Under the deal, Microsoft will pay $460 million in cash to RealNetworks to settle antitrust claims. It will also pay $301 million in cash to support Real's music and games efforts and Microsoft will promote Real's Rhapsody subscription music service on MSN. Microsoft can earn credits toward that $301 million by signing up subscribers via MSN.
"Today we're closing one chapter and opening a new one in our relationship with Microsoft," RealNetworks CEO Rob Glaser said in a statement. "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."
RealNetworks had alleged in its December 2003 lawsuit that Microsoft had abused its "monopoly power to restrict how PC makers install competing media players while forcing every Windows user to take Microsoft's media player, whether they want it or not." Real originally sought $1 billion in damages.
As part of the deal, Real will also end its direct involvement in antitrust investigations across the globe, including probes in Europe and Korea.
Tuesday's move resolves yet another legal matter for Microsoft, which has already settled with rivals AOL Time Warner, IBM, Sun Microsystems, Novell and Be, among others.
RealNetworks has been one of the key companies still pushing for antitrust action against Microsoft, having been a major player in the European Union action.
"This agreement will provide MSN's millions of customers with easier access to subscription services for the music and games they love," Microsoft Chairman Bill Gates said in a statement. "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."
One of the big unanswered questions is whether the agreement will help both companies as they try to take on Apple Computer, which has grabbed the lion's share of the legal online music market with its iTunes Music Store and its iPod players.
In the MSN part of the agreement, people using Microsoft's MSN Messenger instant messaging service will be able to share and play music while chatting using Rhapsody's library. Also, MSN Search will be added into RealPlayer and Microsoft will also feature Rhapsody links from within music-related search queries on MSN.
In settling the antitrust disputes, Microsoft is providing a "variety of assurances" on the design of the Windows operating system, including Windows Media Player, and access for Real to a broad range of Windows platform technologies.
"We've agreed, in the Windows front, to make our platform as effective as possible for Real," Gates said on a conference call.
With Windows Vista, the new version of the operating system that is due to arrive next year, Microsoft will add in code so that if a user seeks to play a Real media file and does not have the proper software, he or she will be redirected to a Web site to download the player.
"It's more advantageous than it might have been before," Gates said.
The two companies said they will work to make their respective digital rights management technologies interoperable. "Microsoft will also enable Real to facilitate the playback of content on non-Windows portable devices and personal computers using Windows Media DRM," the companies said in the press release announcing the deal.
Also, Microsoft said it has provided Real with contractual assurance that it will have broad access to distribution via new computers.
Finally, the two companies will collaborate in the games arena. Real 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.
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I hate Real, bloddy .ra files!