RealNetworks seeks musical alliance with Apple

RealNetworks made a direct appeal last week to Apple Computer, its Internet music rival, suggesting that the two companies form a common front against Microsoft in the digital music business.

The offer to create a "tactical alliance" was made Friday by Rob Glaser, chief executive of RealNetworks, the Seattle-based Internet music and video service, in an e-mail message to Steve Jobs, Apple's chairman.

But if an alliance with Apple could not be struck, Glaser strongly hinted in the e-mail message that he might be forced to form a partnership with Microsoft to pursue "very interesting opportunities" because support for Microsoft's media-playing software seems to be growing.

A pact with Microsoft would be a startling reversal for RealNetworks, whose complaints about Microsoft's business tactics form a major part of the European Commission's antitrust case against the company.

	For the latest breaking news, visit NYTimes.com Sign up to receive top headlines Get Dealbook, a daily corporate finance email briefing Search the jobs listings at NYTimes.com Search NYTimes.com: Today's News Past Week Past 30 Days Past 90 Days Past Year Since 1996

Glaser, the founder of RealNetworks, is a former executive of Microsoft who left on friendly terms but later became a bitter rival after Microsoft decided that media-playing software would be crucial to its long-term growth. The overture from Glaser to Jobs also reflects the scramble among major technology and media companies to jockey for advantage as the market for music--and eventually movies--distributed legally over the Internet is starting to take off.

Apple is clearly the early leader with its iTunes online music store, which downloads and plays songs only on Apple's popular iPod handheld devices. Besides RealNetworks, a pioneer in software for distributing and playing music and video, major companies are entering the market.

Microsoft is gaining ground and making deals. This week, it agreed to pay $440 million to settle a private suit over patent claims and to strike a licensing deal with InterTrust Technologies, an early developer of copyright protection software.

Microsoft is expected to offer its own digital music store before long. And Sony has said it will start a music store later this year. It is developing its own media-player devices, which, given Sony's reputation for stylish design and clever marketing, could prove to be strong competition for the iPod. Sony has not announced when its devices will be introduced.

		Special report Real's reality Microsoft's rivalry is only one of RealNetworks' hardships.

It is against this backdrop that the timing and details of Glaser's offer to Jobs are particularly intriguing. In his message, which was obtained by The New York Times from a person close to Apple, Glaser asked Jobs to consider licensing Apple's Fairplay digital rights management system to RealNetworks to permit customers of the RealNetworks music service to play their digital music collections on iPod players.

In exchange, RealNetworks would make the iPod its primary device for the RealNetworks store and for the RealPlayer software.

The message notes that both RealNetworks and Apple support the same digital music technology standard, known as AAC. But because it is not possible for RealNetworks' encrypted music services, Rhapsody and the Real music store, to be played on iPod, RealNetworks is considering switching to Microsoft's competing WMA format, which would make the RealNetworks services work seamlessly with Microsoft's technology.

"We are seeing very interesting opportunities to switch to WMA," Glaser wrote. "Instinctively I don't want to do it because I think it leads to all kinds of complexities in terms of giving Microsoft too much long-term market momentum."

Apple executives would not comment on the message. But it seems likely Jobs will rebuff the offer. Glaser said he had not received a response from Jobs, and in his e-mail message Glaser said he was going to be in Silicon Valley this week and suggested that he meet with Apple executives Thursday.

Glaser has been vocal in his condemnation of what he considers Apple's proprietary strategy and he has said he believes the strategy is a mistake. Apple is running the risk of following the same path it took in its development of its personal computer, he argued.

It is widely believed in the PC industry that Apple's refusal to license its Macintosh operating system in the late 1980s contributed to the operating system monopoly of Microsoft's Windows.

Glaser has recently tried to act as a neutral broker in the competition between different hardware standards, while Jobs has been pursuing a more proprietary approach, making digital music from Apple's iTunes store playable only on iPod.

		Special coverage Antitrust replay RealNetworks files a $1 billion lawsuit charging that Microsoft used Windows to squeeze media rivals.

Apple, however, notes that it is open to deals with other companies. It recently formed a partnership with Hewlett-Packard, allowing Hewlett to distribute iPod devices and load Apple's iTunes software on its consumer PCs.

Subscribers to AOL, Apple adds, can also download music from the iTunes music store. Still, these deals are mainly distribution agreements with other companies, and do not require Apple to open its technology so that other music services and devices can work with the Apple offerings.

"Apple is not into interoperability," said an industry executive with connections to both the computer and music industries. "Steve's bet is that he can beat the big guys, Sony and Microsoft--with better marketing."

A number of industry executives said, however, that Jobs was under increasing pressure from both his music industry partners and from HP to open up his digital music service.

The situation in the digital music industry is complex and changing very rapidly. Events like the European ruling against Microsoft's bundling of its media player into the Windows operating system could force the company to rethink its digital media strategy.

At the same time Microsoft has clearly been moving to settle as many of its legal entanglements as quickly as possible. In recent weeks it has settled lawsuits with Sun Microsystems and with InterTrust.

By putting many legal problems behind it, Microsoft would be freer to compete aggressively with Apple in the music market, analysts said.

"Real understands how incredibly powerful the Microsoft music initiative will be," said Richard Doherty, a computer industry consultant and president of Envisioneering. "I don't think that Jobs understands this. He doesn't realize how big the juggernaut is about to get."

In his e-mail message to Jobs, Glazer said that he was reaching out to Jobs before making a move to switch camps. Glaser said he was surprised that the proposal had been leaked.

"Why is Steve afraid of opening up the iPod?" he asked in a telephone interview. "Steve is showing a high level of fear that I don't understand."

Entire contents, Copyright © 2004 The New York Times. All rights reserved.