Disclaimer: just because I used to work for Real and now work for Microsoft doesn’t mean I actually know anything. In this case, I don’t, so I’m just offering speculation. It’s educated, but likely wrong.

As seen pretty much everywhere, Microsoft has agreed to settle with RealNetworks over Real’s anti-trust suit. Some interesting tidbits:

• $460 million cash money. So Real’s balance sheet goes from $263MM ($363M - $100MM debt) to $743MM… that’s almost triple!
• $301 million in cash and services. As near as I can tell, this means Microsoft advertises and includes Real stuff (which means Rhapsody) and gets a bounty for every subscriber Microsoft sends to Real. Presumably, there’s a minimum number of new subscribers per epoch, otherwise Microsoft coughs up more cash for that epoch.

Here’s another fun bit from the AP article:

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 services for portable devices.

Right now, say you do a search for Miles Davis on MSN. You’ll get an Instant Answer blurb about him. Presumably, this means you’ll see Rhapsody stuff there soon. It also means on Rhapsody, you’ll likely see some gateways to MSN Search.

Analysis, speculation, and wild guesses time:

• This is great for all the Real employees that stuck it out. If you’re an old-timer, Real did a stock option buy-back where the strike price was $7.22. Now, all those options for all those employees are above water! Granted, like $0.50 above water, and they could sink fast, but it’s better than hovering between $5 and $6 as it has for the past five years.
• This is the lottery for all the hired guns Real brought on in the past five years. Real has hired a bunch of folks lately, including some well paid execs and almost-execs, who are now liquid. Life isn’t fair, and timing is everything.
• RIP RealPlayer. OK, this is just a guess on my part, but at the end of the day, I think the Real format is dead, and Real is slowly but surely going to have to admit that. Nobody cares about formats, they just care about their music. Promoting Windows Media for portable Rhapsody To Go is the first step. That Cingular deal Real got may also turn positive for Microsoft (just a wild guess there).
• Real has no more excuses for failure. For a long time, Real has been griping that bad old Microsoft was the cause of its financial underperformance… I know a number of people, myself included, that would say at least part of the blame is on sub-par products. I won’t point out specifics, but I’ll just say that if you’re standing up against Microsoft, and the SlashDot crowd hates you, then you might be doing something wrong. With Microsoft no longer playing the Big Bad Wolf, Real is going to be forced to make good products… hopefully, this means some people will actually get back to writing specs and thinking about the end-to-end experience and what’s best for the customer, versus just hacking something out on a deadline.
• And the big one… Microsoft and Real have both realized that nobody gives a crap about either of them in the music space. The real business of streaming media is being able to sell streaming media. People aren’t going to buy players, and really they aren’t going to by servers or converters either. That’s commodity stuff nowadays. So you gotta sell music. The problem is, the only one selling music right now is Apple, because iPods are sexy, and everything else isn’t. So it’s time to join forces and hope that it isn’t too late to get into the game. Gonna be interesting for a few years I think!

Wow… turns out people do read this! Or at least, turns out that a decent number of people use search engines to find out information about FreeRhapsody. So I figured I’d post more information about it.

Disclaimer: I had a 2.5 year tour of duty at RealNetworks. Not sure if that makes me positively biased or negatively biased though…. Oh, and I now work for Microsoft, which competes with RealNetworks in the music and player space. But I work in the Search group. Besides, both Real and Microsoft are getting totally schooled by Apple anyway, as nobody can seem to make anything as cool as the black iPod. But I digress.

Anyway, looks like Real is doing an outsourced promotion for Rhapsody. The way it works is that they give some number to someone who is willing to promote Rhapsody, and for every person Real signs up, the promoter gets a bounty - cash money! That’s why you see things like www.103.freerhapsody.com or www.51.freerhapsody.com. 103 and 51 are just different IDs for different promotion agents. (random trivia: Historically, people did this with 800 numbers and PO boxes… what you do is rent out a ton of ‘em, and when you tell people where to call or what PO box to use, and you can then track which ad or which promoter works best by volume to the individual boxes or calls to each 800 number. IDs on URLs is just the same song, different verse.).

To me, it seems that Real’s only focus now is on Rhapsody. RealPlayer is kinda irrelevant, although they require it for Rhapsody as (a) they’re unwilling to give up RealPlayer, as it was their founding product, and (b) they want to have a permanent presence on the desktop to send updates / ads / additional software (Microsoft does this through Windows Update, and Google and Yahoo do this through their toolbars. Joy.) I’m convinced it’s (a) versus any strategic reason… the company was founded on providing a media player, and that’s what they’re going to stick to. Nevermind that at the end of the day, what people want is content — the format doesn’t matter, and usually gets in the way (”You must download this plugin to view this content. Blah.”). That and the player is just bloated to hell (still, even after some movements to make it leaner and more user-friendly).

