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Music key to new RealNetworks strategy

By Kim Peterson
Seattle Times technology reporter

	AP RealNetworks' new media player is expected to boost the Rhapsody music service.
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The company is expected to launch the player today, along with a music store that sells downloads of 300,000 songs for 99 cents each, as the technology industry gears up for the annual Consumer Electronics Show (CES) in Las Vegas this week.

RealNetworks also is expected to announce it will begin using AAC compression technology, a format rapidly gaining momentum and a competitor to Microsoft's Windows Media format. Apple Computer and America Online have already embraced AAC.

RealNetworks' new player, RealPlayer 10, requires a software download and is free, but that doesn't mean it won't make money. The Seattle company hopes to turn it into one of the Internet's top destinations for entertainment, through which it can sell music downloads and subscriptions to its premium services.

The announcements reflect the company's recognition that its previous player was not compelling enough to capture the growing number of high-speed, or broadband, Internet users. Customers said the player was confusing at times, and it became apparent a revamp was necessary.

In addition, the computer is quickly becoming a second entertainment center in many broadband households, particularly for music. RealNetworks wants to be the gateway for such use and tweaked its player in that direction.

"This company has been talking for a long time about digital media going mainstream, the acceleration of broadband and the mass-market adoption of digital media on consumer-electronics devices," said Dan Sheeran, senior vice president for marketing at RealNetworks.

The new player heavily emphasizes music, both for listening and buying. Users can watch the latest video by Pink, listen to Internet radio and purchase songs like Outkast's "Hey Ya!" by clicking on a "buy" button. The player also has links to sites where users can transfer songs to portable music devices or burn music onto compact discs.

Plug for Rhapsody

Look for coverage of the Consumer Electronics Show in Las Vegas beginning tomorrow in The Seattle Times.

The player will undoubtedly promote RealNetworks' Rhapsody music service. Rhapsody and RealNetworks' premium radio service have about 350,000 subscribers, but RealNetworks won't say how many are specifically for Rhapsody.

RealNetworks has not sold single-song downloads until now and has had to watch from the sidelines as services such as Apple Computer's iTunes raked in cash from song purchases.

But with a new music store seemingly being announced every week, it was no surprise RealNetworks would join the frenzy.

Online music stores generally are not big moneymakers; companies like Apple use them to sell music players, including its well-received iPod. RealNetworks is likely looking at its music store as a way to sell subscriptions.

Over the past year, the company has made most of its money from subscriptions to premium services, such as its $9.95-a-month SuperPass service.

RealNetworks isn't the only local company to set its sights on a comprehensive media player for broadband audiences.

Microsoft in October announced an online video player that broadcasts news, sports and other video free over high-speed Internet connections. A full version, MSN Video, is expected to debut soon.

Microsoft has also said it plans to launch its own music-store service.

Analysts say the free player is key to luring digital media customers of the future.

"It's important for Real to continue its efforts in the player battles because consumers look at the players, and that to some degree is going to push them in a particular direction," said Michael Gartenberg, an analyst with Jupiter Research. "By making RealPlayer available, and by making that tied into their other strategies, it becomes a very core component."

Vote of confidence

Another key component of RealNetworks' strategy is its use of the AAC format in its music store and for streaming music over the Internet. By supporting AAC, the company is giving more momentum to a format relatively obscure until a few years ago.

Microsoft has said that at least 50 devices play Windows Media Audio files and support its digital-rights management technology, which aims to prevent piracy.

About 400 devices play back Windows Media files in general, a figure the company is expected to update this week at the Consumer Electronics Show. That doesn't come close to the reach of the popular — and still dominant — MP3 format.

AAC only recently picked up momentum, mainly because it has one giant fan: Apple, whose iPod was the top digital music player in November, with 21.3 percent of the market share, according to research company NPD Techworld. iPods play MP3 and AAC files, but not Windows Media files.

AAC was developed in 1993 by AT&T, Dolby Laboratories, Sony and the Fraunhofer Institute for Integrated Circuits under the jurisdiction of the Motion Picture Experts Group, or MPEG, which also developed the standard for MP3 files. The group put Dolby in charge of licensing AAC to interested developers.

The advantage of AAC is that it compresses files by removing parts imperceptible to the human ear, said Dolby marketing director Ron Vitale. That produces a high-quality sound even at a low transmission rate, or bitrate.

"We wanted to achieve the best possible fidelity at the lowest possible bitrates" for both dial-up and high-speed audiences, said Jim Van Huysse, general manager of AOL's Radio@ Network, which uses a Dolby-modified version of AAC.

RealNetworks' decision to use AAC shows how significant the format has become, said Roger Kay, vice president of client computing at IDC, another research company.

"When you get an endorsement from a big player like Real, that's a substantial sign that the standard is being adopted," he said.

Challenge to Microsoft

That also makes AAC more of a threat to Microsoft, the subject of an antitrust suit lodged by RealNetworks in December. The Redmond-based software giant would obviously like to see Windows Media become the dominant format used in every device and personal computer.

Even though some big names are lining up with AAC, don't count Microsoft out, Kay said.

"I guess I had always assumed that RealNetworks was slated for the dustbin of history, just given the way things go when you're competing directly with Microsoft," he said. "Whether this gives them a lease on life because they're aligned with another minority partner, I don't know if that ends up being a winning hand."

RealNetworks is also expected to announce other elements of its "Real 10" platform, including RealVideo 10 video-playing software. Also part of the platform is RealAudio 10 and RealProducer 10, which allows content owners to encode media into RealNetworks' audio and video systems.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Copyright © 2004 The Seattle Times Company