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.