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IBM, Real forge digital media deal

IBM and RealNetworks are aligning digital media technologies to create a system for content owners to sell their assets electronically, in a partnership to rival a common foe: Microsoft.

IBM and RealNetworks are aligning digital media technologies to create a system for content owners to sell their assets electronically, in a partnership to rival a common foe: Microsoft.

The two companies announced Friday that they have forged a partnership to jointly build, market and sell a digital media management system. The product, available sometime in the second quarter of 2004, will let companies digitize, manage and secure their content assets, and distribute and sell use of those assets, without having to create the technology infrastructure from scratch, according to the companies. IBM and Real announced the deal at the Consumer Electronics Show in Las Vegas.

"This will enable a lot of content owners who otherwise wouldn't be able to offer their content online to start doing it," said Real Senior Vice President of Marketing Dan Sheehan.

Financial terms of the deal were not disclosed.

The deal is poised to help the two companies find new customers and revenue from digital media, analysts say. Content management and distribution is a market expected to be worth about $1 billion by 2007, according to research firm IDC. The move may also be a competitive strike against Microsoft, helping Big Blue and Real appeal to customers that want to find a digital media solution outside of Windows. Windows server systems and media delivery technology dominates the market, and Microsoft has been aggressive in its attempts to woo the entertainment industry with its media delivery system.

IBM will have a sales opportunity with content owners that use Real's technology for digital media distribution and rights management, and Real gains an entree into the asset management business for companies that want to start an operation for delivering music or video online. It also gains more exposure for Helix servers and its video and audio compression technology, or codecs.

The move comes at a time when the online entertainment industry seems to be taking off with healthy business models, as opposed to the lofty efforts in the market during the tech boom, which eventually failed. Apple's music store, iTunes, has paved a popular road for many rivals to answer demand for digital music downloads, with competitors such as Sony, Real and eventually Microsoft entering the fray. And because broadband Internet access is growing more popular, video services are gaining steam. MSN officially launched its advertising-supported Net video service this year, for example.

IBM will bring to the deal its middleware platform for the storage and management of digital content. It also provides the technology for companies to build online storefronts and take payments electronically. IBM's WebSphere system is built on the Java 2 Enterprise Edition for a flexible e-commerce system, and it lets companies organize "unstructured" data, such as film clips, video, and e-mail, and link them to other digital media applications, among other features.

Real will add to the system its RealAudio and RealVideo 10 technology, the software used for compressing large media files into smaller ones for transport over Internet Protocol networks. Real is also providing its Helix digital media servers and digital rights management software.

"It's going to allow Real to expand their subscription model--now they're going to be able to handle millions of transactions sold every month, so their volume will go up," said Richard Doherty, president of research firm Envisioneering. He added: "It will empower small artists that don't have their own cash register to have a chance at music distribution."

"For IBM it's a major win for high-volume customers, if you'll have millions and millions of transactions worth nickels and dimes, that will prove profitable," Doherty said.

The new system will offer existing IBM customers another option to encode and distribute their digital video or audio. Previously, IBM digital asset management customers relied on industry standard codecs such as MPEG and QuickTime, which will continue to be supported in the new system, according to Brett Macintyre of IBM's Software Group.

"For our customers, they now have another format for content creation and distribution," said Macintyre.

The companies also hope to attract content owners that want a ready-made system for digital media, without having to build it themselves. Potential customers include enterprises or midsize cable networks, Real's Sheehan said.

A sports league, for example, has "a lot of wonderful assets, with a fanatical customer base that would love to be able to watch more programming outside of what's on TV. But in order to offer that, you've got to buy servers, design a back end, put it online, market it and see if people will buy. But maybe the business terms don't work," Sheehan said.

IBM and Real's combined system offers flexibility in its e-commerce back end to allow content owners to change their payment model and avoid an expensive pitfall, Sheehan said.