Microsoft and RealNetworks, Inc. announced three agreements valued at $761 million to RealNetworks to settle their antitrust case and create a new partnership to innovate and promote consumer choices in digital music and games.

The three agreements include an agreement to resolve all the companies’ antitrust disputes worldwide; an agreement for a wide-ranging digital music collaboration between the parties, including promotional and marketing support of Real’s leading digital music subscription service, Rhapsody, on MSN properties; and an agreement to offer RealNetworks’ digital games through MSN Games and Xbox Live Arcade for Xbox 360.

Under the music and games agreements, Microsoft is scheduled to pay Real $301 million in cash and provide services over 18 months in support of Real’s product development, distribution, and promotional activities. Microsoft will earn credits at predetermined market rates to be applied to the $301 million for subscribers delivered to Real through MSN. Additionally, Real will take steps to support MSN Search, and Real and Microsoft will jointly promote use of Windows Media technologies with Rhapsody to Go.

The antitrust and technology assurance agreement resolves all antitrust disputes worldwide, based on a $460 million up-front cash payment to resolve all damages claims and a series of technology licenses and commitments under which Real will obtain long-term access to important Windows Media technologies that will enhance Real’s media software solutions.

“Today we’re closing one chapter and opening a new one in our relationship with Microsoft,” said Rob Glaser, Founder and CEO of RealNetworks. “The legal chapter is being closed with an appropriate and fair outcome that sets the stage for a very productive and collaborative relationship between our companies. By integrating Real’s premier music and games services into Microsoft’s very popular MSN service, we will reach more consumers today and deliver even better products and services tomorrow.”

“This agreement will provide MSN’s millions of customers with easier access to subscription services for the music and games they love,” said Bill Gates, Microsoft’s chairman and chief software architect. “Digital music is one of the fastest growing segments of the online entertainment industry, and by promoting Rhapsody’s subscription music services from within MSN, we will provide a better experience for our users.”

Music and Games Partnerships

Working together, Microsoft and Real will bring exciting new music experiences to consumers by featuring Rhapsody from within the MSN homepage, MSN Music, MSN Search, and MSN Messenger. The music collaboration agreement includes the following elements:

  • MSN Messenger users will be able to share and play music while
    chatting, from the library of over 1 million songs in Rhapsody, in a
    convenient and legal way;
  • MSN Search will use Rhapsody’s critically acclaimed music editorial
    catalogue to help users find the music they love and to discover new
  • The two companies will jointly develop and implement a search
    integration plan which will enable Real’s customers to easily use MSN
    Search within RealPlayer;
  • MSN Search will feature Rhapsody links to music in music related search
  • The agreement enables Real to purchase advertising on MSN Search and on
    the MSN Network to promote Rhapsody;
  • Both companies will promote the use of Windows Media portable devices
    for use with Rhapsody to Go.

Additionally, Microsoft and Real will collaborate in the casual games arena. Casual games has become a rapidly growing segment in digital entertainment and includes such games as the very popular Bejeweled and SuperCollapse as well as old favorites like Scrabble and Solitaire. In this new games partnership, Real, a leading developer of casual games, will create a new subscription service to be offered on MSN Games and Real will also develop a series of new casual games for Xbox Live Arcade for Xbox 360.

Antitrust Settlement

Today’s agreement includes a global settlement of all antitrust disputes, including the lawsuit brought by Real against Microsoft nearly two years ago in the United States and Real’s participation in the proceedings initiated by the European Union and Korea. The agreement includes a variety of assurances regarding the design of the Windows operating system, including Windows Media Player, and access for Real to a broad range of Windows platform technologies. Among other things, Microsoft will provide Real expanded access and long-term licenses to a wide range of Windows Media and security technologies, that will enable Real to build services and software that enhance consumer’s experience with Real’s products and services and take advantage of innovations in Windows Vista. Under the agreement:

  • Microsoft and Real will work together to enhance the functionality and
    performance of Real’s software products and services on the Windows
    operating system.
  • Over time, Microsoft will develop and document additional Windows media
    interfaces that will enable Real to build richer, secure media
    experiences that take advantage of a broader set of media
    functionalities throughout Windows.
  • Microsoft will enhance consumers’ ability to access Real’s software
    products in simple and straightforward ways, enabling consumers easily
    to choose their preferred settings for playing media files and managing
    other media experiences.
  • Microsoft will design Windows Vista so that if a user seeks to play a
    Real media file that has no playback software on the PC, Windows will
    redirect the user who consents to a web page that enables the user to
    download the Real software needed to play the Real media file.
  • Microsoft and Real will work together to enhance interoperability
    between Microsoft’s Windows Media and Real’s Helix Digital Rights
    Management systems. Microsoft will also enable Real to facilitate the
    playback of content on non-Windows portable devices and personal
    computers using Windows Media DRM.
  • Microsoft has provided Real contractual assurances ensuring Real broad
    access to the PC OEM distribution channel.

“This agreement ensures that Microsoft can innovate and that other media players can compete in a broad marketplace,” said Brad Smith, senior vice president and general counsel at Microsoft. “We’ve resolved our disagreements from the past and put in place a foundation for collaboration in the future.”

“Today’s agreement is a significant achievement for our companies. In one stroke, we have fully resolved our outstanding antitrust claims and forged an alliance with a strong partner to deliver innovations in great new music and games to our customers,” said Bob Kimball, senior vice president and general counsel at RealNetworks.