AOL, MS eyeing Internet-technology alliance

The companies are considering the possibility of packaging Microsoft's Internet audio and video technology with AOL's Internet service. What will this mean for RealNetworks?

AOL Time Warner Inc.'s America Online division and Microsoft Corp. are in discussions about the possibility of packaging the software giant's Internet audio and video technology with the AOL Internet service, people familiar with the matter said.

Such an arrangement, if realized, could ratchet up Microsoft's battle with rival RealNetworks Inc., which is currently America Online's exclusive provider of software for broadcasting music and video over the Web.

Though it is unclear what impact, if any, this might end up having on RealNetworks, its shares skidded 19 percent, or $2.47, to $10.62 as of 4 p.m. Tuesday on the Nasdaq Stock Market on rumors of the negotiations between America Online and Microsoft.

Microsoft would like America Online to include support for its Internet-broadcasting technology within AOL's hugely popular online service, though people familiar with the situation cautioned that talks between the companies are far from completion and could still break down.

Microsoft, Redmond, Wash., has been aggressively marketing its Internet broadcasting technology in an attempt to gain market share from RealNetworks, a Seattle-based firm that pioneered the market for Internet broadcasting using a technique called streaming.

The discussions regarding that technology are part of a broader set of negotiations between American Online and Microsoft on the details of their future relationship, including whether America Online software is included in a coming version of Microsoft's computer operating system, Windows XP.

A powerful alliance
Although bitter competitors on a number of fronts, America Online and Microsoft have a longstanding relationship under which Microsoft includes software for accessing the Internet-service provider's online service with its Windows operating system. America Online, in turn, uses Microsoft's Internet Explorer Web browser as the default program that its 29 million subscribers worldwide use for surfing the Web.

Executives from the companies have viewed the alliance as beneficial, but there are drawbacks: America Online boosts Internet Explorer's market share at a serious cost to its own Netscape Web browser. Microsoft's inclusion of America Online software with Windows, meanwhile, doesn't help its own MSN Internet access service that competes with America Online for customers.

Indeed, this week, Microsoft launched a $50 million print advertising campaign aimed at converting America Online subscribers to Microsoft's MSN Internet-access service. Microsoft launched the ads, and a new promotional offer of three months of free MSN service, after America Online last week raised its monthly subscriber fee.

The deal between the two companies expired in January, and America Online is scrambling to strike a new one before Microsoft ships a final version of Windows XP, which should be released to manufacturers later this summer and in stores by Oct. 25. America Online can continue to use Microsoft's Internet Explorer Web browser, however, even if a new agreement isn't signed, a Microsoft spokesman said.

An accord between Microsoft and America Online on streaming technology could help Microsoft's broadcasting technology, but it's unclear how serious the effect could be on RealNetworks. America Online has a multiyear pact to use RealPlayer software to deliver movie previews, radio programming and other content until this summer. Under RealNetworks' contract with America Online, though, RealNetworks can't be bumped from the service, even after an exclusivity provision in the contract ends this summer, and even if America Online adds another streaming technology, according to people familiar with the contract.

Spokespeople from America Online and Microsoft declined to comment on their talks. An America Online spokesman said, "RealNetworks is a good partner, and we look forward to continuing to work with them." RealNetworks President Larry Jacobson said, "We've done nothing but broaden and deepen our relationship with AOL."

Indeed, it's unlikely America Online would seriously undermine RealNetworks. The Warner Music division of AOL Time Warner was the first record concern to join MusicNet, a new company backed by RealNetworks that is developing a subscription Internet-music service. America Online has a major investment deploying RealNetworks' technology throughout its service. In addition, America Online doesn't want to see Microsoft dominate audio and video broadcasting over the Internet, analysts say. "RealNetworks is a valuable competitor against Microsoft from AOL's perspective," said John Corcoran, an analyst at CIBC WorldMarkets.

-- Julia Angwin in New York contributed to this article.

AOL Time Warner Inc.'s America Online division and Microsoft Corp. are in discussions about the possibility of packaging the software giant's Internet audio and video technology with the AOL Internet service, people familiar with the matter said.

Such an arrangement, if realized, could ratchet up Microsoft's battle with rival RealNetworks Inc., which is currently America Online's exclusive provider of software for broadcasting music and video over the Web.

Though it is unclear what impact, if any, this might end up having on RealNetworks, its shares skidded 19 percent, or $2.47, to $10.62 as of 4 p.m. Tuesday on the Nasdaq Stock Market on rumors of the negotiations between America Online and Microsoft.

Microsoft would like America Online to include support for its Internet-broadcasting technology within AOL's hugely popular online service, though people familiar with the situation cautioned that talks between the companies are far from completion and could still break down.

Microsoft, Redmond, Wash., has been aggressively marketing its Internet broadcasting technology in an attempt to gain market share from RealNetworks, a Seattle-based firm that pioneered the market for Internet broadcasting using a technique called streaming.

The discussions regarding that technology are part of a broader set of negotiations between American Online and Microsoft on the details of their future relationship, including whether America Online software is included in a coming version of Microsoft's computer operating system, Windows XP.

A powerful alliance
Although bitter competitors on a number of fronts, America Online and Microsoft have a longstanding relationship under which Microsoft includes software for accessing the Internet-service provider's online service with its Windows operating system. America Online, in turn, uses Microsoft's Internet Explorer Web browser as the default program that its 29 million subscribers worldwide use for surfing the Web.

Executives from the companies have viewed the alliance as beneficial, but there are drawbacks: America Online boosts Internet Explorer's market share at a serious cost to its own Netscape Web browser. Microsoft's inclusion of America Online software with Windows, meanwhile, doesn't help its own MSN Internet access service that competes with America Online for customers.

Indeed, this week, Microsoft launched a $50 million print advertising campaign aimed at converting America Online subscribers to Microsoft's MSN Internet-access service. Microsoft launched the ads, and a new promotional offer of three months of free MSN service, after America Online last week raised its monthly subscriber fee.

The deal between the two companies expired in January, and America Online is scrambling to strike a new one before Microsoft ships a final version of Windows XP, which should be released to manufacturers later this summer and in stores by Oct. 25. America Online can continue to use Microsoft's Internet Explorer Web browser, however, even if a new agreement isn't signed, a Microsoft spokesman said.

An accord between Microsoft and America Online on streaming technology could help Microsoft's broadcasting technology, but it's unclear how serious the effect could be on RealNetworks. America Online has a multiyear pact to use RealPlayer software to deliver movie previews, radio programming and other content until this summer. Under RealNetworks' contract with America Online, though, RealNetworks can't be bumped from the service, even after an exclusivity provision in the contract ends this summer, and even if America Online adds another streaming technology, according to people familiar with the contract.

Spokespeople from America Online and Microsoft declined to comment on their talks. An America Online spokesman said, "RealNetworks is a good partner, and we look forward to continuing to work with them." RealNetworks President Larry Jacobson said, "We've done nothing but broaden and deepen our relationship with AOL."

Indeed, it's unlikely America Online would seriously undermine RealNetworks. The Warner Music division of AOL Time Warner was the first record concern to join MusicNet, a new company backed by RealNetworks that is developing a subscription Internet-music service. America Online has a major investment deploying RealNetworks' technology throughout its service. In addition, America Online doesn't want to see Microsoft dominate audio and video broadcasting over the Internet, analysts say. "RealNetworks is a valuable competitor against Microsoft from AOL's perspective," said John Corcoran, an analyst at CIBC WorldMarkets.

-- Julia Angwin in New York contributed to this article.