The long-running spat between Microsoft Corp and RealNetworks Inc has finally ended in divorce with the news yesterday that Microsoft is to sell its minority stake in the Seattle-based audio and video streaming company after the two could not reach an agreement on a proposed secondary offering of RealNetworks stock, at which Microsoft was going to sell its stake. The move is not unexpected, as RealNetworks’ 10-Q filing, which was made with the SEC on November 13 said that Microsoft has indicated to the company that it is re-evaluating its investment position in the company and may sell a portion, if not all, of its shares. Microsoft says it first notified RealNetworks of its intent in June and it intends to sell its shares on the open market. RealNetworks has been doing everything that a disobedient Microsoft partner should do. This year it has signed deals with America Online, IBM Lotus, Netscape and Intel and capped it all off by testifying in front of the Senate Judiciary Committee that Microsoft deliberately disabled its software with its alternative Windows Media Player, which is based on some of the technology Microsoft originally licensed from RealNetworks. The allegations were made by RealNetworks chairman and chief executive Rob Glaser, who is a former Microsoft VP and were denied by Redmond, which alleged that RealNetworks’ software contains a bug. The most recent deal came when RealNetworks licensed Intel’s Streaming Web Video software and will incorporate it in the encoder, server and clients of its next- generation audio/video streaming product line, RealSystem G2, which is in beta now and is due by the year end (09/17/98). Microsoft and RealNetworks signed their original agreement in June 1997, whereby Microsoft got a non-exclusive license to part of the 4.0 version of the RealPlayer technology and substantial elements of its Basic Server, for which Microsoft paid a $30m license fee. It also took a stake in RealNetworks of about 10.2%, or 3.3 million shares, which is what it is now looking to sell. Microsoft bought the shares for $8.99 each and they closed yesterday at $42.875, giving them a value of about $143m at yesterday’s price. Microsoft had the right to two more code drops in July this year and next. It didn’t request the first drop and will not ask for the second delivery either, as that is fundamental to the technological dispute between the two firms. Because Microsoft will not license the new technology, its Windows Media Player (WMP) will not be able to play content authored for the RealPlayer5.0/G2 technology. The second code drop would have cost Microsoft a further $35m by July 1999. Glaser’s allegations before the Senate committee went further, as he claimed that by downloading the WMP users will disable certain key functions of RealPlayer. RealNetworks has subsequently issued a software patch that it says gets around the problem. In addition, the August 1997 inquiry launched by the Department of Justice into Microsoft’s various investments in streaming media companies is still ongoing and RealNetworks says it is still getting requests for documents and other information (08/27/97). As of September 30, RealNetworks had cash and equivalents of $98.6m.
