Real’s Harmony Taps Apple’s Core

RealNetworks CEO Rob Glaser’s quest to have a file
format that is compatible with all media players is working nerves over at
Apple Computer.

The Seattle-based company released Harmony Technology, new digital rights management (DRM)
translation technology that lets consumers securely transfer
purchased music to every popular secure music device on the market, including
ones from Creative, iRiver, RCA, Rio, Samsung, palmOne and all four
generations of Apple’s red-hot iPod.

Glaser said his company is focused on
“compatibility as key to bringing digital music to the masses.” While the
name suggests cooperation and warm fuzzies, nothing could be further from
the truth.

In his quest to gain market share against Microsoft’s
Windows Media Player, Glaser had unsuccessfully approached Apple CEO Steve Jobs about an alliance back in April. But
instead of licensing the technology from Apple, Real has reverse engineered
the connections into the iPod to come up with its DRM technology, released this week. When
briefing analysts Friday, the company debunked suggestions that the Harmony
technology is a wrapper, but instead promoted it as a combination of
“transcoding” and “transcrypting.”

That said, Harmony supports any device that uses the Apple FairPlay DRM,
the Microsoft Windows Media Audio DRM, or the RealNetworks Helix DRM. At the
Jupiter
Plug.IN Conference & Expo
in New York this week, Real is releasing a
beta test version of RealPlayer 10.5, which would be the first consumer
product to use Harmony Technology.
The full product software is expected later this year in other music
products from RealNetworks, including Real’s Rhapsody subscription service.

Representatives of Cupertino, Calif.-based Apple and Redmond,
Wash.-based Microsoft were not immediately available for comment.

With Harmony in place, Real said its RealPlayer Music Store will support
more than 70 portable media devices, including all four generations of the iPod
and iPod mini, 14 products from Creative, 14 from Rio, 7 from RCA, 9 from
palmOne, 18 from iRiver, and products from Dell, Gateway and Samsung.

“If it works, the Real store and Real Jukebox player will see a large
amount of traffic,” David Card, JupiterResearch vice president and senior
analyst, said.

But Rob Enderle, industry analyst and founder of Enderle
Group, suggests that both Apple and Real may wish they’d done the license
deal — and Microsoft might be very pleased they did not.

“The buyer risk is that while existing iPods will probably work, Apple
may respond by adjusting the software in newer iPods so they don’t,” Enderle
told internetnews.com. “If you recall the Microsoft/AOL wars on IM
compatibility, where every time Microsoft got their client to work, AOL
changed the code and broke it, this could get ugly. On the other hand, it
isn’t like Apple can flash their installed base with new software. If
only the new ones break, an increasing number of new buyers may return them
and buy something else that will work, which creates a double risk for [Apple]. It may shift sales away from products that now appear to be unreliable, and they may lose existing customers who are no longer tied to
iTunes.”

Meanwhile, JupiterResearch analysts released a new study Monday
stating digital music sales are more than double compared to last year.
They reached more than $270 million in 2004 and are expected to grow rapidly to
$1.7 billion in 2009, totaling 12 percent of consumer music spending.
However, while digital music will return the U.S. music industry to growth
after four years of steeply declining sales, digital music still will not
replace CDs or bring music sales back to its 1999 peak. In fact
JupiterResearch’s Card suggests that subscription services like MusicMatch
are the wave of the future.

“The so-called celestial jukebox is in sight,” Card said, “But for now,
it will appeal to music aficionados. The U.S. music industry must manage
digital music as one of a series of incremental revenue streams, one that is
in the same scale as licensing (e.g., ring tones, games and advertising).”

The new Harmony Technology comes at a time when all digital music
companies are taking swipes at Apple’s iPod player success.

Jupiter Research is estimating U.S. shipments of MP3 players will grow
over 50 percent in 2004, to well over 5 million, and will continue to grow
almost 50 percent per year for the next several years. And while Apple has
the lion’s share with upwards of 860,000 units shipped in the last three
months (50 percent market share) and 70 percent dominance in all songs
bought online, companies like Sony, Dell, Microsoft and Rio all are plotting
their next moves to unseat Apple’s leadership.

“A lot of the action in hard drive-based devices will be at the low end
in terms of price and capacity that will help drive the market,” stated
JupiterResearch VP and Research Director Michael Gartenberg.
“JupiterResearch surveys show that 77 percent of consumers who would
purchase a portable music player would want no more than 1,000 songs on a
player at any given time, regardless of the size of their music collection.”

The Jupiter Plug.IN Conference & Expo and JupiterResearch are owned by
the parent company of this Web site.

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