Apple may challenge RealNetworks' software for iPod player

Firm accused of getting around controls on device for downloads of music

July 30, 2004|By BLOOMBERG NEWS

CUPERTINO, Calif. - Apple Computer Inc., maker of the iPod portable music player, indicated yesterday that it may take action against RealNetworks Inc. for circumventing controls on the device to allow music downloads from sources other than Apple.

The iPod is designed to restrict downloads to Apple's Web-based iTunes Music Store, the most popular legal music-download service.

Apple denounced RealNetworks' creation of iPod-compatible software by calling it the technological equivalent of breaking and entering.

"We are stunned that RealNetworks has adopted the tactics and ethics of a hacker to break into the iPod, and we are investigating the [legal] implications of their actions," Apple said.

More specifically, Apple said it is investigating whether RealNetworks' software violates laws that prohibit circumvention of copy-protection technologies. Demand for the iPod rose threefold to 860,000 units in Apple's fiscal third quarter, which ended in June. That helped to boost sales 30 percent from a year earlier. The company has sold more than 100 million songs for the device.

"Microsoft licenses everything and the richest guy in the world works there," said Rob Enderle, an analyst at Enderle Group in San Jose, Calif. "Apple doesn't license anything and they are a niche player."

By refusing to open its system, Apple may be creating a public relations nightmare, he said.

"We're doing something that's squarely legal," RealNetworks Chief Executive Officer Rob Glaser said in an interview. "We think we are doing the right thing for the consumer."

RealNetworks' Harmony software, available in a test version that was released earlier this week, allows customers to download songs from its Rhapsody service to many portable music devices, including iPod.

Harmony "does not remove or disable" digital copy protection systems, RealNetworks said in a statement yesterday. The Digital Millennium Copyright Act "explicitly allows the creation of interoperable software," the company said.

Apple noted that, because it updates the iPod software regularly, "it is highly likely" that RealNetworks' Harmony products would not work with current and future iPods. Apple spokeswoman Natalie Kerris declined to comment further.

In an interview in April, Glaser said he sent Apple Chief Executive Officer Steve Jobs an e-mail to get Apple to open up its software and Jobs declined.

The iPod is the best-selling digital music player in the United States, garnering 39 percent of the $40.3 million Americans spent on such devices in May, according to market research company NPD Group Inc. Demand for the miniversion of the music player has been "staggering," Apple said July 14.

RealNetworks, a Seattle-based seller of Internet media software and subscriptions, said rising sales of its music and radio subscriptions helped narrow its second-quarter loss to $4.62 million from $9.6 million. The company said it added 100,000 subscribers to its music services in the quarter.

Apple might be curtailing sales by keeping the iPod/iTunes system closed, Enderle said.

Apple shares rose 37 cents to close at $32.64 yesterday on the Nasdaq stock market.

RealNetworks lost a penny to $5.57.

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