(Business 2.0) – RealNetworks CEO Rob Glaser is at one of his favorite places on earth: the ballpark. Perched just above the dugout, Glaser may have the best seats in Seattle's Safeco Field. That's what happens when you own part of the team. With a well-worn copy of Who's Who in Baseball tucked under his arm, he sips Diet Coke, tells you everything you want to know about any player, and occasionally can't contain himself, like when Seattle's lead-footed Edgar Martinez is laboring to beat out a grounder. "Edgar, run!" Glaser shouts through cupped hands.

Between pitches on this spring day, Glaser also takes time to explain how Real--which he founded in 1994 to deliver sports, music, news, and just about any other information imaginable over the Internet--is poised to become one of those "two or three generation-defining companies." The crowd groans, but not as a result of Glaser's hyperbole: Oakland's Eric Chavez has just homered in the top of the ninth. Soon the bases are loaded and the home team is on the verge of blowing the game.

A generation-defining company? This firm lost $38 million last year--and that's before it even saw the whites of the eyes of its competition, three of the most powerful names in technology: Yahoo, Microsoft, and AOL. How is this possible?

Glaser leans forward, eyes fixed on Seattle's beleaguered relief pitcher. "Indulge me for a second," he says.

It's a critical juncture in the game--and not just the one Glaser's watching. Three years ago, when many had Real pegged as just another likely casualty of the dotcom bust, Glaser made a bet-the-company gamble on a proposition that even some of his own lieutenants told him was ridiculous: that he could build a thriving, subscription-based business by broadcasting audio and video content over the Web. The broadband wave was just starting to swell, he reasoned. It was time to cash in on Real's brand recognition as the source for streaming content.

And he is doing it: More than a million subscribers now pay an average of $8.50 a month to dig into Real's eclectic buffet of music, video, news, and sports. Subscription revenue has climbed 167 percent, to $76 million, in just the past year, already making up 40 percent of the company's business. Even Wall Street has noticed. Although Real's stock is down 90 percent from the bubble days, it has more than doubled this year to $9 a share.

Baseball delivered the key hit. In March 2001, Real landed an exclusive deal with Major League Baseball to stream live audio of every game, and this season, for the first time, fans can watch games live on their PCs--paying $2.95 a la carte, or $80 for the season--thanks to Real technology. During the Seattle game alone, 7,013 fans are tuned in to the action over Real's network.

Real's subscriber base has risen more than fivefold since the company signed up baseball, and Glaser keeps adding to the lineup. In April he shelled out $36 million to buy control of Listen.com, an Internet music company; Real also recently inked a deal to deliver Playboy TV.

And if you believe Glaser, the best is yet to come. After all, broadband has penetrated just a fifth of all American homes--but it's fast reaching critical mass. With so many people connected at speeds that let them enjoy the long-promised digital bounty, how can Real do anything less than become a defining company of this generation?

For starters, Bill Gates might have something to say about it. As might Terry Semel of Yahoo and Dick Parsons of AOL Time Warner (the parent company of this magazine). The three Internet giants all are rolling out entertainment subscription efforts, going after some of the same content--including baseball, in the case of both Yahoo and AOL--that has propelled Real. Apple is a rival in music. Even Amazon, which already offers free song clips, could be a competitor should it decide to use its technology and huge audience to sell downloadable music.

You hardly need to remind Glaser, who worked there, that Microsoft generates more revenue in two workdays than Real did in all of 2002. So, naturally, he has a plan--call it the business equivalent of baseball legend Wee Willie Keeler's famous "Hit-'em-where-they-ain't" dictum. And it just might keep Real ahead in the game.

Growing up in Yonkers, N.Y., Glaser loved playing second base in Little League. But academics, especially numbers, were his real game. He sailed through Yale in three years, graduating in 1982 with three degrees. He joined Microsoft, helped build the Word division, and launched its multimedia group. But when Glaser urged Gates to move into streaming media, Gates said no, and Glaser went off on his own.

During the bubble, with webcasting suddenly in vogue, companies by the score bought Real streaming software, which zapped audio and video files across the Net. Real also pioneered a now near-ubiquitous media player, which is on 330 million computers. By early 2000, Real's revenues were running at $242 million a year and Glaser's personal stake in the company hit $5 billion. But Glaser says he was dogged by a "painful sense of foreboding." Many of Real's customers were dotcoms. Internet advertising was evaporating. And Microsoft was undercutting Real's consumer business by giving away its own media player, which is now on roughly the same number of computers as Real's.

Trying to avoid the fate of the dot-bombs--and of Netscape--Glaser came up with his radical plan to launch the consumer subscription business. In February 2000, he summoned his managers and spelled out the scheme. His people recoiled, arguing that users wouldn't pay. Glaser didn't budge. "At the end of the day," he recalls saying at the time, "you have to just say, 'That's where we're going.'"