Now, the way Real makes money is on subscriptions… that’s what they’ve been hawking for about 5 years now. And they’re very good at getting people to pay for a subscription… some would argue they trick people into it. And they do intentionally make it difficult for people to cancel. For getting a subscription, they do two things:

1. Bait-and-Switch. OK, Rob & co. would protest my use of that, but it’s what it is. They offer something for free, and then when the customer takes them up on the offer, the customer is presented with big buttons to download the pay or subscription version. For example, on Real’s homepage (www.real.com) there’s a link to “Free Download” (not Free Player, but you assume it is). You then get a page asking to download the pay version, or you can hunt for the link for the free version. To me, that’s Bait-and-Switch. The Real folks would call it aggressive marketing, and that people can read and know what’s happening when they put in their credit card numbers. But that’s just not true. It’s also driving down the number of people installing RealPlayer (more later).
2. Free Trial. This is what the porn companies do. Yeah, that’s right… works for porn, works for Real. Real offers a “Free Trial” which is usually 14 days. However, unless you cancel before the end of those 14 days, Real will automatically enroll you in the subscription program and start billing your credit card. And you’re too lazy, or (most likely) you forget to call until that first or second CC bill has come in. Then, you’re usually good for a few months.

Real also uses a call-to-cancel trick, although from some of the help dialogs it looks like they may have automated it now so you don’t have to call. The deal is that to cancel, you have to call an 800 number, where somebody will try and “save” you by telling you more of what the offer gives you, telling you what you’ll be missing if you cancel, and finally offering other products. For most people, they just want out, so as soon as they’re no longer on hold they get the subscription cancelled.

Oh, that’s a 800 number, right? Wonder what happens to people outside the US…. turns out they usually can’t call, so that brings in its own set of issues.

Now, in theory, Real’s offering a 25 tracks a month free thing with Rhapsody, no credit card required. You download Rhapsody, and you can play 25 different songs, or the same song 25 different times, each month. This is essentially a better version of the Free Trial and is designed to follow the heroine model — the first 25 are free to get you hooked, and then you start to pay monthly. Except it isn’t really heroine… it’s more like a Big Mac. I mean, it isn’t bad for free, but a lot of people can do without a Big Mac. Granted, some do love a Big Mac (and Real only wishes they had McDonald’s numbers). I actually didn’t see a big button / ad for this on the Real page, just the Rhapsody page… so I wonder how much Real is really pushing it.

A big question you might have is whether or not you should get it. I gotta admit, Rhapsody is pretty nice. I love the artist radio feature, which creates a radio station based around a particular artist. So you can get “Miles Davis Radio” and artists like Miles Davis. Or “Weird Al Yankovic Radio” and artists like Weird Al. Or whatever you want… it’s pretty cool. Of course, it’s on a PC, so it’s mostly a work thing. My father-in-law gave my wife and I XM Radio and the boombox for a year-plus (he apparently cancelled the subscription, but it still works… ). I gotta say, the boombox is nice, and I’d love to have XM Radio in the car vs the local stations when nothing is on and MK won’t let me listen to KJR SportsTalk Radio - 950 on YOUR AM dial. XM is now $13 a month, vs $10 for Rhapsody… and you can now get portable iPod-like devices for XM (and I suspect Sirius too… same stuff, slightly different sports and talk jocks). Granted, they don’t have the mp3 player / sat radio combo, but I suspect that’ll be out by Christmas.

Me… frankly, I do think a subscription service is the way to go, mostly out of laziness on my part. I’m just too frickin’ lazy to catalog and manage a zillion mp3s, make playlists, and all that. Maybe I was in college when I had delusions of being on the radio, but when it comes down to it I want to spend time listening to music, not thinking about what I want to hear next. I also really don’t want to have to be on a PC… so I’d probably go with a sat radio solution if anything. I mostly listen in the car, and MK listens at home downstairs, away from the computer. But y’know what… AM and FM are actually pretty decent still, and it turns out both Comcast and DirectTV have audio stations with basic programming, so you can listen to some commercial free radio via your TV for entertaining big events. So the question is, do you have $10 - $15 a month to spend on music?

Here’s the answer to the final question… should you get Rhapsody? Well, if you like it, and you think you’ll be near a PC (or can move things from your PC to your non-Apple iPod clone), then sure. Yeah, Real can be amazingly annoying, and their sales tactics make used car and door-to-door vacuum salesmen proud, but that isn’t the issue. It’s whether or not you like the product and think it’s worth the money. Apple is much nicer and slicker. But you’re paying Apple prices. There’s Microsoft and Yahoo which have similar offers — I actually don’t know anything about them, so I can’t comment much, but my lack of knowledge indicates to me that neither has done a ton of promotion and neither is pushing something amazing cool that would turn people away from an iPod. So who knows. But you can probably safely check out the 25-track free version of Rhapsody if you go to www.rhapsody.com and make sure you always follow the “Free Rhapsody” links — watch out for those Free Download links!

PS - also full disclosure… MK is thinking about getting one of the iPod minis (the 6G ones). ‘cuz they’re COOL! I still think it’s a waste, as neither of us are into mucking with mp3s and iTunes just seems to be amazingly expensive for what you get, but hey… iPods are incredibly cool.

Me, I’m still jammin’ to 950 on my AM dial. I think it’s all a bit of a waste.