Earnings: RNWK 3Q05 Revenues Up 20 Percent; More Than 2.2 Million Paid Subs

Updated to include earnings call: RealNetworks reported revenues of $82.2 million for 3Q05, up 20 percent from $68.3 million in 3Q04. Net income hit $11.2 million, or 6 cents a share, a big swing from the net loss of $7 million in 3Q04 with help from an $8.4 million gain via the sale of equity in a Japanese company. Real now had more than 1.3 million paid music subs — more than double the 625,000 music subs in 3Q04 — out of a total 2.2 million-plus premium digital media subscriptions. The music count includes Rhapsody on demand, premium commercial-free radio services and, starting in 2005, the Rhapsody radio registrations bundled with broadband ISPs like Comcast. Music now represents 30 percent of the company’s revenues.

From the earnings call: Chairman and CEO Rob Glaser said free Rhapsody 25 continues to produce as an “on-ramp” for new premium subs and as an advertising vehicle. It will be integrated with MSN Messenger and MSN Search as part of the Microsoft settlement.

Glaser on Yahoo/Apple: Yahoo’s decision to increase subscription music prices by as muich as 100 percent undercuts what RNKW believes was Yahoo’s “core consumer marketing proposition.” He said RNWK was right not to “stick to our guns and to not enter into a race to the bottom on price.” He acknowledges Apple’s expertise when it comes to music devices but sees potential in with the closed ecosystem around the iPod. “One of the standing lessons of the technology industry is that open beats closed long term.” To that end, Real is emphasizing its efforts to expand horizons; he offers the deal with Microsoft as an example.

A marketing deal with Circuit City and ScanDisk will give a free portable music player to new subs who sign up for six months of Rhapsody To Go.

Earnings release | Webcast | Webcast with slides

mp3logo1.gif Updated: You can download the audio of the conference call here. (6.6 Megs, 38 min.)

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