RealNetworks Gets the Best Deal

Opinion: The settlement with Microsoft keeps Real upright and creates interesting opportunities. Meanwhile, Time Warner would probably be happy to get a hand with AOL from Google and Comcast.

It was a week for strange bedfellows: Google and Comcast reportedly talking about buying a piece of AOL while Microsoft and Real were playing kiss-and-make-up to the tune of $761 million. And, oh yes, Apple released its overhyped video iPod and the underhyped iMac media hub.

The big winner of the bunch was Real Networks, which is getting enough money from Microsoft to wipe out all its losses, not bad for a company thats been in business for a decade and has made a profit in only one of those years. And a tiny profit at that.

The amount of Microsofts settlement is also more than double Reals annual revenue and more than half its market cap. Not a bad deal for such a perennial struggler. Spread the money over a decade of operation and Reals financials actually look pretty good.

Of course, this Real deal is a one-time event. And its not even all cash, as $301 million will be paid in marketing services that Microsoft will provide over the next 18 months.

Real also gets access to Microsofts media player technologies and will provide its online games to Microsoft customers, effectively neutralizing an agreement Real had previously struck with Sony. Some commentators say this arrangement, in which Microsoft may be buying a new best friend for Xbox, is important. Maybe it will be.

More interesting to me is whether the settlement means Real and Microsoft will begin supporting each others media formats. Customers dont want multiple players on their desktops but have been forced to use both Microsoft and Real players depending on where their online adventures lead.

Real seems to have been losing the technology battle of late, but remains the dominant format for Internet broadcasting (by my own informal survey, at least). Adding Real formats to Windows Media Player would make my life much easier.

Together, Microsoft and Real should be able to compete with Apples iTunes and Music Store much more effectively than either could alone. Real has several products, like its Rhapsody music service and games, that Microsoft should integrate with its own offerings.

/zimages/3/28571.gifClick here to read more about the obstacles that Microsoft and Real face in challenging Apple.

It will be interesting to see whether Real remains an independent company. Im amazed, quite frankly, that the company is still in business. The Microsoft cash infusion certainly gives Real years of breathing room, but it doesnt change the basic equation that one day leaves Real out in the cold.

I think the best Real can hope for is to remain "independent" but become servile to Microsoft, as Visio was for so many years before Microsoft gobbled it up. Maybe someday Microsoft will make an offer Real shareholders will be happy to accept, if only because it has become too dependent on Real to let the company slide.

I could be missing this completely. It is certainly possible that Microsoft and Real are making nice only for the cameras and that no meaningful partnerships will develop. I am hoping thats not the case and dont believe it is, but the possibility remains.

As for Microsoft, the company now has its antitrust battles behind it, at least in North America. Reals complaints are at the heart of Microsofts EU troubles, but they wont be going away. Ahead of the settlement, EU regulators said they plan to continue their case against Microsoft, which becomes less and less relevant as time goes on.

/zimages/3/28571.gifClick here to read more about the reports of Google and Comcast pursuing a piece of AOL.

As for Google, Comcast, and AOL, the reported talks only reconfirm my assessment that Google is tossing its money around in search of something to do when it grows up. Comcast made an unsuccessful play for Disney, so an investment in AOL as second-choice makes sense. Id think Time Warner would be happy to have other companies share its albatross.

If this week is the harbinger, the world is setting up into three camps: The media companies (Time Warner, Comcast, and Google), the technology companies (Microsoft and Real), and Apple, which now has at least a weak link with Disney and continued close ties to Pixar. Each of these combinations, such as they are, has significant strengths and weaknesses compared to the others.

There are still many bystanders, some innocent and others not, like the mainline entertainment and media companies that have yet to take sides. But, its clear the world is changing. And this week it changed more than most.

Contributing editor David Coursey has spent two decades writing about hardware, software and communications for business customers. He can be reached at