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Interview: RealNetwork's CEO Rob Glaser

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By Lance Ulanoff

2003 has already been productive for the Seattle technology company RealNetworks. With its partners, it launched two new major services: ABC News Live, a 24/7 online news broadcast, and MLB.TV-a venture with Major League Baseball to Webcast live video of the league's thousands of games. RealNetworks technology also became the de facto delivery mechanism for much of the live, breaking news from the War in Iraq, turning already connected citizens into online junkies hungering for news at all times of day. RealNetworks execs claim a five-fold increase in the amount of audio and video delivered by the company. The war even increased subscriptions to RealNetworks' paid services.

There's no telling how many of those subscribers will stick around as the war winds down, but RealNetworks and its CEO have already proven adept at navigating rough waters. In the past few years, the company joined in the fight against what it perceived to be Microsoft's anticompetitive practices and then watched as the same company launched a major streaming media initiative with Windows Media 9 Series. Microsoft and RealNetworks were once partners.

The broadband wave, swelling to 20 million US homes, could help float the fortunes of streaming media companies, so this seemed like a good time to chat with the man who started it all: RealNetworks CEO Rob Glaser.

LU: How has the release of Windows XP impacted RealNetwork's bottom line, technology choices, and direction?

RG: Well, you know, basically there's a set of fundamental technology trends out there if you just step back. There's the growth of bandwidth, and that is a fundamentally positive trend for us, because it allows us to deliver better and better experiences.

There is an increase in the range of devices that speak IP, be [they] mobile devices like the new Nokia 3650 phone that you can buy anywhere for $300 bucks [and that has] a full-fledged RealOne player in it, or these network devices that people are using to take MP3 collections and run them all over their houses.

Personally, I just got one of these Vonage IP phones. It's actually pretty cool. It comes with one of these Cisco ATA routers where you just plug an analog handset in.

In terms of technology trends, a new operating system like XP makes a big difference. It makes the PC more stable and robust, so you can be running background tasks as your PC operates effectively as a hub or a server in your environment. Those are positive dimensions of a new operating system.

Because Microsoft seems to sometimes not trust customer choice, they salt XP with all these little gizmos and trap doors to get people to try Microsoft stuff. But the reality is that we're downloading more players than we ever have on a worldwide basis. Whatever the impact is of the courts saying what Microsoft should or shouldn't be doing with Windows XP, we've focused our business on continuing to deliver the best technology. We're increasingly focusing on a combination of enabling free services and keeping an eye on the growth we've seen in our premium services.

So our business is just fine. In terms of market dynamics, just look at the broadband trend and the growth in the wide range of devices. I wouldn't say we're going into an era where PCs are irrelevant, and I certainly wouldn't say that to PC Magazine, but I think we're going into an era where the PC is just one of a number of important devices. It plays a special role because of its programmability and extensibility, but when you look at the totality of what's going on with digital media in the mobile market, in the living room, in the home networking environment, there's more. Our focus is on the totality of that, with the PC as a core part of our heritage that we're continuing to focus on.

As the landscape gets broader, the fact that we have partnerships matters. In fact, I was at the NAB convention last week showing our player running on the PlayStation 2, and running on the new Nokia phones, and on the new Palm Tungsten devices. Think of those three categories: the new game consoles, PDAs, and mobile phones. The leading manufacturers are people who are bundling our player, and the players are not running on a Microsoft operating system. My view is that the opportunities in front of us are very good, and we'll continue to more than hold our own on the PC.

LU: What about the impact of Window Media Player 9 Series?

RG: My sense is, it's actually kind of an interesting dynamic. Microsoft, for reasons that I don't understand-but I welcome-seems to be trying to cram a proprietary Microsoft-only agenda down the throat of the entire consumer electronics industry, and the entire mobile industry, and the entire media industry. We had a booth at NAB last week showing our player working on mobile phones that support mobile standards like 3GPP . We also showed our player supporting MP3 and MPEG4 and RealAudio and RealVideo. We give people a choice between the unique advantage of our innovative, award-winning, proprietary codec and support for all the other standards.

