RealNetworks, by far the leader in streaming video and audio on the Web, had been in negotiations with Warner Bros. to Webcast the "Drew Carey Show" simultaneously with an airing of the TV program on ABC. The two companies had also discussed the use of RealNetworks technology and distribution channels for Metallica's "S&M" album.
Warner representatives said those talks collapsed, leading the company to turn to Microsoft's streaming technologies instead. Details of the dispute were not disclosed, but studio executives said they involved brash demands by RealNetworks to promote its brand.
The loss of the deal to archrival Microsoft is a clear blow to RealNetworks, particularly as industry figures show that the software giant may be gaining ground in the digital media market. Moreover, the fallout with a major Hollywood studio could bode ill for future deals in an industry that is infamous for exacting revenge.
Although the Seattle company's RealPlayer is used in most live Internet music and video broadcasts, Warner Bros. will give its business to Microsoft's Windows Media player, at least in this instance. Warner Bros., a subsidiary of Time Warner, refused to disclose the terms of its deal, saying only that Microsoft--in contrast to RealNetworks--"knows how to value content."
The move indicates that some media executives are growing frustrated with RealNetworks' ability to use its huge installed base of 88 million customers in negotiating online distribution deals. The company has built its Web presence by aggregating content from some of the largest media organizations.
"RealNetworks has traditionally been very clever in how they leverage their technology," said Jim Banister, executive vice president of Warner Bros. Online. "They're a wolf in sheep's clothing."
At issue, Banister said, is RealNetworks' growing prominence as an Internet destination, a development that makes it look uncomfortably like a media company itself--and a potential competitor.
"Most people have dealt with RealNetworks by giving away their content and letting RealNetworks put its brand on top," he said. "We wouldn't have a problem if they were willing to subjugate the brand and make the technology invisible. But that's not what they're doing."
RealNetworks chief operating officer Thomas Frank denied that the company usurps the identity of its content partners.
"Our clients can present their content any way they like," he said, adding that most clients appeared satisfied with their distribution deals. "We've proven that we drive traffic."
Frank further denied that the company uses its viewership to extract unfair licensing arrangements. "We are pioneering new ground," he said. "There isn't a standard agreement because there isn't a standard business model for the Web. We approach each client on a case-by-case basis."
Aram Sinnreich, an analyst at Jupiter Communications, said the company is in a good negotiating position because of the reach of its products.
"The reality is that Real has a lot of leverage," he said. "And the leverage is repaid with access to content."
Most cases are "win-win," Sinnreich added, with content providers getting access to higher Web traffic as part of their deals.
Time Warner's vice president of digital media, Olaf Olafsson, dismissed the "Drew Carey Show" decision as a "tempest in a teapot," saying that the company plans to work with both Microsoft and RealNetworks in the future.
"There are 70,000 employees within Time Warner," he said. "People have opinions. One shouldn't mistake this for a corporate strategy."
Still, media companies may have good reason to keep a close watch on RealNetworks, which is proving itself a formidable competitor in its core software business and beyond. RealNetworks also revamped its Web site earlier this month and released new products such as its Take 5 streaming navigation bar, steps that could help the company expand more aggressively into the media business.
Even as the company's media profile rises, however, RealNetworks insists that its strategy has not changed.
"Our goal has always been to achieve ubiquity in streaming technology and drive the platform forward," Frank said. "This is just an extension of what we've always been doing."
Frank also played down the significance of the "Drew Carey Show" spat.
"We have partnered with more than 100 people in the content space," he said, noting that the company's clients include ABC News, BBC, CBS, FOX, HBO, MTV and Time Warner subsidiary CNN. "Our goal is not to solicit content, but to drive other people's content."
Analysts agreed that RealNetworks has straddled the line between media and technology from the start. But so far, they said, the company appears to have proven it can keep both parts in balance.
"There is a fine line RealNetworks needs to walk between the media companies and its core technology business," said Martin de Bono, an analyst at Gomez Associates. "It's something (RealNetworks chief executive) Rob Glaser is well aware of."