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RealNetworks Tries to Core Apple

By Cynthia L. Webb
washingtonpost.com Staff Writer
Tuesday, August 17, 2004; 9:34 AM

RealNetworks really knows how to pick a fight. First, the Seattle-based company landed a sucker punch on Apple Computer last month with its new Harmony technology that allows songs sold from Real's online music store to play on Apple's iPod digital music player.

Now, Real strikes again with an all-out price war. The company announced today it is temporarily slashing the cost of its music downloads, a move designed to take business away from the iTunes download service. Real will sell songs for 49 cents a pop or $4.99 for most albums. The industry going rate and Apple's prices are 99 cents a song or $9.99 an album. "The online sale will be the latest skirmish between Seattle's RealNetworks and Cupertino's Apple as the two companies battle for position in a nascent but increasingly competitive online music market," the San Francisco Chronicle reported.
San Francisco Chronicle: Online Music Price War

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"The price cut amounts to a music sale of massive proportions because it applies to all 630,000 songs on the RealPlayer Music Store and most of the albums available on the site," the Wall Street Journal reported, noting that it would run through Labor Day. But this tactic, dubbed by Real as a "Freedom of Choice" campaign, might not be the best for Real's balance sheet, the paper warned. "The move is a surefire money-loser for RealNetworks in the near term because it will be charging consumers substantially less than it pays recording companies for the music. But RealNetworks is using the sale to highlight its broader effort to unseat Apple, which by some estimates has a 70% share of music-download market," the paper said. More from the article: "By selling songs for 49 cents a pop for the next few weeks, RealNetworks will be losing about 40 cents on every song it sells. The company plans to tell investors its music fire-sale could directly subtract about a penny a share, or about $1.8 million, from its third-quarter bottom line... This isn't the first attempt at discounting online music. For months, Wal-Mart Stores Inc. has sold songs through its Web site for 88 cents each, but it has failed to make a noticeable dent in Apple's business. RealNetworks' discount on music, though, is substantially deeper than past price cuts by mainstream music sites. The company is charging about a third of the price for typical music CDs in retail stores."

The paper's Web site showed an ad that Real is running to appeal to Apple's customers with its price-cut plans. Meantime, Real is launching a Web site, www.freedomofmusicchoice.org, touting it as an online community for consumers to discuss digital music issues. Both are part of its fight to take Apple's market share. The ads feature "an iPod-as-padlock with its lock in the open position and the tag line 'Half the price of Apple. Welcome to freedom of choice,'" the Associated Press reported. "Despite all that, RealNetworks claims it's not targeting Apple specifically, only pursuing its goal of making its service compatible with as many digital players as possible." Yeah, right. And now for the obvious: "RealNetwork's campaign and price promotion are likely to add to the public acrimony between the two companies," the AP said.
The Wall Street Journal: Price War In Online Music (Subscription required)
Associated Press via washingtonpost.com: Rival Targets Apple's iTunes Customers (Registration required)

Back to Real's money-losing price war with Apple: Real's chief executive Rob Glaser "acknowledged the company would not benefit directly from selling music at a loss, but he said that he believed that it would help force Apple to change its policy about licensing the iPod to play music from competitors," The New York Times said. USA Today noted that record labels charge some 75 cents per song wholesale. Glaser is standing by his plan. "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," Glaser said, as quoted by CNET's News.com.
The New York Times: RealNetworks Plans To Sell Digital Music At Half Price (Registration required)
USA Today: Real Is Playing For Keeps In Music Price War
CNET's News.com: RealNetworks Slashes Song Prices

Still, one analyst gave the plan a thumbs-up when talking with the Seattle Post-Intelligencer. "With Harmony, RealNetworks has done a very good job solving the technical question of how to let people play tunes from RealNetworks' sites on various devices," Jupiter Research analyst Michael Gartenberg told the paper. "Now, cutting its music prices is 'a real, concrete reason why someone might become a RealNetworks music customer,' he said," the paper reported, noting that Real is cutting the price of downloads from its regular price of 79 cents a tune. More: "Gartenberg said the sale doesn't pose a serious competitive threat to Apple, because many iPod users are loyal to Apple's iTunes site, and their using RealNetworks' site would require signing up and learning how to use a new site. Apple spokeswoman Natalie Kerris declined to comment yesterday."

