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Tue, 17 Aug 2004 Real declares war, calls it 'freedom'

Jonny Evans

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As Apple CEO Steve Jobs sits recovering from his recent cancer operation, RealNetworks has launched its most savage attack yet at iTunes Music Store market share.

RealNetworks campaign - dubbed, 'Freedom of Choice' - offers US consumers song downloads from Real's music service at just 49 cents each. "Half the price of other stores, including Apple's", the company proclaims.

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The company is making no secret of its attempt to target Apple's market share. An extensive ad campaign in print, radio and online shows an iPod image that has been tweaked to look like a padlock, and the text states: "Half the price of Apple. Welcome to freedom of choice."

A new consumer-friendly Real?

The company has also launched a community site, where interested digital music consumers can find polls, links to news stories and other information designed to boost public perception that Real is engaged in a campaign.

The move follows Real's introduction earlier this month of a new technology called Harmony. This is software that lets consumers buy music from Real's online music store for playback on multiple devices, including the iPod.

Apple was shocked by Real's actions, saying: "We are stunned that RealNetworks has adopted the tactics and ethics of a hacker to break into the iPod."

Apple is threatening legal action to block Harmony, and may change its iPod software to defend against the hack, which Real describes as following a "tradition of innovation".

Money worries

Real confirmed that it expects the Freedom of Choice campaign to "negatively impact" its projected third quarter net earnings by up to one cent per share, it now expects to lose between four and five cents per share in its current quarter. Commenting on this Forrester Research analyst Josh Bernoff said: "The PR is worth at least that much, if not more."

"Before RealPlayer with Harmony, consumers buying digital music were forced to buy music that only worked on a particular brand of portable device, meaning that they could easily get 'locked in' to that device, often without even knowing it," Real said.

In Jobs' absentia, RealNetworks CEO Rob Glaser said: "To celebrate Freedom of Choice, we're running the biggest music sale in history. Thanks to RealPlayer with Harmony Technology, consumers can now buy digital songs and play them on virtually any device of their choice, just like how CDs and DVDs work. We believe Freedom of Choice is both the right thing for consumers and a crucial step in bringing digital delivery of music into the mainstream."

Bernoff told Associated Press: "The people who are using iTunes are going to be influenced by this, and the reason is they're locked in.

Gigi Sohn, president and co-founder of advocacy group Public Knowledge, said: "The more choices there are for legal downloading, the less incentive there is for illegal downloading."

"Apple is in the process of solidifying and creating a monopoly in digital music and this format compatibility issue is the way they lock people in," Forrester Research analyst Josh Bernoff said. He also pointed out that Real would be unable to sustain its loss-making offer. "It has to stop because it's no way to run a business", he said.

Music fans like it cheap

Speaking to Macworld, innovative UK digital music service Wippit's CEO Paul Myers had this to say on the Real Deal: "“Wippit has been selling downloads for 29p since April and it’s definitely a policy that the public find attractive. Real experimented with Rhapsody last year by dropping the price of downloads to 49 cents from 99 cents for a limited period and sold three times as many tracks.

"They still had to pay the fixed 8 cents publishing royalty though, so the ‘experiment’ ended and they reverted back to the 99 cent price. They proved a couple of very valid points though. That you can sell three times as much if the price is dropped to a reasonable level, that customers really do consider price an issue," he said.

Market figures from Inside Digital Media show that Apple sells two million songs each week - 1.5 million more than closest rival Napster's 500,000 weekly sales. Real sells just 200,000 songs each week, so to take a few percentage points of Apple's business would help the company.

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