Technology Guardian: Apple has 65% of music downloads in Europe according to Jupiter Research. How can you compete?

Rob Glaser: We assume that this failure of other companies besides Apple to create really compelling portable devices is not a long-term phenomenon. [But] before that happens it would be jumping the gun to push a portable subscription service in Europe.

TG: Because you can't compete with Apple's iTunes?

RG: We can compete but isn't it better to wait until you have a slam dunk solution in the portable context? In the US a lot of iPod users also use our Rhapsody product, but we think being head-to-head is inevitable because Apple is pretty ambitious about how it wants to use its closed eco-system. At the same time, until there is a critical mass of devices out there that really are worthy competitors to the iPod, our view is to make Real Music a great product with differential features such as user-generated content and add on the subscription piece when the devices warrant it.

TG: Will we see Real-branded devices?

RG: I don't think so but we will want to make sure that people know it's us behind it. In any case it will manifest itself first in the US, and it's not probably until 2007 that it could roll out internationally.

TG: So you will be facing a situation where you are way behind Apple?

RG: Compare our strategy to Napster's where they got into Europe in some markets before Apple, but I don't think with a service that was compelling.

This falls in line pretty closely with what Glaser said about integration with Sandisk's (SNDK) and Samsung's mobile devices in the recent RNWK earnings conference call:

We’re encouraged by the progress that we’re seeing with the second generation of portable subscription devices such as SanDisk E200, and Samsung’s Z5. We are working closely with manufacturers to integrate these and other devices with Rhapsody for a great end to end customer experience, and we’re putting together marketing programs with these best of breed manufacturers. For instance, Rhapsody is now shipping the device management software and music service with all the portal and music product lines from SanDisk, which is number 2 in portable digital music products in the US....

I would say our strategy is both to get on a broad range of devices and to also make sure that we have deep integration with the best of breed devices. If you look today at the market, you ask people, sort of, what the second best device is out there. Today it’s kind of none of the above.

So our view is, our analysis is, that deep integration with a couple of the best products is probably more important than check box integration with dozens of them, because there’s a pretty long tail of little low volume players out there, and what we see in terms of consolidation of space is there’ll be 4 or 5 scale players and our goal is for the scale players to have very deep relationships with them. (emphasis added)

If you put the pieces together, Glaser seems to be indicating that he's betting on SanDisk and Samsung not only to beat out Apple in portable media devices outside the US, but also to integrate RealNetwork's subscription product in an iTunes-like manner.

At the same time, he recognizes that he's not really working with the best of breed -- he's seeking the second best of breed and hoping that will be good enough.

Real has long tried to sell downloads to iPod users, a move Apple called 'the tactics and ethics of a hacker'.

RNWK 1-yr chart:

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Mick Weinstein

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