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RealNetworks slashes song prices

Company offers 49-cent tunes and releases Harmony, the software that has Apple up in arms. Newsmaker: Can Glaser, Jobs find harmony?

RealNetworks on Tuesday kicked off a high-profile digital music marketing campaign, highlighting the new iPod-compatible technology that has swung the company into conflict with Apple Computer.

For a limited time, RealNetworks will offer song downloads from its music store for 49 cents, along with half-price albums. A nationwide print, radio and Web marketing campaign will promote the offer, along with a Web site touting "freedom of choice" for online music consumers.

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RealNetworks' reverse-
engineering of Apple's
music player puts two tech
passions at loggerheads.

Songs downloaded from Apple's iTunes service and from other online music stores tend to be priced at about 99 cents apiece.

But the offer won't come cheaply for RealNetworks. The company said Tuesday that the campaign could increase its expected third-quarter loss by a penny per share. It now expects a net loss for the three-month period to be between 3 cents and 5 cents per share, rather than the anticipated 3 cents to 4 cents it had previously reported.

The company said it remains committed to reaching quarterly profitability, excluding antitrust litigation expenses, by the end of this year. For the third quarter, RealNetworks said, its loss excluding antitrust expenses will be between 1 cent and 3 cents per share.

The digital music campaign marks the second wave of publicity around the company's "Harmony" technology, which effectively recreated a version of Apple's proprietary copy-protection technology without permission. That has allowed RealNetworks to be the first non-Apple store that can distribute songs directly compatible with the iPod music player, despite strong protests from Apple itself.

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"To me, it's not ambiguous that this is the right thing for the industry and the right thing for the consumer, and so we're happy to take the case forward to the court of public opinion," RealNetworks Chief Executive Officer Rob Glaser said.

RealNetworks' campaign highlights what many in the digital music industry say is one of the most important issues facing the young business. Digital song stores run by Apple, Sony, RealNetworks and Microsoft-aligned rivals all distribute songs in incompatible formats, limiting the kind of devices on which the music can be played.

Music industry executives have worried that this incompatibility will turn off consumers who are used to buying a CD and playing it on any company's hardware.

RealNetworks has pressed Apple to license its FairPlay copy-protection technology, which is required for a copy-protected song to play on the iPod, but Apple has refused. Online music store Virgin Mega also has asked Apple to allow other music distributors access to its iPod, even complaining to the French Competition Council.

Apple CEO Steve Jobs has said that allowing the iPod to play rival companies' downloads wouldn't make good business sense, however. The company has been deeply critical of RealNetworks' efforts to win access to the iPod without permission.


Discount-priced songs
and Harmony software
will shake up the market.

"RealNetworks has adopted the tactics and ethics of a hacker to break into the iPod, and we are investigating the implications of their actions under the (Digital Millennium Copyright Act) and other laws," Apple said in a statement a few days after RealNetworks' initial software release. "We strongly caution Real and their customers that when we update our iPod software from time to time it is highly likely that Real's Harmony technology will cease to work with current and future iPods."

Analysts said RealNetworks' initial announcement has had little tangible effect on the digital market so far, but that its 49 cent download offer will likely prove attractive to consumers.

"There hasn't been a huge amount of fallout at this point, other than Apple not being pleased," said Jupiter Research analyst Michael Gartenberg. "This promotion gives consumers a chance to get to know Real. The challenge will be to keep them coming in when songs aren't half-price."

RealNetworks' new software, which is now available to consumers at the company's Web site, also allows downloads to be transferred to players that use Microsoft's Windows Media format, although this has caused less controversy.

RealNetworks Chief Strategy Officer Richard Wolpert said the Rhapsody subscription service, which currently sells songs that are burned to CD, also will offer multiformat Harmony downloads later this year.