RealNetworks, based in Seattle, is the No. 1 supplier of software for playing audio and video on the Web. AOL, the largest online service, has agreed to embed RealNetworks' technology in new online-access software that is being made available to 13 million AOL customers this week, according to the companies, which announced the deal this morning.
Shares of RealNetworks jumped nearly 24 percent in response, closing the day at 41.25. AOL stock also rose, gaining just over 2 percent on news of the deal, which came as the company released its full earnings report.
"This deal with AOL will cement RealNetworks' leadership in the streaming media market," John Powers, an analyst with BancBoston Robertson Stephens, wrote in a report today. "In our opinion, the recent announcements with AOL and Intel are a vote of confidence, which solidifies RealNetworks as the leader for Internet audio and video streaming."
Powers maintained his "strong buy" rating on RealNetworks' stock.
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RealNetworks will license its RealPlayer product free of charge to AOL in exchange for becoming the default media player in AOL's 4.0 Gold software, company executives said.
Both AOL and RealNetworks executives emphasized the importance of bringing the technology to AOL's vast audience. They said also that the timing of the announcement is crucial.
"We're seeing an incredible amount of momentum for streaming media on the Internet," said Rob Glaser, RealNetworks' chief executive. Glaser cited last week's release of President Clinton's grand jury testimony in video format as the "Rubicon" for the streaming media industry.
America Online's interest in the deal is to improve ease of use for members of its proprietary online service who want to surf the Web, according to David Gang, the online giant's senior vice president of strategic development.
"Part of the goal with AOL 4.0 was to make the Web as easy as AOL," Gang said, noting that AOL is shipping the new software on millions of CDs today. "Real clearly is the easiest player shipping today. This was a pretty easy decision for us."