From Adversaries to Partners: Microsoft and RealNetworks

Microsoft Corp. and RealNetworks Inc. announced Tuesday that they have settled their antitrust case and forged a partnership to promote digital music and games in three agreements worth US$761 million, the companies said.

Microsoft will pay Real Networks $460 million up front to resolve all damages and claims in the suit, and the companies are agreeing to a series of technology licenses and commitments that will give RealNetworks long-term access to Windows Media technologies to enhance its own media software, according to the companies. Under the terms of the deals, the companies have resolved their antitrust suit worldwide and will jointly promote and market RealNetworks’ music subscription service, Rhapsody, on Microsoft MSN. In addition, Microsoft will offer RealNetworks’ digital games through MSN Games and Xbox Live Arcade for XBox 360.

Additionally, Microsoft, which is based in Redmond, Washington, will pay RealNetworks $301 million in cash and provide services over 18 months to support RealNetworks’ product development, distribution and marketing under the music and game agreements. At the same time, RealNetworks will support MSN Search, and the two companies together will promote the use of Windows Media technologies with RealNetworks’ Rhapsody to Go service, according to the companies.

RealNetworks, which is based in Seattle, filed an antitrust lawsuit against Microsoft in December 2003, initially claiming damages in excess of $1 billion. The company alleged that Microsoft used its Windows OS dominance to restrict RealNetworks’ position in the market for digital media software for the PC.

The lawsuit claimed that Microsoft forced PC manufacturers to include its Windows Media Player while at the same time placing restrictions on how competing players may be installed.

By Elizabeth Montalbano, IDG News Service