Around 700,000 or so are paying accounts, down from about 750,000 in the previous quarter, and 800,000 the quarter before that. Obviously, from the steady decline, Rhapsody for iPhone has had little effect if any on Real’s bottom line.

In fact, in the results conference call, CEO Rob Glaser admitted that it was not seeing “a significant number” of new signups as a result of its iPhone venture.

The results show that a large majority of those who downloaded the application (myself included) did so just to check it out, obviously with no intention to sign up. What does this mean overall for Rhapsody? Hard to tell exactly, but I’d venture to guess consumers are finding other means to get their music fix, whether it be legal or illegal.

Let’s not call it an abject failure just yet and give Real the benefit of the doubt and another quarter. Either way, these early results are not promising.

In one sense, there’s nothing the least bit new about software that can copy DVDs to a PC’s hard drive. Folks have been using applications such as DVDShrink and Handbrake to do the job for years–and  the same people have moved movies to phones, media players, and other devices…as well as onto BitTorrent and other peer-to-peer networks, where they’re there for the taking by anyone who can figure out how to download them.

But because such applications decrypt DVDs, their legal status is the U.S., to put it politely, murky. Make that very, very murky, , considering that the Digital Millennium Copyright Act prohibits the circumvention of copy protection. That’s true even if you’re engaging only in the victimless crime of enjoying movies you’ve paid for on a device that doesn’t happen to have a slot for a DVD.

Enter Real Networks’ RealDVD, a Windows program that’s a breakthrough in one significant respect: It’s a DVD-copying program–a ripper, if you like–that doesn’t violate the DMCA. That’s because it doesn’t strip off the copy protection the DVDs came with. Matter of fact, it adds additional copy protection that prevents users from sharing the DVD copies they’ve made, or watching them on anything other than up to five Windows PCs per license; other types of computers and devices aren’t supported. Only a DVD copier that locks down its copies in this fashion could go on the market without risking Hollywood’s wrath.

But RealDVD, which Real says it’ll start selling by the end of this month, is more than a DVD copier that’s hobbled by the fact that it doesn’t flout U.S. law. It copies not just the raw video files from a DVD but the entire DVD experience–bonus materials and all–and recreates them on the PC. And as you copy movies, it identifies them (using GraceNote, the same service that powers the CD-identification powers of iTunes and other music apps), catalogs them using cover art images, and lets you browse them by title, genre, or star. It’s a little like a $30 software version of the $30,000 media server from Kaledescape, a company whose victory in a court case brought by the DVD Copy Control Association last year confirmed that DVD copying can be legal.

I’ve been spending the last few days copying movies and watching them in RealDVD. In many ways it’s an impressive product that makes the best of a difficult situation, although does have some limitations that don’t stem from having to tiptoe around the DMCA. Ultimately, it’s got lots of potential to appeal to a wide range of folks who will never futz with programs like DVDShrink or Handbrake, which are laden with geek-oriented options. (Once it goes on sale, you’ll be able to use it for 30 days for free in trial mode and render your own verdict.)

The best thing about RealDVD is is that it’s incredibly simple to use: You insert a DVD, wait for Gracenote to identify it and tell you about it, and then click to save it. (You can also simply play a DVD, or play it and save it at the same time.)

In my tests with a 1.8-GHz Core 2 Duo desktop PC with 2GB of RAM and a 16X DVD drive, it usually took between ten minutes and half an hour to copy a disc to the hard drive–comparable to DVDShrink’s speed, and a lot faster than Handbrake. (I did encounter a few instances in which RealDVD stalled, worked very slowly, or simply didn’t provide the saving option; ejecting the disc, reinserting it, and trying again usually resolved things.)

One a movie’s been saved to your PC, it behaves for all the world like a DVD that happens to live on a hard disk rather than a shiny optical one. Menus work as you’d expect; trailers and other extras are there; original audio and video quality is preserved, since RealDVD isn’t compressing or otherwise messing with anything. (In my tests, copies took between 4GB and 8GB of space.)

You can play DVDs in a window or in full-screen mode; jumping around is smoother than with an…er, real DVD. And Real says that playback will sap less of a laptop’s battery life than watching a true DVD.

RealDVD lets you browse either DVD box images or a text list of your movies (note that in the first screen below, Gracenote couldn’t supply images for a couple of my DVDs).

