Earnings: RealNetworks Posts Higher 1Q Profit; Price Hike For Rhapsody Unlimited

Citing strong performance from its digital music subscription business, RealNetworks (NASDAQ: RNWK) posted positive 1Q earnings and revenues. Its 1Q net income was up 60 percent, reaching $40 million, or 22 cents per diluted share, compared with $24.88 million, or 14 cents per share, in the previous year. Revenues rose 50 percent to $129.5 million from $86.6 million. Additionally, the company reported:

— Games revenue was $23.9 million, a 28 percent gain over the same period last year.
— Music revenue was $34.1 million, an 18 percent increase over 1Q06.
— One slightly negative spot was Media Software and Services, which had revenue of $27.0 million, a 1 percent decline from last year.
— Technology Products and Solutions segment, revenue was $44.4 million, a 277 percent increase compared to 1Q06, which was primarily due to the acquisition of ringtones provider WiderThan. More to come. Earnings release | Webcast

Staci adds: A few notes from the brisk earnings call:

Wider Than: This was the first fully integrated quarter for the two; chairman and CEO Rob Glaser said the integration process has gone smoothly. In 1Q07, the company signed deal or launched services with Rogers, Canada; Helio, U.S.; S Telecom, Vietnam; Telecom TV, U.K.; TDF, France; DigiTurk,Turkey.

Gaming:
— Produced in house, the game Little Shop of Treasures had the highest first month unit sales of any game in history of RealArcade.
— The two in-game advertising options have delivered nearly 75 million in-game video ad streams with 5.5-plus million users downloading more than 8 million ad-enabled games. Advertisers included Proctor & Gamble, Hanes, Honda, and Sony Pictures. Revenue for the nearly 20 games with in-game ads has exceeded that of the try-before-you-buy model.
— All-you-can-eat Fun Pass is “off to a good start.”

Music:
— The subscription base rose to 2.67 million or so from 2.55 million at the end 4Q06. The key driver: the Sansa Rhapsody device and the deal with Best Buy.
— Based on early data, people buying the Sansa Rhapsody are three times more likely to become paying subscribers than those who buy other MP3 devices. Real has deals with iRiver, Tivo, Nokia, and Logitech. Each of these partners is expected to launch Rhapsody optimized devices in coming months.
— Rhapsody.com is the 4th-largest music site in the U.S., up from number 5 at the beginning of ’07. (Nielsen NetRatings)
— The price of Rhapsody Unlimited is being hiked to $12.95 a month from $9.95. Rhpasody To Go stays at $14.99.
— Glaser believes the music industry will follow EMI’s move to DRM-free music within the next year or so. Subscriptions would continue to have DRM.
— Glaser: “We are looking at international rollouts of a variety of services, but our focus has been to do a great job in the U.S. this year and then take it from there.”
Read the transcript at SeekingAlpha.com for a detailed answer from Glaser about pricing.
— Glaser: “I think it is fair to say that the subscription category, if you look at the overall category growth, is not as high as we think it could be and there is a whole set of factors for that, and it is fair to say that this interoperability question in general has had a stultifying impact.”

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