Earnings: RealNetworks Hit By Currency Exchange Rates, Legal Fees; Verizon Boosts Music Revenues

This story was written by Tricia Duryee.
RealNetworks (NSDQ: RNWK) said today that its first-quarter financial results were heavily affected by currency exchange rates, resulting in a five percent decrease in revenues compared to the year-ago period, and a net loss, compared to a profit in the first quarter a year earlier. Excluding the effects of these foreign exchange rate changes, revenue grew 1 percent year-over-year. The company's current litigation over its Real DVD product is also contributing to its net loss.

One bright spot was music revenues, which increased 16 percent to $44.1 million from the year ago period. In an interview, RealNetwork's CEO Rob Glaser (pictured, right) said growth is occurring on the subscription side, and mostly as a result of the new relationship it has with Verizon (NYSE: VZ) Wireless. "The work we do with them is the single-biggest part of that. We are nine months into that and that's still working well." He said they've jumped from 600,000 to 800,000 music subscribers and "Verizon is the single biggest difference."

Glaser said the company is not providing a detailed financial forecast for the year because they remain cautious on the economic environment. Glaser: "I would say the phrase 'shoots of green,' is fairWe are seeing some for sure, but we aren't in the business of speculating on when the recession will end. We are viewing the environment as one in which there is less panic or fear and people are rolling up the sleeves and saying 'what do we do moving forward.'"

Release | Earnings call (2 p.m. PST).

Financial performance: For the first quarter of 2009, revenue was $140.8 million, a decrease of 5 percent, compared with $147.6 million in the first quarter of 2008. Music revenues jumped 16 percent; game revenues increased 3 percent; technology products and solutions revenues (mostly the wireless division) dropped 15 percent to $43.6 million and media software and services (including RealPlayer) dropped 23 percent to $20.3 million. The company reported a net loss of $12.1 million, or 10 cents a share, compared with net income of $2.4 million, or 2 cents a in the first quarter of 2008.

Net loss: One of the contributing factors to the company's quarterly loss is fees associated with its current DVD litigation. The Real DVD program had expenses of $6 million during the quarter, and legal fees represented a portion of that.

Real DVD: Closing arguments in Real's DVD litigation, regarding are set to occur this week, Glaser said. As part of the litigation, he said they demonstrated a product that has not yet been announced. It is similar to a DVD player that would also act as a hard drive and allow consumers to save DVDs that they have purchased.

Outlook: In Q2, Real expects overall revenue to decline year-over-year and to be flat to slightly down sequentially. Compared with the year-ago second quarter, the company expects second-quarter Music revenue to increase, and revenue in Games, Media Software and Services and Technology Products and Solutions to decline.

New board member: RealNetworks also announced that John Chapple has been appointed to the company's board of directors. Chapple was previously CEO and Chairman at Nextel Partners. He also sits on the boards of Yahoo! (NSDQ: YHOO) and Cbeyond. Chapple replaces Jeremy Jaech, who previously announced he would not be running for a new term.

By Tricia Duryee