When the reported $750 million settlement between Microsoft and RealNetworks was said to include "a combination of cash and promotions for RealNetworks music and game services" (from WSJ), this seemed another hallucination on the part of Real that it had a business worth promoting. Turns out, however, that, over the last few years, Real has managed a challenging transition from component software to consumer services company.
As of Q2, the company's revenue from consumer products and services was nearing a run-rate of $300 million, up from $130 million two years ago, and the business has even occasionally turned an operating profit. What's more, revenue from music, games, and advertising is growing faster than the aggregate consumer revenue, which includes about $100 million annually from the stagnant Real Player business.
Alas, the news is not all rosy, as Real predicts that music revenue growth will slow in future quarters as it transitions (yet again) to free-to-consumer services and as competition in the online music business gets even more intense. So the company should probably take most of the $750 million in cash and sell itself to Microsoft, Yahoo!, or AOL.
As for Microsoft, the settlement probably serves the dual purpose of 1) using some pocket change to swat another legal gnat, and 2) appearing kinder and gentler for the anti-trust cops (a strategy the company employed with Apple a while back, when a Microsoft investment and commitment to continue producing Office for Mac created the appearance that the Office/Windows monopoly might not, in fact, end up with 100% share). In further service of the latter illusion, Microsoft will probably lift its foot off RealNetworks' throat just enough to keep the Real Player et al breathing for a while.
WSJ article (subscription req'd)
You're right. This just delays the train wreck. Microsoft can't compete with Apple in music/video. In music, the "others" have...what? 25% market share? And that is divied up to how many companies? Including Real?
Glaser has tried to force Apple to accept Real as a partner, all to no avail. Jobs doesn't need Real and he knows it. Microsoft doesn't either. Tough luck for a company that, had it been more innovative and a bit less boorish, might be thriving now as THE source for ALL online entertainment. Instead, it's death has only been delayed.
Posted by: Jim Hillhouse | October 15, 2005 at 02:08 AM