According to PricewaterhouseCoopers (PwC) Global Entertainment and Media Outlook: 2010–2014 (Outlook), the U.S. market for digital media across all segments, including text, games, music, and video will reach $134 billion by 2014 and contribute 26% of the $517 billion media market. Compare this with 2009, when digital content contributed 19% or $81 billion of a $428 billion media market. With entertainment and media spending expected to grow at a compounded annual rate of 3.8% in 2010–2014, digital media players can expect to have a good run in the coming years.
However, RealNetworks (NASDAQ:RNWK), a digital media service provider, reported a 3% sequential and a 38% annual decline in Q3 revenues of $86.4 million. During the quarter, Core Products revenues fell 11% over the year to $51.9 million, Games revenues declined 13% over the year to $25.8 million, and Emerging Products revenues were down 37% to $8.8 million. Revenues also missed the Street’s target of $88 million. The company reported EPS of $0.18 compared with a loss of $0.07 expected by the markets. EPS were significantly higher than expected due to an IRS refund of $30 million.
For the fourth quarter, the company projects overall revenues from all of its segments and overall adjusted EBITDA to increase sequentially.
RealNetworks completed its much-needed reorganization and is now working on building its business to address the growing market. Earlier this year, it spun off the Rhapsody segment and announced two rounds of job cuts as part of its reorganization. The company was also considering spinning off RealGames, but these plans are currently on hold as the business shifts its focus to mobile and social networking games.
Earlier last year, CEO Bob Kimball expressed his concerns about the company’s product pipeline by describing it as “not where it should be.” To help build its product portfolio, the company recently revealed Unifi, their personal media service, on the cloud.
Through Unifi, RealNetworks expects to become the trusted keeper of their consumers’ digital content by helping to protect, organize, provide access on multiple screens, and enable sharing of this content. The service will let users create a “unified library” of their digital life by enabling them to access content stored across multiple devices anywhere and through any device. The service will be launched for PCs, Apple, and Android devices this quarter and will be followed by BlackBerry and Windows Phone 7 devices in the following quarter. Up to 2 GB of storage space will be available free, and additional storage will be for a charge. Also, for less than $10 per month, RealNetworks will ensure that users’ data is backed up on the Web. The company believes they have a good business model as most consumers have over 60 GB of digital content. RealNetworks will be selling Unifi through carriers and OEMs.
The service recently received rave reviews at the Consumer Electronics Show (CES) and won the “Best of CES” award. The reviewers were pleased with Unifi’s ability to deal with data without any restrictions on the type of content or location, so that it pulls content from any library and any device, in addition to letting all devices act as “remotes” for the library and having a user-friendly interface. Industry observers also expect that RealKeeper will offer a premium video service later on since the video functionality in the present demo version seemed lacking.
RealNetworks’s Games Focus
To help grow its GameHouse segment, the company recently acquired Backstage Technologies, a Canada-based social games developer. Backstage has developed games and apps such as Scratch and Win and Vinyl City for Facebook and is best known for its Facebook game version of Family Feud, which has more than 6 million users. Earlier last year, RealNetworks launched GameHouse Fusion, the first social gaming platform to make all games social and give consumers access to thousands of socially connected games within a massive worldwide casual gaming community across multiple social websites and devices. The addition of the Backstage games will extend GameHouse’s presence as a leading social games developer. This is an area in which we can expect more acquisitions.
The stock is trading at $4.12 with a market capitalization of $559 million. In August of last year, it touched a 52-week low of $2.59.