CTIA, Los Angeles: It was easy to doubt RealNetwork’s potential success in the wireless market when its CEO Rob Glaser made a sort of mobile coming-out speech at the CTIA convention in 2005. (This is a guy I once saw doze off during an onstage panel discussion.) At this year’s CTIA show, which opened up in downtown Los Angeles this morning, Real did more than announce more mobile customer deal – it spent $350 million to buy Seoul-based, publicly-held WiderThan for $17.05 per share or $350 million.
It might seem like a high price for a not-so-well-known Korean mobile company with only 470
300 employees total (around 300 are in Korea), but WiderThan is the company behind SK Telecom’s wildly success music-on-demand and ringback tone services, as well as Verizon’s VCAST music service and mobile entertainment services for other carriers like India’s Bharti, T-Mobile, and the Philippines Globe Telecom. For the most recent six months, WiderThan brought in $61.9 million in revenues with a net income of $7.4 million. The acquisition price is about six times sales, not such an outrageous valuation if you consider that WiderThan is making money.
This is a smart, and strategic move for the company, which despite its best efforts has been an also ran in the download-to-PC music business. Like others, Rhapsody, has struggled to keep up with the Apple juggernaut, so perhaps diversifying into mobile music space is not such a bad idea. The timing of this deal is notable – Verizon is doing well with its Chocolate phone and if music sales on the device take off, it could be a welcome bonus for Real.
The CEO of WiderThan Americas Vern Poyner, and Real VP of Marketing Deepak Dhawan said after a press conference today that the two companies made the deal based on geographic and business complements. Real has partners in Europe while WiderThan does well in Asia, and the companies seem to have split up the U.S. carrier deals down the middle. Real’s Dhawan declined to to comment on mobile sector’s contribution to Real’s sales, but clearly that number is going to shoot up with the WiderThan acquisition. Real has to be very cautious and has to work hard to ensure that the two disparate companies can come together. Otherwise they would end up facing a situation not dissimilar from VeriSign.
VeriSign is an example of a company that seemed to have jumped into wireless in a similar rush, but not really known what to do with its wireless purchases. This morning News Corp said it is buying a majority share of VeriSign’s Jamba mobile service for only $188 million. VeriSign bought Jamba for $273 million in 2004.