Microsoft has settled its antitrust dispute with RealNetworks and sealed a partnership between the two companies.

"Today we are ending one chapter and opening a new chapter in our relationship with Microsoft," RealNetworks chief executive Rob Glaser said at an event announcing the deal.

As part of the settlement, Microsoft promised to pay RealNetworks $761m, $460m of which will go towards a settlement fee in the firm's antitrust battle.

RealNetworks filed a lawsuit against Microsoft in 2003 alleging that the software maker had illegally used its monopoly in the operating system market to promote Windows Media Player over RealNetworks' RealPlayer.

RealNetworks also agreed to end its direct involvement with ongoing antitrust investigations against Microsoft, including the action brought by the European Union.

While a final ruling in the latter case has yet to be made, the EU is currently forcing Microsoft to offer a version of its operating system without Windows Media player.

Losing the co-operation of RealNetworks in this antitrust probe could weaken the EU's case, according to Matt Rosoff, an analyst with Directions on Microsoft.

"There is a dangerous precedent in the EU saying what [Microsoft] can and cannot do. Now Microsoft and the EU have a better chance of reaching a settlement," he said.

The remaining $301m of the $761m settlement is set aside for services that RealNetworks will provide to Microsoft over the next 18 months.

Microsoft will receive credits for each customer it signs up for RealNetworks' Rhapsody subscription music service.

"This goes beyond the settlement," said Microsoft chairman and chief software architect Bill Gates. "Digital entertainment is just at the beginning."

RealNetworks said it will provide users of MSN Search with access to full-length versions of songs. A search for the Rolling Stones, for instance, will offer a link to songs by the band. The service is limited to users in the US and is capped at 25 songs per month.

Users of Rhapsody will be able to share and play music through MSN Messenger. RealNetworks will also provide Microsoft with access to some of its online games through the MSN Games portal and the Xbox Live arcade on the Xbox 360.

The two companies also agreed to work together on the Windows Digital Rights Management technology, allowing Rhapsody content to be played on Windows Media Player.