The model that has emerged features three main businesses. The first two are remnants of the old Real: selling souped-up versions of the RealOne Player, which lets people view and listen to streaming media; and selling corporate streaming software and services to businesses that want to webcast. But by last year, revenues from those two segments had fallen by almost half since 2000, to a combined $100 million. Meanwhile, revenues from the subscription content business, at just $2 million in 2000, are expected to hit $100 million this year. Gross margins on the subscription business are a fat 59 percent, nearly twice those at the best-run cable companies. As part of the subscription business, Real often works with partners to dress up their content for the Web. It also offers other services--from processing credit cards to taking calls from puzzled customers.

When Real rolled out its first video subscription service in August 2000, highlights included footage of UFOs and a Sports Illustrated swimsuit special. But Glaser had his eye on sports. He began by getting the NBA onboard with streaming audio, but what he really wanted was baseball. It just made sense: thousands of games a season, lots of teams, and millions of passionate fans. "The word 'fan' comes from 'fanatic,'" he likes to point out. Glaser himself became a rabid Mets backer during the Miracle Mets' 1969 World Series run and remained loyal to them for 10 years after he moved to Seattle. He understood the agony of displaced fans, and he was certain that if he could stream games to them, they would pay up.

For five months Glaser's deputies shuttled between Seattle and MLB Advanced Media's Manhattan headquarters. At first, baseball execs feared a backlash if they started charging for feeds that were once available free through the websites of local radio stations. So Glaser made an offer baseball couldn't refuse: $20 million over three seasons, and a share of subscription revenues.

The deal was signed in March 2001, just days before the season began. Real rushed to get the system ready, and the first few weeks were bumpy: Some people clicked on the Arizona Diamondbacks and got the Phoenix Suns. Since then the product has improved, and last year baseball and Real added a feature that condenses an entire game down to 20 minutes of action. Live audio now attracts 60,000 to 70,000 listeners on an average day. Another 30,000 to 40,000 fans tune in to the video feeds.

On the Web, as on television, live events attract viewers, so Glaser was looking for a big news partner. Real had begun courting CNN in December 2000, when Real had just 125,000 subscribers. But it ended up being an easy sales job. When Scott Ehrlich, Real's vice president for media acquisitions, met with CNN officials five months after the baseball coup, they immediately told him they wanted to deliver for-pay, customized newscasts over Real's network. Ehrlich recalls, "I just stood up and started applauding."

Real signed a deal with Nascar in February 2002, and this year the company beat out both Yahoo and AOL for an exclusive deal with professional golf. PGATour.com has created a graphical representation of the game that lets fans choose a player or hole to watch in real time. "The guy at his computer knows exactly where the ball lands before the golfer does," says Craig Gibson, general manager of the PGA Tour's website.

What was missing from Real's lineup was Glaser's other big passion: music. He likes to joke that he used Napster "but didn't inhale." More seriously, Glaser says that when he first discovered the file-sharing service, he figured the music industry would finally be forced to work with tech companies to distribute music. He's wagering that the momentum is now in his favor. Real's purchase of Listen.com, which runs a paid service called Rhapsody, neatly gives Real direct deals with all five major record labels. It also puts Glaser squarely in competition with Apple's iTunes Music Store, which sells downloadable songs.

Apple's early success with iTunes--the company sold 3 million songs at 99 cents apiece in the project's first month--only further convinced Glaser that the market is about to explode. In late May, Real rolled out a competing pay-by-the-song offering. Glaser's music store runs on Windows, which controls more than 90 percent of the PC market, and is selling songs for 79 cents each, although users also must subscribe to a streaming service for $9.95 a month. Apple isn't expected to have a Windows version until year's end. Ever the optimist, Glaser says, "We have the opportunity to take the brand to the level of MTV."

It's a persuasive argument. But first, Real has some key hurdles to clear. While baseball has been very good to Real, this season is the last in its three-year deal. The rights come up for bid at a time when the spread of broadband has lured other companies into the for-pay Web entertainment business, and a free-for-all to acquire hot content could be devastating to Glaser's company.

The number of broadband users in the United States is expected to double to 40 million within four years. MSN and AOL are trying to retain customers who buy broadband access elsewhere and no longer need dial-up service. Both offer cheaper monthly rates to entice bring-your-own-broadband users and are looking for ways to distinguish themselves.

And in March, Yahoo began pushing Platinum, a subscription entertainment service that also offers a mix of sports, news, and entertainment. Yahoo, like AOL, is acquiring digital content and putting it inside its world and under its brand, betting that enough of its 237 million unique visitors worldwide--many of whom come to Yahoo for specific subject matter, like sports scores or financial news--will pay extra for related digital entertainment. "We don't have the head start that Real has, but Real doesn't have the community," argues Jim Moloshok, Yahoo's senior vice president for entertainment.

All of this means it's open season on the boys of summer. MLB Advanced Media CEO Bob Bowman says he's now negotiating with Yahoo and AOL. Indeed, he has already licensed some content previously exclusive to Real to AOL for the current season (with Real's permission), though not the critical live feeds. (Microsoft hasn't expressed interest, Bowman says.)