The Gracenote identifications went fairly well in my tests, but not perfectly. The service properly recognized major movies and TV shows as well as obscure stuff like the East Side Kids’ Ghosts on the Loose. It was also smart enough to identify the individual discs in a box set, so RealDVD could collate them into one set in its DVD browser. In other instance, though, its work was rough. For instance, it didn’t distinguish between the widescreen and standard versions of The Freshman, each of which comes on one side of the disc. (RealDVD let me copy both of them, but I had to edit the names to tell them apart.)

Gracenote’s data on genres was also odd or thin in my tests: It catalogued Snow White and the Seven Dwarfs as action/adventure and had no genre information at all for any of the other kid-related DVDs I saved. RealDVD doesn’t let you edit its category fields; you’re stuck with Gracenote’s categorization or lack thereof and can only check the service again in case it’s updated its info on a particular DVD. That limited the usefulness of the ability to browse by category, at least with the discs I saved. (Speaking of kids, you can turn on parental controls which let you restrict access to movies by their MPAA rating)

What do the DVDs look like on your hard drive? They’re squirreled away in a folder called My DVDs, and each movie consists of a folder full of files itself. It’s tempting to try to move these folders onto a networked drive or copy them to another PC’s hard drive to spread the goodness. Don’t bother. Network drives aren’t supported, and each DVD copy is permanently tied to the disk it was copied to in the first place and won’t work if moved elsewhere. Both measures were taken by Real to avoid ticking off the movie industry so much that RealDVD would become lawsuit bait.

You can, however, opt to save movies to an external USB hard drive rather than your PC’s internal drive. Do that, and you can move the entire drive full of DVD copies to another PC on which a copy of RealDVD resides. The program will autosense the new drive, show the copies you’ve stored there in its DVD browser, and let you play movies straight off of the drive–assuming that you’ve added the PC to your RealDVD license, which costs $20 for every machine (up to a total of five) beyond the first one.

The most important new news in the DEMO was a look at the interface, which looks nice: Like a program such as iTunes does for CDs, RealDVD identifies your movies when you insert a disc and downloads a box image and movie details. You can browse your movie collection via those box images.

Real says you can store movies on an external drive or thumb drive, and the software will notice that you’ve attached the drive and show the movies on it. I’m not sure if you can store movies on a networked drive, but I’m not sure why you couldn’t.

Oh, RealDVD copies preserve menus and bonus materials, and you can record a movie to your hard drive at the same time you’re watching it.

RealDVD looks like it does a nice job of what it sets out to do, which is let folks copy and watch DVDs in a way that’s simple and designed to avoid being sued into oblivion. That doesn’t mean that Hollywood won’t sue Real over RealDVD–I can’t imagine that content owners are thrilled by the idea, since they’d much rather sell you all the movies you already paid for as digital downloads.

I also suspect that folks who use existing DVD rippers will sneer at the idea of paying for an application that retains copy protection and therefore lets you do less with your ripped DVDs. But Real is presumably hoping to sell RealDVD to large numbers of consumers who don’t know about existing tools, find them intimidating, or–hey, here’s a novel thought–stay legal.

I think the software might do quite well with that audience, and I’ll give you more impressions once I’ve had a chance to try it…

The New York Times is reporting that Real Networks will announce RealDVD tomorrow at the DEMO conference in San Francisco. (Which is where I am–I’ll be in the audience when it does.) Real is presumably betting that it’s figured out a way to make a DVD copying program that won’t be sued into oblivion in a nanosecond. And even if they bet wrong, it’s going to be fascinating to watch it come to market.

RealDVD doesn’t sound like total DVD-copying nirvana: It won’t produce DRM-free copies of DVDs that you can copy at will, download to your iPod, or upload to BitTorrent, according to the Times. Rather, its copies will retain copy protection; you can play them on only up to five PCs, and only if you’ve paid for the $30 software on each of those machines. That’s a significant set of limitations, but it would still allow you to store a library of movies on your hard drive for playback. (I’m not sure offhand whether you’d be able to keep them on a networked hard drive for playback via multiple computers around the house, but I sure hope so–it would be nifty.)

The Times quotes a technology exec at a studio who sounds skeptical about RealDVD, which isn’t surprising; it’s hard to imagine anyone in Hollywood speaking positively about it, at least for the record. But the real question isn’t whether Hollywood is thrilled with the idea of RealDVD–it’s whether it’s legal. If it is, this is great news, and other companies will presumably jump into the market with similar products once Real has tested the legal waters.

I’m looking forward to learning more at DEMO tomorrow, and even more so to trying RealDVD once I can get my hands on it. Keep your fingers crossed: If it is indeed a real way to put DVDs on your PC easily and legally, it’ll be very good news for consumers with DVD collections that they don’t want to be forced to repuchase as digital downloads…