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Microsoft, RealNetworks reach settlement

Microsoft Corp.Tuesday said it will pay RealNetworks Inc. $761 million to resolve their disputes, including a lawsuit that accused the world’s largest software maker of using its dominance in operating systems to promote its rival media software.
/ Source: Reuters

Microsoft Corp. said Tuesday it would pay RealNetworks Inc. $761 million to settle an antitrust suit accusing the world’s largest software maker of using its dominance to promote its own media software.

RealNetworks, maker of Real Internet media software, has said Microsoft’s decision to bundle Windows Media Player for free within the Windows operating system was to blame for slower sales at RealNetworks, shares of which rose as much as 48 percent in midday trading before slipping back a bit.

(MSNBC is a Microsoft-NBC joint venture.)

RealNetworks’ suit, filed nearly two years ago, was the last remaining major antitrust action against Microsoft, which has spent the last three years reaching agreements with several U.S. states, the European Union and other companies including International Business Machines Corp. , Time Warner Inc. and Sun Microsystems Inc. .

The cases followed Microsoft’s landmark 2002 antitrust settlement with the U.S. government.

Microsoft will pay RealNetworks $460 million in cash up front to resolve all damage claims. RealNetworks will also get licenses and commitments that give it long-term access to Windows Media technologies to enhance the Real Player software.

Microsoft has also pledged to promote RealNetworks’ music and game subscription services through the MSN Internet network, specifically RealNetworks Rhapsody subscription music service.

Microsoft said it will pay RealNetworks $301 million in cash and will provide services over 18 months to support Real’s product development, distribution and promotions. Microsoft will earn credits against the $301 million for subscribers to Real delivered through MSN.

RealNetworks also said it will take steps to support MSN search. Both RealNetworks and Microsoft will market the use of Windows Media technologies with Rhapsody.

In this deal, Rhapsody effectively becomes MSN’s music subscription service, complementing its own download service. Rhapsody has won kudos from analysts and some fans, but the dominant player in online music remains Apple Computer Inc.’s iTunes.

In demonstrations at a press conference, Microsoft chairman Bill Gates and RealNetworks chief executive Rob Glaser showed how Rhapsody could be included in Microsoft services such as MSN Search and MSN Messenger, its instant messenger service.

“I’m really pleased at how that’s coming together,” Gates said.

The two companies also pledged to collaborate on technology issues in the future.

The settlement caps years of backbiting between Microsoft and RealNetworks. Glaser is a former Microsoft executive.

“The legal chapter is being closed with an appropriate and fair outcome that sets the stage for a very productive and collaborative relationship between our companies,” Glaser said in a statement.

“By integrating Real’s premier music and games services into Microsoft’s very popular MSN service, we will reach more consumers today and deliver even better products and services tomorrow,” he said.

The European Commission in Brussels decided in March 2004 that Microsoft had violated European antitrust rules through unfair business practices, some of them involving media players like the one produced by RealNetworks.

It fined Microsoft and ordered it to make available a version of its Windows operating system without Windows Media Player.

“The Commission remains committed to ensuring full compliance with its March 2004 decision,” said competition spokesman Jonathan Todd.

“The role of the European Commission is to ensure proper application of EU competition rules to benefit consumers and companies in Europe, not for the benefit of one company.”