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RealNetworks Settles Antitrust Lawsuit with Microsoft - 12 Oct 2005

RealNetworks Settles Antitrust Lawsuit with Microsoft

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In the News
- RealNetworks Settles Antitrust Lawsuit with Microsoft
- Apple's Bravura Earnings Fail to Impress Investors
==== In the News ====
by Paul Thurrott, [email protected]

RealNetworks Settles Antitrust Lawsuit with Microsoft
In a one-sided deal that hints at the legitimacy of RealNetworks' antitrust claims against Microsoft, both companies announced yesterday that they had reached a wide-ranging settlement worth more than $760 million. According to terms of the settlement, Real will drop all antitrust claims against Microsoft worldwide, and Microsoft will pay Real vast sums of money and promote Real's services through various MSN services.

The companies, which had never tried to hide their animosity toward each other, played it nice yesterday. "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 chairman and chief software architect. "Digital music is one of the fastest growing segments of the online entertainment industry, and by promoting \[Real's\] Rhapsody subscription music services from within MSN, we will provide a better experience for our users."

The settlement is decidedly one-sided in Real's favor. Real will receive $460 million in payments to settle the antitrust suit and $301 million to help spread Real's technologies and services. In addition, Microsoft will promote Real's Rhapsody service in MSN Music, MSN Search, and MSN Messenger, often to the detriment of Microsoft's MSN Music service. And in Windows Vista, users who click links to Real formats will be automatically directed to a server for the appropriate download.

Although the Real case was the last major antitrust case awaiting the company in the United States, Microsoft still has to deal with antitrust watchdogs in the European Union (EU). An EU spokesperson said yesterday that the Real settlement would have no affect on the EU antitrust case.

Apple's Bravura Earnings Fail to Impress Investors
Clearly, Apple Computer has reached the upper echelon of PC and electronics companies. It's the only way to explain how Apple's quarterly earnings failed to impress analysts and investors, sending its stock price down sharply in after-hours trading. Yesterday, Apple announced record fourth-quarter earnings, raising sales of iPod devices 220 percent year-over-year and sales of Macintosh computers 48 percent year-over-year. Meanwhile, the company's revenue for the quarter quadrupled when compared with the same quarter a year earlier.

Sounds disappointing, doesn't it? In some ways, Apple is simply a victim of its own massive successes. Although analysts had expected Apple iPod sales to hit a lofty peak of 7.8 million units for the quarter, Apple instead sold 6.5 million units, a still-heady figure. But dig a big deeper, and you'll see nothing but success here. Apple sold more than 1 million iPod nanos in the final 17 days of the quarter in which that model was available, and it could have sold many more. Apple described demand for the iPod nano as "staggering" but admitted it couldn't make enough of the devices to satisfy customers.

The Mac, perhaps, is even more successful, given the times. In June, Apple announced that it was switching its desktop and notebook PCs over to an Intel-based design, a multi-year shift that will require a lot of patience and work from its customers. Analysts immediately began opining that Mac sales would drop off dramatically at any moment, figuring that nervous customers would wait for Intel-based Macs to appear before buying. That hasn't happened, and Apple has actually grown sales in each of the subsequent quarters. In the most recently completed quarter, Apple sold 1.2 million Macs and derived 60 percent of its income from computer sales. Put in perspective, Apple's growth in the PC market is currently four times higher than the rest of the industry.

So what are we to make of all this? Apple completely dominates the digital music market and could announce its move into portable video as early as this month. Its customers seem unfazed--energized, even--by the move to Intel and provided the company with a welcome Mac sales boost during the crucial back-to-school selling period. By all rights, its Mac sales should be stagnant at best or down dramatically. And let's not forget that Apple's iPod competitors should have stepped up to the plate by now with at least one compelling alternative. That neither of these events has transpired suggests that Apple is on to something. And I'm sure investors will come around to that notion again.

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