Ruling helps Microsoft in RealNetworks, AOL fights

Reshma Kapadia and Sue Zeidler

NEW YORK/LOS ANGELES: Microsoft Corp.'s ambitions in the media field against

rivals RealNetworks Inc. and AOL Time Warner Inc. were given a boost by a US

appeals court's decision on Thursday to overturn a lower court order that would

have split the software giant in two.

"Bottom line is that it's good news for Microsoft," said John

Corcoran, analyst at CIBC Oppenheimer. "It's bad news for AOL Time Warner.

(The two companies) use this portfolio approach to manage their businesses -

sticking a lot of fingers in different pies. It's much easier to compete against

a broken-up Microsoft."

The ruling appeared to give Microsoft's plans to bundle services such as

instant messaging and media players that are seen as the hot new areas of the

Internet into the latest version of its operating system "a favorable

ear," Forrester Research analyst Carl Howe said.

The court left intact the finding that some of Microsoft's business conduct

amounted to illegal use of monopoly and ordered a new judge to look at some of

those issues, including whether Microsoft illegally tied its Internet browser to

the Windows operating system.

Still, analysts said the ruling will help the software giant in its efforts

to win market share from AOL's popular AIM and ICQ instant messaging services

and in its battle with media software company RealNetworks for a piece of the

potentially huge market for the distribution of music and video on the Web.

Shares of AOL slipped 60 cents, or 1.1 percent, to $52.08 while shares of

RealNetworks closed down 2.6 percent, or 31 cents, at $11.44.

While the decision may be viewed as a setback for some Microsoft rivals,

analysts said companies like AOL Time Warner have been operating under the

assumption that Microsoft would not be broken up.

Instant messaging and media player hot button issues



In addition to the placement of AOL's software on Windows XP, recent talks
between rivals Microsoft and AOL Time Warner had also focused on instant

messaging and the media player.

The talks recently broke down and there have been no indications that they

will restart. However, analysts are not willing to rule out the possibility and

expect the issues to be revisited.

"At the end of the day, Microsoft will be able to exert more market

power with respect to any of the applications they currently distribute on the

desktop which is never a good thing for any direct competitor," said Rob

Martin, media technology analyst with Friedman Billings Ramsey.

RealNetworks has been able to stitch together an alliance of traditional

Microsoft foes, including Sun Microsystems Inc. and AOL Time Warner, to back its

bid to create a more flexible standard for delivery of content via the Internet,

but this ruling does not help its efforts. "By staying together, Microsoft

continues to have the weight of all of its technology to be leveraged and become

a force in digital music distribution models going forward," said PJ

McNealy, senior analyst with GartnerG2.

The decision puts Microsoft in a better position to battle Real for the next

generation of Internet media applications, as digital media move from desktop

computers to handheld players, analysts said.

Consumers gravitate to the industry standard, and if that is Windows XP, and

Microsoft's messaging services are bundled in, that helps Microsoft's services

in their battle against AOL and RealNetworks, said Barry Jaruzelski, lead

partner of Booz Allen's global computing and electronics practice.

"We have been for five years competing against Microsoft and winning.

Nothing today changes the competitive landscape we've been winning on. The

company has never built its strategy on the expectation of legal or regulatory

actions. We're continuing to be focused on delivering great media

experiences," said Eric Liu, spokesman for RealNetworks.

However, Webnoize analyst Ric Dube said the court decision gives Microsoft an

opportunity to gird itself for the still-developing battle against Real. At the

same time, it lets Microsoft steer clear of the legal trouble it ran up against

when it took on Netscape in the browser war, which was one of the sources of the

antitrust case.

An AOL Time Warner spokesman said the company had no comment at this time.

"We have much more of a level fight now (between AOL and Microsoft) that

this court ruling has gone by," said Berge Ayvazian, chief executive of

research firm Yankee Group.

"No doubt this battle will continue and be more protracted and issues

will be sharper as a result of this ruling. We are going to need to see who has

the ability to drive solutions into that market," he added.

(C) Reuters Limited 2001.