Kate Bulkley, Media Analyst.

Rob Glaser, Chief executive of Real Networks

For Technology Guardian, May 2006.

By Kate Bulkley

'We have a lot on our plate and we prioritise'

Fresh from settling an anti-trust suit with Microsoft, the chief executive of Real Networks, Rob Glaser, outlines the company's strategy for success in the digital downloading market

Kate: How many paying subscribers do you have in Europe for your players?

Rob Glaser: We have not broken out the number of subscribers. In Europe we download over 100,000 free players a day. But we have trebled our on-the-ground presence in Europe, and have just this week rolled out Real Music, which we launched in the UK four months ago. We are deepening our investment in subscription products and in premium consumer products in the music and games area. With hindsight, we might have done that a year or two prior, but if I look at what is going on with broadband growth in Europe now, it's not like we missed the boat.

Kate: One could look at Real and say you are becoming the Sun Microsystems of players, i.e. you don't have the critical mass to make sure you get the right content and the right number of users.

RG: I think that is mathematically not true. I don't think it is going to be a winner-takes-all game. I think we'll have good share and Microsoft will have good share, and there may be one or two others. I think particularly as we move into a time where consumers want content to work on multiple platforms, the strong early position we have built on the mobile media market will help us on the PC as well.

Kate: In the UK the BBC has decided to use Windows for its iPlayer. So what future does Real have with the BBC and in the UK? Is this the big UK contract that got away?

RG: We are in an active conversation with the BBC ... well, put it this way: we like trials with 5,000 consumers in them but we are much more focused on mass-volume deployment. When that happens, that's when we expect to measure whether we are in the position we want to be in or not.

Kate: This new music service you have rolled out in the UK and now across most European markets, why has it taken so long to bring it here?

RG: There is a model still developing in the US around subscriptions for on-demand music where you can take the music and move it to portable devices. We have a long-term commitment to that model in our US products but until it is a compelling experience, we're not inclined to roll it out across Europe.

Kate: There are lots of other places for people to go to get downloadable music, so how will Real Music stand out given it is coming out relatively late in the game? Even the BBC is doing a music site.

RG: Based on what I know about the BBC plans, it will be more focused on people who have been on Top of the Pops. That said, we know that in any of these consumer service businesses we don't have a birthright to be the leader, but in the US we are number one in terms of music subscriptions with competitors Napster and Yahoo! And then there is Apple, which is slightly different

Kate: Apple has 65% of music downloads in Europe according to Jupiter Research. How can you compete?

RG: We assume that this failure of other companies besides Apple to create really compelling portable devices is not a long-term phenomenon. [But] before that happens it would be jumping the gun to push a portable subscription service in Europe.

Kate: Because you can't compete with Apple's iTunes?

RG: We can compete but isn't it better to wait until you have a slam dunk solution in the portable context? In the US a lot of iPod users also use our Rhapsody product, but we think being head-to-head is inevitable because Apple is pretty ambitious about how it wants to use its closed eco-system. At the same time, until there is a critical mass of devices out there that really are worthy competitors to the iPod, our view is to make Real Music a great product with differential features such as user-generated content and add on the subscription piece when the devices warrant it.

Kate: Will we see Real-branded devices?

RG: I don't think so but we will want to make sure that people know it's us behind it. In any case it will manifest itself first in the US, and it's not probably until 2007 that it could roll out internationally.

Kate: So you will be facing a situation where you are way behind Apple?

RG: Compare our strategy to Napster's where they got into Europe in some markets before Apple but I don't think with a service that was compelling. Apple is using the iPod as a pull for track sales and for Mac sales, and since the track purchase business is not a primary business for us our attitude is, let's focus on our core business and build up from there.

Kate: But Apple's model is to make money on the sale of devices, using music to drive that - and it is working.

RB: Apple has gotten away with this approach to a greater degree than we thought they would. The music industry has made a mistake, not by agreeing to Apple's fixed-price level (79p per track), which is what gets all the attention, but by allowing Apple to create devices that are not interoperable.

If you want interoperable music today, there is a very easy solution: it's called stealing. The average number of songs sold for the iPod is 25, and there are many more songs on iPods than 25. About half the music on iPods is music obtained illegitimately either from an illegal peer-to-peer networks or from ripping friends' CDs, which is illegal. But it's the only way to get non-copy protected, portable, interoperable music.

Kate: What about IPTV. You are streaming Euronews now in Europe on PCs. What is the strategy there?

RG: It's one of these businesses where in the short term, start-ups that can jaywalk around intellectual property have a slight advantage because there is a lot of stuff that people put up on sites like Youtube.com that they don't have rights for. To do that successfully, you have to be small enough not to be worth suing. But when businesses start to scale up, this approach won't work and the big media players are starting to get into this business. Whether we will be powering those channels with our technology or if we play an aggregation role will depend. We can do both.

Kate: Google Video and Yahoo! Search are all in this already.

RG: We get involved in businesses where we can have a differential strategy, and thus far we haven't seen that. The sites that have the most energy around them are those that jaywalk outside of the rights issues, so we've been sort of holding back. The question is whether we do our own consumer-facing aggregation thing. We have a lot on our plate and we prioritise.

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