January 7, 2004 5:52 AM PST

Real offers new tech, song store

Net multimedia company RealNetworks announced a sweeping overhaul of its digital audio and video software Wednesday, along with a digital song store aimed to compete with Apple Computer's leading iTunes service.

Real is betting that the flexibility of its RealPlayer 10 music-playing software--the latest entry in an increasingly crowded digital-download market--will distinguish it from rival stores and software packages.

To this end, the company has created a jukebox that will play all the media formats used by its own and other song stores--including secure downloads from the iTunes store.

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What's new:
RealNetworks launched a sweeping overhaul of its audio and video software, along with a digital song store aimed at competing with Apple Computer's leading iTunes service.

Bottom line:
Real is betting that the flexibility of its music-playing software, RealPlayer 10, will distinguish it in the crowded digital-download market from rival stores and software packages.

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Real debuted the new service on Wednesday at the Consumer Electronics Show in Las Vegas.

The RealPlayer Music Store, built directly into RealPlayer 10, is similar in price and breadth to its rivals' stores, offering 99 cent downloads and a growing catalog of about 300,000 songs.

The company also announced Wednesday that for the next 10 days, U.S. consumers who download RealPlayer 10 will receive their first song download for 10 cents. The software is available for free download on the Real's Web site.

Analysts acknowledged that Real faces stiff competition from Apple, Napster and others. But they say the company's one-player-fits-all approach is a welcome innovation in a crowded and often confusing field, and could point the way toward smoothing over if not eliminating incompatibilities between song formats, software programs and portable players.

"The pan-player capability is pretty cool," said Mike McGuire, an analyst with GartnerG2, a division of the Gartner research firm. "We're seeing some very important steps toward...hiding some of the complexities. The mass of consumers couldn't care less about the underlying technology."

The announcement, which comes almost 10 years after Real launched its first Net audio software, marks the company's biggest technological overhaul in several years.


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Along with the antitrust lawsuit Real filed against Microsoft late last year, the releases are aimed at winning back momentum in the multimedia business that had been slipping toward Microsoft and Apple.

Microsoft is far ahead in winning support from device makers and rival music stores for its Windows Media format, used by Napster, Musicmatch, Wal-Mart Stores and others. Apple's iTunes store, by contrast, has sold more than 30 million songs, or about 70 percent of the total legal digital music market, according to Nielsen/NetRatings.

Audio tech overhaul
On the audio front, Real is substantially updating its technology in several ways.

Songs sold in the music store will be distributed in the Advanced Audio Coding (AAC) format, an open standard developed by the Moving Picture Experts Group (MPEG), rather than a proprietary RealNetworks format. However, they'll be wrapped in Real's own Helix digital rights management technology, which will limit the number of players or other software applications they can be used in.

The move away from its own technology isn't entirely new. Some previous download applications--including the MusicNet service, which is partially owned by RealNetworks--had used Sony's ATRAC 3 format instead of an in-house version.

The company is also releasing a multichannel version of its RealAudio codec that can support features such as 5.1 channel audio for DVDs, and a new high-quality version of its in-house format. The entire package is being dubbed RealAudio 10.

A new video format, RealVideo 10--which the company says improves the efficiency of past products by about 30 percent--was also part of Wednesday's release. Using the new format, service providers will be able to stream DVD-quality video on connections averaging about 1 megabit per second, or well within the high end of cable modem subscribers' bandwidth availabilities, the company said.

"We think the legal online distribution of movies is going to be a big business sooner than a lot of people think," said Real's senior vice president of marketing Dan Sheehan. "With today's bandwidth via broadband, that can be a reality."

RealPlayer has been substantially revised, adding more personalization features, the ability to transfer songs to MP3 players, including the iPod, and the support for new formats.

Real taps into QuickTime
That support for iTunes songs is likely to prove controversial. However, Real says it has tapped into the workings of Apple's well-publicized QuickTime technology without any need to break through the digital rights management features that protect iTunes songs against unauthorized distribution.

Instead, RealPlayer 10 essentially triggers the QuickTime and iTunes content-authorization process in the background, instead of breaking through it. That means that a computer must already have iTunes installed, and be authorized to play a given song, in order for the iTunes song to play in RealNetworks' software.

"We don't believe in violating digital rights management," said Ryc Brownigg, general manager of Real's consumer products. "We work with copyright holders, and we make digital rights management software ourselves."

Apple did not immediately comment on Real's iTunes support.

The download-focused service is something of a departure for the company, which has traditionally focused most of its efforts on streaming media, a process that delivers audio and video in successive bits but leaves behind no permanent copy.

The company took a disappointing first run at a music download service in partnership with several major record labels, debuting MusicNet to poor reviews in December 2001. That service required a monthly fee to access music but failed to take off with customers.

Real's second crack at the market came when it purchased online music pioneer Listen.com in early 2002, snapping up its highly regarded Rhapsody streaming subscription service. Despite the launch of the download store, Real said it continues to believe that subscription services such as Rhapsody offer a better deal to both customers and online music vendors.

The company concedes that, like its rivals, it doesn't expect profits from the song store itself, since the cost of licensing music, distribution and credit card fees reach close to the retail price of the songs themselves.

But Real hopes that exposing consumers to digital music though the relatively familiar pay-per-song model will ultimately whet appetites for the all-you-can-eat model of its $10 per month Rhapsody service.

The company has increasingly been looking to subscription services to shore up its bottom line in recent quarters. Though its core technology income has continued to drop, revenue from subscription services made up more than half its income last quarter.

Music subscriptions make up most of that and are growing quickly. Real announced it had 250,000 paying subscribers to Rhapsody and its RealOne radio service in October, and it boosted that estimate to 350,000 by mid-December.

"We are huge believers in subscription services," Sheehan said. "But this is an opportunity to tell customers that there might be a better deal out there."

Whatever the success of the store itself, analysts said consumers were likely to react well to the new generation of software, and its openness to other formats, in an increasingly confusing market.

"Diversity has been the backbone of artistry, and I think diversity of codec support is a smart move," said Richard Doherty, president of research company The Envisioneering Group. "They are listening to subscribers enough in a cutthroat market to evolve and survive."

Separately, Real said it had acquired the licenses to online content from Rolling Stone magazine, previously held by Vivendi Universal, and will add that into its various music services.

 

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