New York Times: Real Offers Apple An Alliance

by , 9:00 AM EDT, April 15th, 2004

Here's a bit of news that should make you sit up and take notice: The New York Times is reporting that Real Networks, the company that currently competes with Apple and Microsoft in the digital media format arena, has extended an offer to Apple to team up against the Redmond software giant, Microsoft.

According to the newspaper, Real CEO Rob Glaser extended the invitation directly to Apple CEO Steve Jobs in an e-mail. The newspaper says it obtained the e-mail from what it called "a person close to Apple." The article also says that Mr. Glaser was surprised that the e-mail was leaked.

The crux of the offer is that Mr. Glaser wants Apple to license its FairPlay DRM technology to Real, allowing Real customers to play songs they download from Real's online music service on Apple's iPods. The Times says that Real would then make the iPod its primary music player.

Along with the carrot dangled a stick, however, with Mr. Glaser intimating that if he can not work a deal with Apple, his company would likely switch camps from AAC, which it currently uses, to Microsoft's WMA format. Such a move would further isolate Apple in its battle for market share for AAC.

From the article:

Apple executives would not comment on the message. But it seems likely Mr. Jobs will rebuff the offer. Mr. Glaser said he had not received a response from Mr. Jobs, and in his e-mail message Mr. Glaser said he was going to be in Silicon Valley this week and suggested that he meet with Apple executives today.

[...]

"Real understands how incredibly powerful the Microsoft music initiative will be," said Richard Doherty, a computer industry consultant and president of Envisioneering. "I don't think that Jobs understands this. He doesn't realize how big the juggernaut is about to get."

In his e-mail message to Mr. Jobs, Mr. Glazer said that he was reaching out to Mr. Jobs before making a move to switch camps. Mr. Glaser said he was surprised that the proposal had been leaked.

"Why is Steve afraid of opening up the iPod?" he asked in a telephone interview. "Steve is showing a high level of fear that I don't understand."

This is a particularly interesting article, so stop by the New York Times to get the full scoop.

The Mac Observer Spin:

It has to be tough to be Steve Jobs right now. On the one hand, forming an alliance with Real Networks broadens the reach of the format used in iPods, thus potentially creating more of a demand for iPods. Apple has always said that the reason for the iTunes Music Store was to sell iPods, and this alliance could potentially help in that regard.

On the other hand is Apple's pugnacious and stubborn tendency to cling to an all-or-nothing strategy. We feel it is in Apple's best interest to pursue a strategic alliance with Real; indeed, we have suggested that Apple do just that on more than one occasion, and that Apple should work with anyone and everyone that wants to license the iTMS and FairPlay.

While Apple enjoys a commanding lead in both the MP3 market and the music download business, a fickle market could turn that over to Microsoft's WMA technology at any time. That's the nature of the beast.

In fact, the dominance of the iTMS and the iPod are interdependent. Should another download site usurp the iTMS (not likely any time soon), iPod sales will suffer. In the same manner, should another MP3 player suddenly become the IT device, iTMS downloads will fall.

Apple can keep both of those things from happening by licensing the iTMS and FairPlay to other companies. Should it do so, we think that WMA will find itself shunned by most of the download services on the market, and Apple will make a mint from licensing fees.

RealNetworks Seeks Musical Alliance With Apple