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Compaq, RealNetworks ink subscription deal

The PC maker plans to promote the RealOne subscription service on its Presario computers, marking the first content distribution deal for RealNetworks.

Compaq Computer is teaming with RealNetworks to promote the media company's new online subscription service, dubbed RealOne.

Under a deal expected to be announced Wednesday, RealNetworks plans to become the default media player on all Compaq Presario computers. Its software would be featured on the Presario interface, and the entertainment hot key on Presario keyboards would also take people straight to RealNetworks' site. In the past, the entertainment key linked to a Compaq page.

Compaq, meanwhile, would earn revenue from consumers that subscribe to RealNetworks' RealOne service, which launched last week with a wide range of music, news, sports and entertainment partners, including CNET Networks, the publisher of News.com.

Although RealNetworks has had distribution deals with PC makers such as Gateway and Sony, this would be the first to promote the media company's content in addition to its technology, said RealNetworks President Larry Jacobsen.

"When RealOne launched last week, it put our business and the PC business in a different relationship," he said in an interview, adding the company is in talks with other manufacturers, Internet service providers and cable companies to strike similar deals. "Compaq will find new revenues by evangelizing RealOne content. This is significant because they see a business model in that."

Compaq has thus far used Microsoft's media player as its default choice. With Wednesday's announcement it will become the only major PC maker to sign on like this with RealNetworks, although Hewlett-Packard has worked with the company on consumer devices.

Bundling is the mother's milk of PC marketing. Software makers and ISPs have often cut deals to land space on computer desktops. The application makers get exposure, while the PC makers get a slice of revenue they ordinarily wouldn't see.

Although most of these agreements lead nowhere, some have changed the face of the industry. America Online, for instance, got a huge leg up when Microsoft cut a deal that awarded the ISP a place on Windows in the mid-90s. Gateway saw revenues climb when it became the first PC maker to offer its own ISP service in 1998.

"There is a revenue source in this," a Compaq representative said of the RealNetworks deal, declining to elaborate on the percentage the company would receive per subscriber.

Conversely, Netscape Communications' road to oblivion began after Microsoft negotiated contracts that stipulated Internet Explorer would become the default browser on PCs. The current battle between Microsoft's Passport and competing services from AOL Time Warner will likely be at least partly determined by default preferences.

Media players in particular have become a major flash point on the desktop, where RealNetworks is battling Microsoft for dominance in the digital media market.

Consumers frequently install multiple players to handle incompatible file formats, leaving rival products vying for precedence when it comes to playing generic media files stored on the desktop, such as MP3s and MPEG movies. Although settings can be altered manually, some products may reset defaults automatically whenever a computer is booted up. The winner takes the power of branding and the opportunity to direct consumers to commercial offerings online, such as RealOne.

In a previous iteration of the service known as GoldPass, RealNetworks signed up some 400,000 members who pay $9.95 a month for access to live baseball games and other exclusive content.

With RealOne, the company added a much-anticipated music service backed by record label owners AOL Time Warner, Bertelsmann and EMI Group, which together own the rights to recording artists such as Madonna and 'N Sync. RealNetworks' software is scheduled to be featured on Presarios in March 2002.

But analysts have voiced skepticism that consumers will be willing to pay for online music, which can be had for free on file-swapping services inspired by Napster--a deficit that may be hard to overcome by simple distribution deals.

"It's most similar to the ISP solution that was offered with PCs for so long," said Toni Duboise, desktop PC analyst with ARS. Those deals have "taken a backseat nowadays because people buying PCs already have a subscription service, so it's not a real instigator or eye-catcher for consumers and hasn't been for some time. My reaction is lukewarm at best--I don't think it's a groundbreaking promotional activity."