RealNetworks, MTVN To Spin Off Rhapsody; Real Gives Up Control

The groundwork has already been laid and now it’s official: RealNetworks (NSDQ: RNWK) is spinning off music service Rhapsody in the hopes of giving both companies a better chance at success. Real will reduce its interest in the Rhapsody America joint venture to below 50 percent to match Viacom’s, giving up control of Rhapsody and making room for more investors. Real will contribute some cash; MTV Networks (NYSE: VIA) will put in advertising. The new company, which will operate independently, will be known as Rhapsody.

The SEC filing comes scant weeks after the resignation of founder Rob Glaser as CEO but was well in the works before he gave up the operating role, keeping that of chairman. Acting CEO Robert Kimball described the decision to remove Rhapsody “as a significant first step in making RealNetworks a more focused and profitable company” — stressing that the digital music service is, from Real’s perspective, being given everything it needs to succeed as “the largest pure play digital music service in the market.” I’m sure he means it but in reality that may be a stretch. What would give Rhapsody the ability to succeed on its own when it hasn’t been able to thrive under so many other circumstances?

The details: As part of the transaction, RealNetworks will contribute $18 million in cash, along with the Rhapsody brand, to the new company, while MTV Networks will contribute a $33 million “advertising commitment.” MTV Networks and RealNetworks will each get two board seats; there will also be an independent director agreed upon by both firms. A spokesman tells us that the existing Rhapsody management team will stay in place. The spinoff is expected to be completed late this quarter.