Microsoft to Sell its Minority Stake in RealNetworks

REDMOND, Wash., November 18, 1998 — Microsoft announced its intention today to begin selling its minority stake in RealNetworks. After many months of discussions, the companies could not reach an agreement on a joint secondary offering, and Microsoft will therefore proceed with the sale in the open market.

The two companies announced in July 1997 their intention to work together to ensure compatibility for consumers of legacy streaming media content on the Internet, and to collaborate going forward on an industry standard file format (ASF, or Advanced Streaming Format). While some initial interoperability was achieved, it quickly became clear that that the two companies were innovating in different directions.

In a statement released today, Microsoft Chief Financial Officer Greg Maffei said,
“Microsoft and RealNetworks are each developing exciting technologies, but the rapid pace of innovation and our competing visions for streaming media means our investment in RealNetworks no longer makes sense. RealNetworks will continue to be an effective developer for Windows as well as an effective competitor.”

Microsoft has been considering divestiture for several months. On June 24, 1998, Microsoft Group Vice President Paul Maritz sent a letter to the CEO of RealNetworks which considered Microsoft’s options with regard to its minority investment in RealNetworks. In that letter, Maritz writes:

As we discussed, Microsoft is considering its options vis–vis its ownership interest in RN. If you wish to propose alternatives regarding giving us liquidity, please do so. A separate ownership issue should be clarified, though. RN should confirm that Microsoft owns thirty percent (30%) of the Registrable Securities as defined in the Investor Rights Agreement and therefore has a demand registration right for such shares. If you disagree, please specifically explain the company’s reasoning setting forth the calculation and characterization of the various outstanding shares.”

Microsoft will begin to reduce its minority ownership in RealNetworks beginning on Thursday.

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