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RealNetworks, Sony look beyond the PC

The companies ink a multiyear partnership, extending their long-held relationship to include digital audio and video distribution to home-networked devices.

RealNetworks on Tuesday said it inked a multiyear partnership with Sony, extending their long-held relationship to include digital audio and video distribution to home-networked devices.

As part of its commitment, Tokyo-based Sony said it would buy a 1 percent minority stake in Seattle-based RealNetworks. The digital media pioneer has a market cap of $1.1 billion, making a 1 percent stake worth about $11 million.

Additional financial terms and the length of the agreement were not disclosed.

The deal deepens a relationship between the two companies, which have collaborated on digital content distribution to the PC since July 2000. Products of the union include RealNetworks' software offered on Sony desktop and notebook computers. RealNetworks has also incorporated Sony's ATRAC3 compression technology into its audio playback software, and it is developing a digital media player for PlayStation 2.

Apart from PC applications, the two companies are setting their sights on the home-networking market, with plans to give consumers access to digital video and audio through IP (Internet Protocol) hookups on various devices such as set-top boxes or portable applications. For example, RealNetworks' software RealOne may be offered in Sony's portable audio players and OpenMG devices such as NetMD, a portable device.

"Most of what we've done is based on distribution on the PC," said Richard Wolpert, strategic adviser to RealNetworks. "We collectively think that there's a lot of desire for networked consumer-electronic products, meaning other devices in the home which may at times access digital media."

Analysts said that the deal cements a triumvirate of power in digital media, entertainment and consumer electronics among AOL Time Warner, RealNetworks and Sony. AOL and RealNetworks, with a common enemy in Microsoft, have been joined at the hip for the last five years. AOL supports RealNetworks' software on its Web sites and its music service, MusicNet.

Sony, which has partnerships with Microsoft in various areas, in November 2001 announced an alliance with AOL to develop home-networked products. Sony is working on a home-networking technology, called Feel, that it says will make it easy to hook devices to a network.

"When it comes to interactive multimedia, where you find one of these three companies the other two are likely to follow," said Steve Vonder Haar, an analyst at research firm Interactive Media Strategies.

"This deal formalizes an axis of partnerships between RealNetworks, Sony and AOL," he added.

He pointed to the different ways partners could work together in the future. For example, in the case of MusicNet, "you can imagine one day that it would get very favorable carriage on Sony devices."

For Sony, the deal is a means to advance its designs on the home-networking market, Vonder Haar said.

"At the end of the day, Sony just wants to find a way to get all the content it develops, such as music and movies, onto the network and get it delivered to Sony-branded products," he said. "The software is just a means to an end for creating more demand for digital content and digital devices."

Apart from the Sony relationship, RealNetworks has been building other relationships to deliver its player on non-PC platforms. The company recently announced a partnership with Nokia so that cell phone customers can access audio and video on their wireless devices.

"Digital media delivered over IP is a hugely growing area," Wolpert said. "All the traditional entertainment devices will probably start to manage this digital media for delivery over IP."