RealNetworks Acquires Xing, Joins IBM

Last week, RealNetworks announced that it has signed a definitive agreement to acquire privately held Xing Technology, a developer and provider of MP3 software. Xing has been developing standards-based digital audio and video encoding and decoding technology since 1990, but eventually ran into trouble competing with other Internet-audio startups such as RealNetworks and Liquid Audio.

RealNetworks will acquire Xing in exchange for common stock in RealNetworks with a maximum value of $75 million. The acquisition is expected to be completed in the third quarter of 1999, with RealNetworks expecting to record a one-time charge for acquisition-related charges upon closing.

Xing's core engineering team will remain in San Luis Obispo, California, which will become a RealNetworks development facility. According to Xing, it believes that the vast majority of all consumer MP3 files have been created with Xing's encoding technology, including the AudioCatalyst MP3 software product. Xing claims that their encoder is several times faster than other MP3 encoders, and that the company's Variable-Bit-Rate technology allows for greater compression and audio quality than any other MP3 product.

RealNetworks CEO Rob Glaser stated that "Xing has been at the core of the exploding MP3 revolution since its inception. With the acquisition of Xing, RealNetworks can now better serve the huge market of new artists choosing to use MP3 to legally distribute their work. Moreover, by bringing Xing's world-class development team into RealNetworks, we've greatly enhanced our efforts to lead and accelerate the development of the digital distribution of music and other forms of digital audio and video."

Hassan Miah, CEO of Xing, said, "As the leader in enabling and delivering rich media on the Web, RealNetworks was clearly the best and most powerful home for our MP3-based technology. By combining our MP3 and other standards-based technology with RealNetworks' market-leading RealSystem G2, the near ubiquity of their 57 million RealPlayer registered users, and their many strategic partners, we think this acquisition has helped to create a company even more able to deliver the most exciting digital audio experience."

RealNetworks also announced an agreement with IBM to collaborate on secure digital music-distribution applications that would allow consumers to receive and process music and related data from the Internet using IBM security features. Both companies say they will integrate RealNetworks client technology and encoding tools into IBM's Electronic Music Management System (EMMS), a system IBM describes as developed for the preparation and distribution of all forms of digital content, including music. The IBM EMMS is being used by BMG, EMI, Sony Music (see related story), Universal Music, and Warner Music to conduct a market trial of a system that is intended to combine security features with "convenient and fast distribution of full-length, CD-quality albums to consumers."

"The Internet has precipitated a revolution in the way people are accessing music for their personal use," said RealNetwork's Glaser. "We view this collaboration with IBM as a significant step forward in ensuring that artists and content distributors have confidence that their songs are protected when delivered over IP-based networks. At the same time, we are tremendously excited to utilize our music-delivery technology in a security architecture that could profoundly change the way people sample, purchase, collect, and experience recorded music."

Allen Weiner, VP of services, Netratings, commented that "for digital distribution of music to evolve into a mass market, it is critical that two key challenges be addressed. One is to protect the intellectual property rights of artists and music companies, and the other is to provide consumers with a flexible and compelling music experience. This agreement does that."

IBM says that EMMS is based on open architecture, is capable of managing and distributing multiple types of media content over multiple networks, and is designed to be interoperable so that it can evolve over time to integrate technology advances in music compression, encryption, and formatting.