Real to Apple: It’s On

An old-fashioned price war is gearing up in the digital music
download business, with RealNetworks on the offensive.
With rival Apple in its crosshairs, RealNetworks has
slashed the price on songs sold from its RealPlayer store by 50 percent and
launched an all-out marketing blitz to create a public outcry against the
iPod maker.

The 49 cents a song price point ($4.99 for most full-length albums) is
not available from the company’s Rhapsody service.

The limited-time price cut, which coincides with an anti-Apple blog and a nationwide print
ad campaign, is part of Real’s public push to force Apple to open up its
Fairplay digital rights management format to third-party music
stores.

In recent weeks, RealNetworks said the new Harmony DRM translation
technology would allow consumers to securely transfer purchased music to
multiple devices, including Apple’s red-hot iPod.
Unamused, Apple accused the rival firm of hacking tactics
and threatened to block access to iPods that connect to Real’s
software and technology.

“We are stunned that RealNetworks has adopted the tactics and ethics of a
hacker to break into the iPod, and we are investigating the implications of
their actions under the DMCA and other laws,” Apple said
in a statement.

But RealNetworks is forging ahead, even though the latest price cut will lead
to a financial loss. Licensing deals with the major labels typically set the fee at
around 50 cents on the dollar download, meaning that when overheads and
bandwidth costs are calculated, the music services end up making next to
nothing.

Before it was acquired by RealNetworks, Listen.com teamed up with Lycos
to tinker with a 49 cents a song promotion,
and company executives later admitted that that price
point could only be justified as part of a limited-time promotion.

RealNetworks spokesman Matt Graves told internetnews.com that the
losses from the three-week price cut were a “relatively affordable
investment” to reach consumers with the Harmony technology embedded in new
versions of RealPlayer.

“Traditionally, we have not done a lot of outbound direct-to-consumer
marketing with price cuts,” said Graves. “We did some in partnership with Comcast, Best
Buy and Lycos. We don’t mind spending the money because it has proven to be
a worthwhile investment.”

Graves declined on the cost of the campaign, which includes full-page ads
in the New York Times, Rolling Stone and more than 150
alternative news weeklies nationwide.

He said the company was also open to licensing the Harmony technology to
third-party music stores like Napster or AOL’s MusicNet service.