But Real may still have the inside track. Yahoo is having great success getting customers to pay for services on its site--with 1.3 million subscribers--but so far mainly for things like online personal ads and extra e-mail storage. As yet unknown is what portion of Yahoo's huge user base will actually pay for entertainment. With Real, Bowman says, the paying audience is established and growing, and Real runs the whole thing without a hitch, processing up to 40 audio and a dozen video feeds a day. "This is not just the one-off Victoria's Secret show," he says. "Real is light-years ahead of everyone else in streaming."

While MLB could end up licensing portions of its content to all the bidders, an exclusive baseball deal is less critical to Real than it once was, some analysts say. "Real once had to go begging for content," Raymond James analyst Phil Leigh explains. "But at this point, they're the equivalent of the 10th-largest cable company. And that acts like a gravitational force in attracting more content providers."

So, what about the 800-pound gorilla across the lake from RealNetworks headquarters? Microsoft began looking at offering a premium subscription model through its MSN portal last year, and even designed a potential competitor to Real. Code-named Habanero, the original project didn't produce any big rollouts, but it's "yielding many children," says Hadi Partovi, general manager of MSN Entertainment. Microsoft already sells subscriptions to online games, and in May it rolled out a subscription radio service. Both compete with Real offerings. And Partovi says a new paid content offering will be coming from Microsoft "almost every quarter for the next four to six quarters."

Still, Gates himself has been saying lately that Microsoft's main interest is not in amassing content but in creating special software that will distinguish MSN from its competitors. And some analysts argue that Microsoft's higher-priority targets right now are AOL and Yahoo, not Real. Of course, if it ever wanted to try to crush Real, it could dip into its $46 billion cash hoard. Real has $300 million in the bank.

In the end, the biggest question facing Real is how many of its subscribers are there for the long haul. Glaser declines to divulge his churn rate, which makes analysts skittish. "It makes you wonder how solid the foundation is," Leigh says.

But Glaser insists that Real's hit-'em-where-they-ain't strategy will continue to drive new sources of revenue. Unlike AOL, Microsoft, and Yahoo, Real is not trying to be a portal. That's why Glaser is sanguine in the face of Microsoft's recent antitrust settlement with AOL Time Warner, in which Microsoft agreed to license its media-broadcast software to AOL for free. Real has deep relationships with AOL units like CNN that go way beyond licensing software, Glaser points out, with Real also sharing subscription revenues and providing the sorts of back-end services that its rivals don't.

The key advantage to not being a portal, Glaser argues, is that Real is happy to give its partners' brands top billing. Baseball fans, for instance, subscribe to the service by going directly to MLB.com. That was also part of the attraction for Playboy, which struck a deal with Real in May; for $24.95 a month, visitors to Playboy.com can get unlimited access to shows like Naughty Amateurs Caught in the Act. Unbeknownst to the user, however, the behind-the-scenes action is happening at Real, whose systems take the credit card info, process the order, digitize the video, and beam it out. This strategy gives Real an edge, argues Mark Cuban, who sold Broadcast.com to Yahoo for $5.7 billion at the height of the bubble. "Going for marquee content, Rob's way is right," Cuban says. "It's going to be hard for Yahoo to get the best content companies to give up their branding."

Further, Real has made inroads with the wireless market that others haven't. Its media player now comes on Palm handhelds, as well as cell phones from Nokia, Samsung, and Siemens whose sales are expected to reach 10 million units this year. Last fall Real experimented with live baseball audio for cell phones, and it plans to launch a wireless sports and news subscription service this year. And it is aggressively pushing its subscription business in Asia and Europe; it launched a premium service in the United Kingdom last summer. Real president Larry Jacobson, who's leading the firm's international efforts, says, "Our vision is a broad array of content on multiple devices, from the PC to mobile devices and eventually to the living room."

Real is also working to seal deals with cable companies, which provide two-thirds of the broadband connections in the United States. (Its rivals have primarily partnered with phone companies instead--Yahoo is linked with SBC, for instance, and Microsoft with Verizon and Qwest--because cable companies see themselves as the content programmers and tend not to want the likes of Yahoo controlling their broadband offerings.) Real's music service will soon be offered by four of the five largest cable broadband providers. And while it'll be some time before hordes of consumers will be ready to download movies onto their PCs, Real is planning for that day as well. Through a partnership with Starz Encore Group, Real this summer plans to launch Starz On Demand on RealOne, a subscription service offering more than 100 movies a month. It has also licensed its technology to Movielink, a movie-download site owned by MGM, Paramount, Sony, Universal, and Warner Bros. that is currently featuring films like Maid in Manhattan, I Spy, and Jackass: The Movie.

Ultimately, Glaser believes that Real can amass an audience of many millions, making money both from subscriptions and by running the technology for partners. He assumes that, as in the cable industry, there'll be room for many competitors. Glaser himself, at 41 years old, is game for the challenge. He says he's matured as a manager; it's been years since he hurled a can of Diet Coke against a wall during a meeting. But the fire to win still burns. Like the Mariners, who finally beat the Oakland A's in the 10th inning that day at the ballpark, Glaser says he'll still be standing in the end. Given the competition, that might seem like a long shot. But nobody thought the Miracle Mets had a prayer either.

Paul Sloan (psloan@business2.com) is a senior writer at Business 2.0.