If you look at the Microsoft agenda, it's all about the Windows Media 9 codec and why it's better than MPEG4. Microsoft wants its codec to be the thing that the industry embraces. I have to tell you that the harder Microsoft pushes an anti-common-standards agenda, the better it is for us. So I certainly encourage Microsoft to keep pushing its uniquely proprietary agenda. If you're looking for mainstream solutions in the marketplace, you've got two choices. One embraces open standards and in fact is built on an open source foundation-Helix -while the other one is tied to Microsoft operating systems. For the primary formats that they're pushing and the primary formats that they're wrapping with the DRM, the whole agenda is Microsoft.

We're having this conversation in the month of the tenth anniversary of the Web browser. I think history shows that if one company, even a super-powerful company, pushes a proprietary solution and the rest of the industry is behind open standards, open standards win.

LU: What's your take on Microsoft's move into digital cinema and theaters?

RG: I think Microsoft focusing on high-end digital movie theaters is great. I think it's a great boon to all the little companies that have been making the old 35-millimeter sprocket projects. It's a pretty low-volume market-but I certainly think it's kind of neat from a technical standpoint. We'll focus on the 100 million phone handsets that Nokia ships every year, or the 50 million PlayStation 2s that are installed. I don't want to say that we'll ignore the market of the 20 digital theaters that are out there capable of playing satellite-delivered movies. You know, we'll probably go after that market eventually, but we'll probably wait till it's a little more of a volume play.

LU: What's the playback quality on these small devices like the Nokia?

RG: In terms of, actually, the CPU of those devices, you can get a pretty darned good frame rate if you've got a couple hundred [kilobit] stream. If you look at the image quality on the screen itself, it's pretty darn good. The bigger issue is network bandwidth. We're in this period where we're getting good data rates. I would say we're getting data rates that are like the data rates we got when we launched RealAudio in 1995. You're getting 24 kilobits now on the GPRS networks, and that's in the US. On the CDM networks like Sprint and Verizon, you're probably getting 40 or 50 kilobits depending a little bit on coverage area.

So what that means as a practical matter is that these devices, like the Nokia, are great streaming audio devices. They're very fine video downloading devices, though the streaming video at this point is more of a technology demonstration. That doesn't become a reliably deliverable consumer experience until you have the 3G services. But as I can tell you from the launch of RealNetworks, we spent our first two years just doing streaming audio and didn't even do video until '97. We figured, hey, that doing video that looks more like pop art than a visible video stream isn't doing anybody any good.

We'll have some video download services if you just want to get a movie trailer and watch it, but in terms of streaming content, we'll mostly be doing audio-the stuff we did back in '95 with the PC. So in the everything-old-is-new-again world, we're seeing familiar trends in the mobile market. The carriers are doing the thing that we hoped they would do, which is being super-aggressive on the next-generation image phones and camera phones that are also media-player phones. We're starting the process of educating consumers that mobile media creation and delivery is becoming a very practical reality. It can become part of people's lives, just like PC streaming started to be in '95.

LU: Do you consider the performance and adoption of the Helix Platform a success?

RG: We're thrilled with how it's gone. There are a couple of different levels. There's the Helix open-source community level-what's called the Helix DNA Layer, which is the core layer. We released the final component of that in early January. Concurrently, we announced that there are over 10,000 members of the Helix community taking the source code. They're taking it on the open-source license option, or the community source license option. I should mention that there's the open-source license, which is an OSI-certified license. That's sort of a Linux-type license.

And then there's the community license, which is more of a Java-type license. The difference is, if you're going to do a commercial product and you want to not publish the source code of it yourself, you use the community license. If you just want to do a hobbyist type of thing or research thing-where you don't mind contributing the source-code back to the community-you can use the open-source license.

