony and Universal.

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