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RealNetworks slides out of the red

Digital music strategy set to outweigh media streaming efforts

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RealNetworks, the Internet media streaming market leader, has finally begun making money: its latest fiscal figures, released yesterday, showed a profit of $3 million for its third quarter on revenues of $34.9 million. This time last year, the company recorded revenues of $17.7 million (making for a 97 per cent increase year on year), and a loss of $2.5 million. RealNetworks' profit was knocked down slightly thanks to the company's acquisition of MP3 software developer Xing. Without the charge it would have posted a profit of $4.4 million. The company said growth had been strong across its product line, but it highlighted both its RealJukebox digital music system and the revenue it generates from advertising on its portal site, which grew from $2 million to $4.1 million. RealJukebox is central to RealNetworks' ongoing success, as other companies, most notably Microsoft and Apple, try to muscle in on the streaming market. Microsoft's pitch here is the way it can integrate its Windows Media Technologies into the OS and thus into a good proportion of the Net's servers. Apple, on the other hand, has been leveraging the open source movement, the very low cost of its media server and QuickTime's role to as the media creation standard. RealNetworks' profit suggests that both initiatives have yet to bite into its chief money-spinner: the hefty licences it levies for its server software. That said, Apple and Microsoft will begin to hit RealNetworks here, which is where RealJukebox comes in. By building up a significant userbase for RealJukebox -- 12 million users and counting -- RealNetworks is getting itself nicely prepared for the inevitable explosion in the digital music market. It's a canny move, since the Net music business will ultimately be worth much more than the streaming market, and will have matured long before the Net's available bandwidth can support Net-streamed video that's of sufficiently high quality to become a medium on a par with TV. RealNetworks' skill has been to leverage its RealPlayer userbase to promote RealJukebox to the point where it has sufficient critical mass to be the obvious choice for a music industry keen to offer a standard download and track management interface for digital music. No one wants a market fragmented by umpteen formats, and RealNetworks is one of the very few companies capable of offering a unified digital music front end. The big labels are likely to end up supporting RealJukebox -- if not by intent, then simply by default. So even if Microsoft and Apple -- or anyone else, for that matter -- cuts deeply into RealNetworks' streaming business, it really won't matter too much. Instead, the company can sit back and reap the rewards of a far more lucrative market. ®

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