It takes time but we're starting to see some very interesting projects coming out. The first wave of them represent support for a range of non-PC devices that we probably would not have gotten to if we had tried to do it ourselves just with our partners. It's really accelerating the work there. I think the next phase of integration is with various kinds of appliance hardware. That'll start coming in the months ahead. The nature of open-source is "stuff we never thought of."

In terms of the Helix Universal Server , it's a commercial product that RealNetworks sells on top of the Helix DNA line. After a year, it's still the only product that streams all the major formats. So whenever we go into a new account, they say, "This is pretty amazing, you have one platform I can standardize on. I can run it on Linux, I can run it on Solaris, I can run it on a Windows NT or XP backend. I can run it on all these backend platforms. I have one solution that I can build my network around. That's pretty remarkable." So anywhere people are building out new networks, with the mobile market being a great example, the rate at which we're getting design wins from the Helix Universal server is fantastic. It was quite a monumental-I hope that wouldn't be too hyperbolic a word-engineering effort to pull together. We're seeing usage of it in traditional content-delivery networks as well as on the PC. Our own broadcast network uses it very regularly and gets excellent performance out of it on all the networks it supports. We've announced previously that we licensed to Yahoo! and AOL. They're using it in their broadcasts.

This is a change-the-rules kind of product. Instead of-in step with my previous comments-just having it be [a strictly vertical solution], we decided about a year ago to embrace open standards. A year in, we're really seeing the real benefits of that.

LU: Regarding Microsoft Windows and Windows Media 9 Series-at this point, thinking of them as separate entities is difficult. Real runs on devices that don't have the same operating system. It's hard to think of a non-Windows device that runs Windows Media Player.

RG: They do have a version running on the Mac, to be fair to them. It's an older version, and it doesn't have all the features. That's kind of telling, right? Their focus is on pushing the Windows agenda, and that's what they do.

LU: It sounds like you're conceding that Microsoft is making a big effort. Do you think they are playing any anticompetitive games?

RG: They may well be playing anticompetitive games. I don't want to suggest that they've learned their lesson. This is a company that was convicted of being a monopolist and illegally using that monopoly. Because of the exigencies of the way our political system works, they escaped with at best a very, very mild level of chastising relative to the breakup that was on the table, for Pete's sake. So I don't see them as having turned over a new leaf in terms of behaving ethically or honorably.

I just think that from our standpoint, our focus is on building the best business we can, and we never made any assumptions about the public policy process changing. We always assumed that we'd have to compete in the marketplace and if someone was breaking the rules, we had to compete anyway. That's our philosophy. That approach is how we look at the parts of the market where the dynamics play out clearly to our advantage, like the Nokias and the Palms and the Sony PlayStations of the world. I think those represent a large part of where the future opportunity is going to be. In Windows XP Microsoft has rigged a lot of booby-trap ways where the consumer gets Windows Media Player whether he or she asks for it or not. Our view is that we deliver excellent products on top of Windows XP, so let's make sure we deliver a super-high-quality experience.

By the way, since I know I'm talking to you guys, you guys named our product Editors' Choice. So you certainly didn't get confused on the question of "Hey, just because something comes with the operating system, is it the only choice?" You recognized the whole issue.

The reality is, we focus on the broadest market opportunity, which is all these devices I've mentioned, and we focus on delivering world-class solutions on the PC. With the RealOne player on the PC in either the free version or the premium version, we're committed to having them be the best-of-breed products on the market. That's going to continue to be our strategy.

LU: Is it true that users still generally download short-duration material?

RG: For the den or for the places where people use the PC, some people want a PC to run a background application where they might have Internet radio on for a period of time. Some people are doing many things at once. They're multitasking. It is our experience that people watch a single long-form thing as a primary task. Radio stations have longer listening times because you just have it on in the background and when you get a phone call, you turn the volume down. Some people like that continuous background experience.

LU: How have the economics of bandwidth changed in the last few years?

