@ BMO Media: Michael Eggers, CFO, RNWK: Preparing For Games Spin; Growing Subscription Revs

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imageBack in May, RealNetworks (NSDQ: RNWK) announced plans to spin off its casual games business and make a filing on that sometime by the end of the year. So why announce it now if it’s going to take a while? Basically, because the news would’ve leaked. CFO Michael Eggers explained at the BMO eMerging Media Forum that a spin is a pretty complex process and involved more legwork than an acquisition (and those often leak), so might as well just get it out there: “We made the public announcement which allows us to move forward in an effective bases.” He noted the exact form of the spin (partial or full) is still undecided.

Why spin?: Basically Eggers offered the standard reasons: “over the long term we can maximize value the casual games space provides better as a standalone company.” As a standalone company, management can focus better, and with its own public currency, the company can be part of the consolidation of the industry. In other words, it’s likely going to buy smaller casual games businesses. There are also benefits in terms of employee attraction and retention (read: certain game-design employees might be inclined to work there without getting paid in stock of the challenged music business).

Games Strategy: More advergaming. Eggers: “Of the people who come to download a game, 1-2 percent convert (to a paid download).” Thus advertising is a way of making money on interested users that don’t buy the game. Expect more in-game video ads: “The challenge is to do it through natural breaks in gameplay.”

Music Goals: So far, subscription music has been kind of a dud: “Candidly, we were very disappointed that growth in subscription music was not larger than it was.” Real chalks this up to two limiting factors: Device incompatibility (no iPod) and lack of awareness. Well there’s still no iPod support (and there probably never will be), but they’re doing more work on devices that work with the service, so we’ll see. On awareness, remember that $230 million note that MTV contributed to the Rhapsody America JV? That money is earmarked towards advertising to raise awareness. After four months of running ads, brand awareness among the targeted demographic has doubled from 10 to 20 percent. (Of course, brand awareness and subscribers are two very different things and at this point, the company isn’t getting more detailed. Our guess is that it’s a slow process). Other areas the company hopes to benefit from: DRM-free (similar to Napster’s (NSDQ: NAPS) goals), international revenue, and partnerships with wireless carriers, like Verizon (NYSE: VZ) (again, similar to Napster).

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