RealNetworks lets Facet glitter, briefly

One day before closing arguments are scheduled in the Hollywood suit against RealNetworks and its RealDVD product, RealNetworks' CEO gave out some tantalizing information about its Facet set-top box -- both confirmation of what it is and financial numbers that indicate how much it means to the company.

Glaser described Facet to analysts on the company's quarterly earnings call as Linux-based hardware running a software stack "designed to be the successor to the consumer DVD player." We knew that. In fact, it's generally thought that Facet represents a consumer-ready DVD jukebox -- rip once, watch forever, and with control equivalent to a decent DVR (at least).

He couldn't say much more on the call, citing the preliminary injunction hearing in progress. But he did give some numbers that certainly got analysts' attention: During the Q1 just ended, RealNetworks spent $6 million on RealDVD -- mainly on litigation.

That $6 million charge was a tremendous hit on results for its division, Media Software and Services, which reported a loss before taxes of $1.8 million, compared to position earnings of $9.7 million a year ago. And there's no definite end in sight, pending the judge's ruling and whatever decisions the company makes about appeals if necessary.

The litigation covers the Facet hardware as well as the RealDVD service -- an attempt by Hollywood, Glaser said during his testimony, to quash a service that might compete with Hollywood's own DVD and digital-download sales plans. The MPAA, on the other hand, is pursuing its longstanding claim that ripping a DVD -- even a DVD one owns legally -- is illegal under the Digital Millennium Copyright Act. (The MPAA also claims that the device could easily be used for piracy; RealNetworks has stated that there are security measures in place to prevent that; a software expert testified on Thursday that the studios have already discarded the control in question -- ARccOS and RipGuard -- as unhelpful.)

Facet is a good demonstration of the tech at the heart of the case, but it's also a hint at why this battle's worth $6 million (and counting) to the company: There are lots of companies in the consumer-hardware business, while RealDVD is but one piece of software. Licensing fees enter the picture; deals could be made with all sorts of entities that are not the studios, with RealNetworks melting back into the background, free to rededicate itself to its less frosty relationships with the music industry and games developers.

But it's tempting for consumers, who have been hearing for years that they're forbidden to back up their fragile, expensive film libraries, to see RealNetworks as a burlier-than-usual standard-bearer for a fairer interpretation of the DMCA -- or, alternately, as the company with the legal muscle to force the MPAA to prove in court that it's not claiming piracy simply to avoid fair competition in the marketplace.

Closing arguments are expected today (Friday) in US District Court for the Northern District of California. Judge Marilyn Hall Patel will hand down her decision sometime after that. A transcript of the RealNetworks call is available from Seeking Alpha.

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