RG: As a general sense, we've seen bandwidth costs dropping [by one-third to one-half] a year. So bandwidth costs have been decreasing, for a frame of reference, faster than Moore's Law specifies.

That's a very powerful force that takes certain applications and makes them economical when they weren't economical, like downloading a movie. If a movie is 500MB , it used to be that the cost of that movie would overwhelm the consumer. Now with bandwidth costs coming down so dramatically, the economics of that kind of application are like the economics of renting a video.

With things like Real Video 9, we can compress the file 25 to 30 percent more than we could with Real Video 8, which was in turn better than the last MPEG. When you compound that trend with the generational increases in compression, you get very significant savings in bandwidth and cost reductions in bandwidth.

Look at the live video baseball product that we're doing with MLB.TV. We're streaming individual games at 350 Kbit and it looks great. It's an example of something where, certainly a year ago, the economics would have been kind of dicey. This year the economics are quite good. So there are new applications that open up that would have been dicey a year ago-or two years ago might have been close to inconceivable. The interaction of bandwidth, cost improvements, and Moore's Law allows us to have better and better commercial outputs. The wind is at our backs.

LU: MLB streaming video is a very new service. How has the reception been on that?

RG: It's been great and exceeded expectations. I don't know what Bob Bowman of MLB has actually said publicly, so I'll be a little circumspect. From our work with them, we know they've been very pleased from an uptake standpoint. People are actually using and watching this stuff.

A live 24/7 news channel available just over the Internet and a live broadcast of baseball games-those are big events. If this had happened during the bubble, man, there'd be screaming front-page articles about what a huge transcendent thing this is. The reality is that the financial bubble came and went, but the innovation is still happening. That's a very important message that everybody in the industry, particularly your readers, really need to understand. They should give this stuff a try, and see what they think of it.

LU: Microsoft and RealNetworks implement DRM differently. What's your general sense of the importance of DRM and your general philosophy on it?

RG: DRM can give rights holders choices. That's important in terms of having their content be used according to rules that they set.

Taken as an overall portfolio of approaches, we see DRM as very important. When you're talking about the rights holders that are talking about long-form movies, they're particularly sensitive to it. The music industry has been certainly sensitive to it. Rights are an important part of their portfolios. The fact that we've got one of the two mainstream DRM approaches in the industry is terrifically valuable from our standpoint. We've also got the only one that embraces open standards.

LU: I think the main criticism of DRM is that it's invasive and does more watching of you than seems necessary. Is your DRM any different than any others? Does it grab info about the user and send that data back?

RG: Everything we do is consistent with our published privacy policy. From a privacy standpoint, there's nothing about the way our DRM works that anybody has ever looked at and ever raised their hand. Sometimes you get people that say, "Hey, we don't like DRM, we want all the content to be free." My view is, look, if rights holders want to make the content available to the marketplace on their terms, they should. That's why we support a portfolio of ways for people to get access to content.

Our philosophy is, we want to enable the consumer to have access to all fair-use rights. That's why the RealOne player supports people ripping CDs and putting them on their hard drives for personal use. That's why we support playback of MP3s-because we don't make any presumption about consumers having done anything illicit. MP3 is just a format. It can be used for plenty of personal-use scenarios. That's our philosophy-to let people have personal use rights and also give rights to those people who want to characterize how their content is used.

LU: As a longtime Mets Fan, what do you think of the Mets' chances this year?

RG: I think the Mariner's chances are better than the Mets' chances this year. I say that not just as someone who moved from New York to Seattle 20 years ago, but as somebody who tries to be a little bit realistic about these things. Baseball is about having very, very reliable starters, a very reliable bullpen, and decent hitting. There are probably a half a dozen teams that are better than, certainly, the Mets, and maybe two or three more promising than the Mariners. Although I'll tell you that the Mariners won 116 games two years ago. I had seen them in spring training and I thought they looked [like they'd win] about 85 [games]. So it convinced me, among other things. What the heck do I know? [Glaser is a part owner of the Seattle Mariners baseball team.-Editor

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