Kate Bulkley, Media Analyst.

The Melody Maker

By Kate Bulkley

The Guardian

Monday April 19, 2004

As he launches the latest version of RealPlayer, Rob Glaser tells Kate Bulkley how he built his business - and how he aims to remain the king of legal online music

Rob Glaser is Chairman and CEO of RealNetworks, Inc. as well as its founder.

Rob Glaser is a man not easily put off his stride. In between power-sips of Diet Coke, he speaks with intensity about his company, RealNetworks; how the fast-growing media player technology business is set to be one of new media's biggest successes; and about the progress of his $1bn US lawsuit against Bill Gates' Microsoft.

Glaser is a man worth listening to. A born techie, he first pioneered audio and video streaming on the web with RealNetworks when the net was still stuck in the slow lane.

RealNetworks has shown revenue growth now for six consecutive quarters, while a few weeks ago the European Union came down on his side in one of the most high-profile anti-trust skirmishes against Gates, RealNetworks biggest rival and, on a personal level perhaps Glaser's greatest nemesis.

All in all, Glaser, who is founder and CEO, can celebrate the tenth anniversary of RealNetworks this year with a glass of champagne. There have been some self-admitted "hills and valleys" on the way, but he might well want to keep a whole case of the bubbly on ice if his current plans are realised, because he believes 2004 marks a significant turning point - the year of legitimate music on the web.

"This is the year of music, but not movies or video. I think that's a couple of years hence," says Glaser, in London to launch his company's newest media player, RealPlayer 10. "Clearly, it's a step-by-step process but 2004 will turn out to be the year that legitimate music - as opposed to pirated music like the old Napster - really happens."

Music on the net is definitely "happening" for Real Networks and others such as Apple's iPod, which last week reported that it sold 807,000 of the portable MP3 players in its most recent quarter, up from 80,000 a year ago, in addition to some 50m songs sold through its iTunes Store in March, leading company CEO Steve Jobs to estimate that his firm's share of the marketplace for downloadable music is 70%.

Glaser says that his music services - RadioPass, a commercial-free net radio station and Rhapsody, a "net jukebox" - are "in the top two" in terms of market share, with 450,000 paying subscribers in the US reported at the end of March, the second consecutive quarter that the company added 100,000 new subscriptions. Rhapsody subscribers streamed some 56m songs last month, up 16% from February's usage and up from 11m songs in June of last year.

"If you are a cult, then your acolytes are always going to generate a lot of enthusiasm," says Glaser about Apple's iPod. "But Apple has a very specific offer tied to one piece of hardware and it's only a purchase model, whereas we have both purchase and subscription."

Glaser won't be drawn on a date for Rhapsody's promised launch in Europe, and even hints that he might be happy to see Apple launch its iTunes service into Europe first, because it will surely be accompanied by a high-profile marketing campaign from which Glaser says he can benefit if he follows with his service. Glaser also notes that the availability of reasonably priced broadband connections in Europe lags behind that offered in the US. There is also the issue of market education.

"In most countries in Europe the attitude towards piracy and peer-to-peer file trading is where the US was two years ago," says Glaser. "You want to wait for more education, either from lawsuits or public policy. Europe will get there, but it is question of when."

Glaser rose through the ranks for 10 years at Microsoft to become vice president of multimedia and consumer systems but left in 1993 - after reportedly being passed over for a bigger job by Gates - to launch the company that would become RealNetworks. Today, Glaser attributes the success of RealNetworks to an adage he heard from technology guru Esther Dyson in 1994. She said that it's best to think of the internet as a relationship rather than as a transaction.

"That has been our philosophy from the day we launched RealAudio," said Glaser. "We don't immediately say 'Okay, you want our player, you can pay us for it.' Instead what we say is: 'Oh we're glad to give it to you, and here's some more stuff you can get.' So in effect, we have built a membrane that moves between free and advertising-supported to premium-priced products and services."

This focus on offering comprehensive services as opposed to just pioneering technology has been a "pivot" for RealNetworks since the technology bubble burst in 2000, which left it overexposed as a pure-play technology company.

"We still do very good technology, but most of the time now that's manifested in the products and services we offer to consumers," says Glaser. "Rather than selling pickaxes in a gold rush and hoping people will find the gold and buy more pickaxes, we are in there mining the gold ourselves. This has turned out to be the right strategy for this period and I think it will continue to be the right strategy in the years ahead.'

Some 75% of RealNetworks' revenue comes from its consumer products and services business rather than simply selling technology. Including the music subscriptions, Real counts 1.3m subscribers, the bulk to its RealMedia service which is a sort of "Sky TV on the net" model, selling a bundle of programming services from providers ranging from CNN to the BBC that can be streamed onto your PC using a RealMedia player.

Besides consumer services, Glaser recognises that a big growth area will develop around licensing Real Player technology to others, be they a sports association like the NFL American football league or UEFA, both of which use Real's technology, or British Telecom, which earlier this month announced the launch of BT Rich Media also using it.

The new BT service will allow content-owners like independent producer Fremantle to deliver programmes to broadband users for a fee. Fremantle is already testing the new BT service, sending episodes of The Bill and comedy clips from its archive for download.

Glaser sees technology licensing as one of three fundamental growth drivers for his company alongside subscription services and mobile phones. Although he says it is still "early days" in mobile media-streaming services, Glaser calls the world's biggest mobile handset manufacturer Nokia a "great friend" and notes that the RealMedia player is on at least 10 different models in the recent series of Nokia phones as well as powering Vodafone's Vodafone Live! services.

"There were 500m phones sold worldwide and 150m PCs in 2003, so that tells you that once all the infrastructure is built out and the services designed, then phones will be more important than the PC in terms of delivering media," says Glaser.


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