RealNetworks' chief executive Rob Glaser charged that Microsoft's Windows Media Player "breaks" its own multimedia player--a charge vigorously denied by the software giant.
Shares in the streaming software firm fell as much as 23 percent in midmorning trading. The stock was trading at 27.75, having closed Friday at 33.25. The company's shares have traded as high as 48.25 and as low as 13.5 during the past 52 weeks. RealNetworks went public last November at 12.50 per share.
"A selloff on the downside is as silly as the run-up has been on the upside," said John Powers, an analyst at BancAmerica Robertson Stephens, adding that there is no real new news to trigger the selloff.
"I think the stock has traded at levels that were probably a little unrealistically aggressive," he added. "Seeing RealNetworks and Microsoft in the same headlines as antagonists rather than partners has been a splash of cold water in people's faces."
Powers noted that these new headlines have not offered any new information to investors. "Everyone has known that Microsoft has been a partner and a competitor the day RealNetworks sent public."
During a Senate testimony last week, Glaser demonstrated how Microsoft's multimedia player allegedly disables a beta version of RealNetworks' RealPlayer. Microsoft not only disavowed the charge, but also released a white paper documenting why the problem stems from a "bug" in RealNetworks software.
In a telephone press conference Friday, RealNetworks said it stands by the demonstration it gave before the Senate Committee. Glaser added that Microsoft's assertions were "clearly inaccurate technically." Despite this insistence, however, the call was short on technical details at the crux of the controversy.
Microsoft owns a 10 percent nonvoting stake in RealNetworks. While RealNetworks' stock has plummeted over the past few days, Microsoft has not been scathed by the accusations.
The Redmond company was trading down barely over 1 percent at 112.44. Its stock has traded as high as 119.63 and as low as 59 in the past 52 weeks.
"The fact remains that RealNetworks' franchise is stronger than it was six months ago," said Powers. "Microsoft is farther behind in the technology standpoint in terms of audio and video technology, while RealNetworks continues to do really well."