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September 13, 2006

RealNetworks: Now a wireless company?

Posted by Kim Peterson at 10:46 AM

Seattle Times reporter Tricia Duryee raises an interesting possibility in her article today about RealNetworks' acquisition of South Korean company WiderThan for $350 million. WiderThan works with carriers to sell ringback tones and music downloads.

Is RealNetworks becoming a wireless company?

The company has a long legacy on the desktop computer, but has seen its RealPlayer software lose market share to other players. Its Rhapsody music service is an elegant and usable program, though built on a subscription-based "rent your music" model that faces tough competition from other services, like Microsoft's upcoming Zune service. For the first six months of the year, RealNetworks' revenue from music was $59 million, up from $47.8 million for the same period in 2005.

Its downloadable games business is showing solid revenue growth as well, at $39.8 million for the first half of this year compared with $25.8 million for 2005.

The sales numbers look good, but profit has been slow. For the second quarter, once you remove the impact of Microsoft's antitrust settlement and other items, profit was only $4.8 million.

I've been waiting to see what RealNetworks would do with the $760 million in settlement money from Microsoft, thinking that the company would not just be content with slow and steady growth. Real made an unsuccessful attempt in the past year to acquire Seattle-based PopCap, which would have raised its profile as a gaming company.

Its music and game initiatives work well in the wireless space too, with the added benefit that there is no Redmond behemoth with a lock on mobile operating systems and software services. Is Real on the verge of shelving its desktop legacy and becoming a major wireless contender? It looks like it.

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Tricia Duryee
Tricia Duryee
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