SEATTLE -- A broad settlement between digital media pioneer RealNetworks and its longtime foe Microsoft goes a lot further than simply ending the last major U.S. antitrust case against the tech heavyweight.
The deal also aims to help the two companies better compete against Apple Computer in the increasingly important business of online audio and video.
The settlement starts with a $460 million cash payment that settles all antitrust disputes worldwide that RealNetworks had against Microsoft.
RealNetworks also gets $301 million in cash and services -- including promotion on Microsoft websites and the software giant's instant-messaging service -- that are designed to help its products reach a wider audience.
"I'm eager to begin working together with the team at Microsoft," the company's chief executive, Rob Glaser, said during a joint appearance with his former boss and longtime nemesis, Microsoft chairman Bill Gates.
The deal is the latest in a peace offensive Microsoft has launched in recent years, following an antitrust settlement with the U.S. Justice Department. The peacemaking has cost the cash-rich company several billion dollars but also led to better cooperation with some formerly bitter rivals.
In July, Microsoft reached an $850 million deal with International Business Machines. That followed a $1.6 billion settlement with Sun Microsystems in 2004 and a $750 million truce with America Online, part of Time Warner, in 2003.
Seattle-based RealNetworks sued Microsoft in December 2003, accusing it of illegally forcing Windows users to accept Microsoft's digital media player. RealNetworks said its player suffered as a result.
RealNetworks also had participated in European Union and Korean antitrust complaints against Microsoft, but withdraws from those cases as part of the agreement.
Founded by Glaser in 1994 after he quit Microsoft, Real was among the first companies to offer an online music player.
The company has for years been one of Microsoft's direct competitors in digital music and video but has increasingly struggled against its massive local rival.
Both companies also have found it exceptionally tough to compete against digital music's juggernaut: Apple's iPod digital music player and iTunes online music store and jukebox software.
Indeed, Glaser said he initiated talks with Gates a little more than a year ago, after his company launched a service -- without Apple's permission -- that aimed to allow songs purchased through Real's online music services to be played on the iPod. The move came after RealNetworks complained that Apple was rebuffing attempts to form an alliance.
Both Gates and Glaser said Tuesday that they believe consumers would prefer a service that's more flexible than Apple's closed system, which makes songs purchased from its iTunes service directly transferrable only onto its iPod and some cell phones.
"Apple does great products, but at the end of the day we think consumers want choice, consumers want openness," Glaser said.
Joe Wilcox, an analyst with Jupiter Research, said the partnership will help RealNetworks and Microsoft compete against the iPod, but likely won't put them in the lead.
"Are they going to knock Apple out of the sky? No chance. Not anytime soon, anyway," Wilcox said.
An Apple spokesman refused to comment.
As part of the settlement, Microsoft will provide Real with services supporting product development, distribution and promotion over the next year and a half.
Among other agreements, Microsoft's MSN online unit will feature RealNetworks' Rhapsody music subscription service on its MSN Music download site. It also will provide links in its MSN Search results that let people listen to songs through Rhapsody.
RealNetworks also will take steps to support Microsoft's MSN Search, and the companies agreed to jointly promote use of Windows Media technologies with Rhapsody To Go, a music subscription service for portable devices.
Michael Schutzler, RealNetworks' senior vice president of marketing, said the company would continue to support other formats in addition to Windows.
"We're taking a position as a universal player," he said.
Microsoft also will offer digital games from Real through MSN Games and an upcoming version of its Xbox Live online game service.
Glaser said the two companies would continue to compete in some areas, such as music and video-playing software.
RealNetworks had been the last big commercial opponent in the EU antitrust case against Microsoft. As part of the EU's order, Microsoft was fined $597 million and had to produce a version of its Windows operating system stripped of its own multimedia player so as to provide a more level playing field for competitors.
Microsoft is complying with the ruling while appealing it.
Gates said Tuesday that, while it's up to the European Union to decide how to proceed in the case following this settlement, "hopefully it's a positive thing."
On Tuesday, the EU said the settlement would not affect the looming court clash.
"The role of the (European) Commission is to ensure proper application of EU competition law for the benefit of consumers and companies in Europe," EU spokesman Jonathan Todd said.
But Wilcox said he thinks having the last big company back out of the case is still a blow.
"It would be huge for Microsoft if it could dispatch its problems with Europe," Wilcox said.
Microsoft spokeswoman Stacy Drake said two companies have antitrust cases pending against Microsoft: the now-defunct handheld pioneer Go Computer and Novell, formerly a major networking software maker and now a top distributor of the Linux operating system.
