Earnings: While Expanding Global Mobile Moves In Q2, RealNetworks’ Profits Fall 96.7 Percent

Citing the absence of payments related to its antitrust settlement and commercial agreements with Microsoft, RealNetworks (Nasdaq: RNWK) said its Q2 net income plunged 96.7 percent to $1.3 million, or $0.01 per diluted share, compared to $38.9 million or $0.22 per diluted share, last year. The digital player company received a set of payments from Microsoft spread out over last year, which boosted RealNetworks’ Q206 earnings significantly; the last payment it received was in Q107. Meanwhile, revenue grew 52 percent to $136.2 million in Q2 versus $89.4 million during the same period in 2006. Other Q2 highlights:

— Gross margin was 64 percent compared to 70 percent in Q206.

— Music revenue was $36.8 million, a 22 percent rise over last year.

— Games revenue came in at $24.9 million, up 17 percent.

— Media Software and Services revenue dropped 3 percent to $25.4 million.

— For Q3, RealNetworks expects revenue in the range of $141 million to $145 million.

— Technology Products and Solutions segment revenue was $49.1 million, a 310 percent increase over the second quarter of 2006, due to the acquisition of mobile entertainment company, WiderThan. Earnings release | Webcast (5:00 p.m. EST)

Update: Rob Glaser, RealNetworks’ chairman and CEO, began the company’s conference call with investors and analysts by discussing the company’s recent global mobile moves. “In the second quarter, we signed up two new carriers, a large mobile carrier in China to provide graphical images within SMS messages and in the UK, a pan-European provider of both music and video on-demand. We also added several other important carrier relationships with two acquisitions. The combination of RealNetworks and WiderThan gave us an excellent footprint with tier-one carriers in the US and Asia, but frankly, we were missing the third leg of the stool, which was Europe. I’m pleased to say that in our second quarter, we made significant progress in building up that third leg.” In May, the company acquired Sony’s NetServices division and also struck a global partnership with Vodaofone, to provide it with music services across Europe.

— Later during the call, Glaser sought to highlight the connection between its consumer music business and mobile music business. “The strategy of being in both these segments is predicated on the belief that they will both be converging over time. The recent introduction of Apple’s iPhone validates our strategy of going deep in both segments. Our strategy is quite different from Apple’s; rather than making all the hardware and software sells, we create deep software platforms, operate them as services, and partner with hardware makers and carriers to deeply integrate our services into their products. We think our strategy is the winning one to lead in the horizontal music market over time. Apple’s stated goal is to have a 1 percent share of the mobile handset market. This gives us a great opportunity to lead in the other 99 percent of the market, where we can collaborate with carriers and handset makers, rather than competing with the handset guys and trying to turn the carriers into ‘dumb pipes, which is what Apple is doing.

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