RealNetworks Gets With MP3 Program With $75m Xing Buy

Computergram International, April 14, 1999

RealNetworks Inc made its second strategic deal is as many days yesterday, this time acquiring MP3 pioneer Xing Technologies Inc for $75m of Real's highly-valued stock. Xing is a developer of MP3 and other MPEG-related encoders, decoders and players. On Monday RealNetworks announced an agreement with IBM Corp to develop software in compliance with IBM's Electronic Music Management System (EMMS) - a secure music download format that is being tested by the major record companies. At present MP3 does not provide any copyright protection for the music.

RealNetworks founder and CEO Rob Glaser says the acquisition will not be dilutive - but he didn't say it would be accretive either - barring one-time hits totaling about $3.5m, comprising $2m in non-cash and $1.5m in cash charges The new shares will amount to about 1% of the company's total shares outstanding. The acquisition will be accounted for as a pooling of interests and is expected to close in the third quarter. About 12 of Xing's 22 employees will become RealNetworks staff under the terms of the deal.

RealNetworks did not elaborate too much on its product integration plans, beyond saying that the automatic update feature in its current G2 player, which about 35 million of its 55 million users have already downloaded, will be used to add support for formats beyond the ones it currently supports. The same goes for IBM's EMMS format.

Xing, which will remain at its San Luis Obispo, California headquarters after the acquisition closes, has been around since 1990. It claims to be have developed the first software JPEG, and MPEG audio and video encoders and decoders, as well as the first streaming audio and voids software - StreamWorks - in conjunction with NBC in 1994. It believes that the vast majority of all consumer MP3 files have been created using its AudioCatalyst CD- to-MP3 conversion software. Glaser notes that RealNetworks only introduced the first version of its RealAudio player four years ago this week.

Glaser - a former Microsoft employee, but no friend of Redmond these days - is typically skeptical of Microsoft's attempts to develop a secure music delivery service in the shape of its MS Audio format. "If someone's trying to cram an alternative to SDMI down the throats of record companies, they're mot going to be successful," he predicts. And the same goes for an alternative to MP3 from the user's point of view, he says. However, Microsoft is a supporter of the recording industry's Secure Digital Music Initiative (SDMI), but Glaser presumably feels that would not stop Microsoft from attempting to define formats on its own terms to the exclusion of others.