A tech policy advocacy group also liked Real's price cut. "Consumers, the recording industry and the technology industry all benefit when there is more choice in the marketplace," Gigi Sohn, president of Public Knowledge, said in a statement picked up by Wired News. "The more choices there are for legal downloading, the less incentive there is for illegal downloading. All companies in the technology and recording industries should take the hint and work together to bring the benefits of digital music to consumers." And the San Jose Mercury News picked up on this tidbit, also announced by Real today. "New wave band Devo even agreed to license the title track from its 1980 'Freedom of Choice' album to RealNetworks' effort. Devo co-founder Gerald Casale said the group was philosophically in tune with the campaign. 'I don't think the consumer ever likes ridiculous incompatible formats,' he said."
Seattle Post-Intelligencer: Price War Launched In Online Music
Wired News: Real Bites Apple On Downloads
San Jose Mercury News: Apple Rival Slashes Song Price

Into Yahoo's Domain

Yahoo keeps rolling out new services in an effort to win over customers and compete with Google. The company's latest plan is to target small businesses by selling Internet domain names. "Yahoo wants a piece of the lucrative market, citing how more than 50,000 domain names are registered worldwide daily at prices between $9 to $35 a year," the AP said. Reuters explained more about the product. "The new placeholder, for $9.95 per year, lets users 'park' a Web address, or domain name, at Yahoo with a single page. They can also redirect the domain to another site, and set up an email address that forwards a message to a second address. Previously, Yahoo offered only a $35 domain package that included a full email account."
Associated Press via washingtonpost.com: Yahoo To Sell Domain Names (Registration required)
Reuters: Yahoo Launches Expanded Web Hosting Services

Going Once! Going Twice!

Today may be your last day to try and get a piece of Google before the company goes public. "Google could close the auction this afternoon and its shares could begin trading in the stock market under the ticker symbol 'GOOG' as early as Wednesday. While the company has suggested a price range of $108 to $135 per share, investors are free to bid any price they wish," The Washington Post reported. The San Francisco Chronicle said "trading is more likely to begin Thursday, giving the firm more time to end the unconventional bidding process it is using and finalize its registration and pricing, according to sources close to the deal."

The first important deadline could come at 4 p.m. today, when Google wants the Securities and Exchange Commission to declare all systems go for the IPO. Once that happens, Google "could begin accepting bids an hour later, the Google posting said. Accepted bids at or above the company's IPO price will get the shares, all at the same price," the Boston Globe reported. "Google's request to the S.E.C. yesterday indicates the company is moving ahead despite speculation that the offering could be postponed. The development was one of the first pieces of positive news about the offering in a week that has been filled with talk of soft demand among investors and disclosures by the company about possible securities violations," the New York Times said.
The Washington Post: Auction For Shares In Google's IPO Could End Today (Registration required)
San Francisco Chronicle: Google Asks Final OK To Initiate IPO
The Boston Globe: Google Seeks OK To Sell Shares
The New York Times: Google Says It's Set To End Stock Auction (Registration required)

Some are still not keen on how Google has opened up its IPO to the commoners, otherwise known as small-potato investors. "One of the things that makes the regular IPO work is the sense of getting in on something that's hard to get," Barry Nalebuff, a professor at the Yale School of Management, told the Los Angeles Times. "The damn problem with this open IPO is that everyone has been invited to the club."
Los Angeles Times: Google IPO Is A Matter of Time (Registration required)

Search for Some Aspirin, Please

Google disclosed the latest report on its chronic headache: the SEC is probing how the company previously divvied up some 25 million shares of stock options. "The company previously warned that it may have broken state and federal laws by failing to properly register the shares. A number of states are also reviewing the matter, Google said," the Post reported. The San Jose Mercury News reported that Google "has offered to buy back more than 28 million shares from 1,406 people at a cost of $25.9 million" to fix the glitch.
San Jose Mercury News: Google Bidding To Close Today (Registration required)
The Wall Street Journal: Google Discloses SEC Inquiry (Subscription required)

An Internet Toll

A small company called Acacia Research Corp. is getting some press about its tactics to enforce patents it holds for streaming video and audio technology. "Imagine being able to set up a tollbooth on the Internet. Now imagine collecting a small fee every time anyone in America clicked on the Web to view a video of a car advertisement, to listen to an audio clip of a garage band or to review an updated credit card statement. Sound far-fetched? Acacia Research, an obscure but well-financed company in Newport Beach, California, has a portfolio of patents that, it claims, allows it to do exactly that," the New York Times reported. The paper said Acacia sent the New York Times Co. a letter about is corporate Web site related to licensing fees. "In June, Acacia sued nine cable and satellite companies. In late July, it sent out more letters demanding licensing fees from educational organizations that offer Web-based classes," the paper said.
The New York Times: Internet Patent Claims Stir Concern (Registration required)

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