Tue, Jul 27, 2004 page12

• RealNetworks grabbing slice of Apple's pie

  ONLINE MUSIC New, unauthorized software will allow files downloaded from RealNetworks to be played on iPods. RealNetworks says it's for Apple's own good

  • NY TIMES NEWS SERVICE
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  RealNetworks Inc, the maker of media-playing software, has grown tired of waiting for Apple Computer Inc to share.

  Today, without Apple's authorization, RealNetworks will start to give away software that will allow people to buy and download songs from its online music store and then play them on Apple's popular iPod portable devices in addition to those that use the Windows Media Player format and RealNetwork's Helix format.

  This will be the first time any company other than Apple has sold songs for the iPod.

  While Microsoft Corp has freely licensed the Windows format to various music stores and makers of portable players, Apple has thus far decided to keep its business proprietary.

  This has helped Apple maintain the dominant market share both for online music stores and for portable players with hard drives, the more lucrative half of the player market.

  In April, Robert Glaser, the chief executive of RealNetworks, sent an e-mail message to his counterpart at Apple, Steven Jobs, asking him to license Apple's format. Jobs never replied, Glaser said last week.

  So RealNetworks created technology that can create files to be read by iPods. Glaser declined to say how it did this.

  But Josh Bernoff, an analyst with Forrester Research, said that RealNetworks used a technique known as reverse engineering -- observing how Apple's software behaved as it encoded songs to be loaded onto iPods.

  An Apple spokeswoman, Liz Einbinder, said that Apple had no comment on RealNetworks' plans.

  Glaser said his company was not violating any of Apple's intellectual property rights. Bernoff said that was not clear, and Apple might choose to assert that its patents were being violated.

  He added that Apple certainly could change its encryption scheme so RealNetworks' software would no longer be able to load songs on the iPod.

  But this would require every owner of an iPod to download new software.

  "Apple has basically locked in their users," Bernoff said.

  "We are not used to thinking of Apple as the monopolist, but in this market they are," he said.

  When users buy songs from RealNetworks, they are downloaded to their hard drives in a format that RealNetworks controls.

  Using the company's new software, Harmony, which is being introduced in a test version today, the songs can be copied on up to five portable devices -- including those from Apple, Creative, Rio, Samsung and others.

  "Our view is that if you buy a song, you aren't buying it for that day or that month," Glaser said.

  "You are buying it because you are buying it," he said.

  He added that he thought that RealNetworks' software would help Apple fend off a coming attack from Microsoft because it allowed customers to use an iPod today while preserving their option to use a device with the Windows format later.

  "A long time from now, people will look back at our announcement and say it was a great benefit for Apple," he said.

  For now, RealNetworks is selling songs at US$0.99 each, the same price as Apple.

  But in the future, it will use the same technology in its Rhapsody music service, which sells songs for US$0.79 each. It may also license the technology to other companies. Rhapsody has 550,000 subscribers, mostly paying about US$10 a month.

  Bernoff said this technology might give a temporary advantage to RealNetworks' music store, which has a very small share of the market so far.

  But he said he thinks Microsoft will also find a way to sell songs to be downloaded on iPods.

  Microsoft plans to introduce its own online music store soon.

  The music store will be promoted on Microsoft's Windows Media Player and on its MSN online service.

  Bernoff said that he expected Microsoft quickly to become the No. 2 download service behind Apple.

  Microsoft could make some money selling songs, and it receives license revenue from the makers of players that use its software.

  But the most important goal for Microsoft is to make sure that its formats become the industry standard for legal music downloads and other forms of media.

  RealNetworks tried to win acceptance for its formats, Bernoff said, but in music it has failed.

  "The most important battle is between Apple and Microsoft," he said.
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