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Interview: RealNetworks’ Kimball: Is There A Comeback On The Way?

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Since taking over as RealNetworks’ CEO in January, Bob Kimball has presided over an aggressive restructuring. He has led two rounds of layoffs, spun off the company’s Rhapsody music service, and focused resources on two of the company’s long-standing businesses — its software-as-a-service business for carriers and RealPlayer.

Now that those structural changes are largely done, the company says it is prepared to start growing again. It will be launching a major product early next year when it starts selling Unifi, a service that lets consumers access their personal media — including photos and music — from any of their personal devices. To succeed with Unifi, the company will have to win over both consumers and carriers. In a recent conversation, we talked to Kimball about the state of the RealNetworks (NSDQ: RNWK) business. He explained why the company’s game business could not have spawned a Zynga, spoke about the company’s acquisition plans, and made some predictions about how big of a revenue driver Unifi could eventually be. Read on for edited excerpts.

paidContent: What specifically about the restructuring has taken longer than you expected?

Restructuring a company of the size and complexity of Real is a very heavy lift because you have to do it with some care. You don’t want to break the existing business while you’re trying to change out the fundamental engine that’s driving it. Our overall product pipeline was (also) much less full than you would want it to be. So while we’re doing the simplification and restructuring we’re also trying to rebuild the product pipeline so you’re juggling a lot of balls at the same time and that takes longer than you would think.

Didn’t you essentially say a few months ago that there was no product pipeline?

It was limited. There was a product pipeline. We launched several new things this year like our media and entertainment platform for Metro PCS. That was new. We launched a new version of RealPlayer and we’re on the brink of launching Unifi. But you really want to see a little bit longer, more robust pipeline if you look over six, 12, 24, 36 months. You want to see a train, and what we’re doing is building that train.

What’s the complication with your GameHouse business. Why has that not been spun off yet? [RealNetworks has said for more than a year that it is planning to spin off its game unit].

It is still our long-term goal to separate that business. One of the simplifying decisions we made going in was not to be a media business — to really focus a little bit more on technology and services and get away from trying to be a media company. That was the right decision. At the same we’re not in a hurry to separate a business that we think is a quality business in a very interesting space with a lot of very unique and valuable assets. We want to make sure when we separate we get maximum value for Real shareholders. We don’t have the business in a position where I think we can maximize that value. I think there’s more we can do with it to make it more valuable and stronger as a spun-off business. It’s much easier to do that under the umbrella of RealNetworks than it is to have them make this pivot as a separate entity.

Does stronger mean building up its position in social games?


We want our games to be on social networks. We’re going to embrace that. We do have games on Facebook today, but there are a lot of people that just come to our site and just want to play games. We want that to be a much more immersive and social experience. So when you’re on the site there’s going to be the kind of things like chat and leader boards and virtual goods and points and badges, and all of the things that create a social experience around a game.

The take off of social games that has happened over the two years has been astounding .

It’s a stunning phenomenon, and it’s highly disappointing that we’re playing catch up and (are) not at the front of that.

Maybe that’s something that could not have happened within RealNetworks.

That’s exactly right. (Zynga was) starting brand new from nothing. We had a business we were focused on. It’s the upstart that needs the new idea to get traction as opposed to the incumbent who has got a big business. We’ve got a (games) business over $100 million that requires a lot of attention and focus. I think that can actually hurt you if you’re not looking over the horizon for the next interesting thing.

Should we expect more deals beyond a spin off of GameHouse?

I don’t have anything up my sleeve. We’re going to be looking for deals at all times. We have a lot of cash; we’re constantly looking for the right type of deals that can be accretive to the business and help us grow in a healthy way. We have $329 million in cash. That’s an asset we would like to put to work, but we’re going to be very smart about how we’re going to do it. That for us is normal blocking and tackling work.

What specific category would you want to double down on?

We’re very interested in the software and service space for network service providers — primarily that’s mobile carriers. We have this nice big channel of 90 carriers we provide services to worldwide. We would love to find additional products we can sell through that channel. It turns out doing that kind of work for carriers is a very big heavy lift, and we’re always doing it. We have the size and scale that carriers are comfortable working with us to do that. There are other companies that are smaller scale who have interesting ideas, but they’re going to have a harder time rolling those out as carrier-grade services. That’s where I think there are some opportunities for us to build pipelines smartly using our assets.

What’s the reasoning behind having both consumer, like RealPlayer, and business, like the software and service, units?

If you look at what we’re doing with Unifi. That’s a great example of how we can build services that we can sell through both channels in a very powerful way that strengthen our position in the market. If you look at other players in that space, they’re typically smaller. They don’t have a huge consumer channel, or if they have a huge consumer channel, they don’t have a huge carrier channel. We have both.

One of things that also helps us as we do business with carriers is having that direct customer expertise. They’re often relying on us to help build the right merchandising experience for digital media. We’re a trusted voice and trusted editorial voice for them to sell digital media products to their consumers.

How big do you think the market for Unifi is?

There are some third-party reports from Gartner and others that have this as a multi-billion-dollar market in the next three to five years. They’re looking at it very broadly. There are a lot of people out there who do standard backups, storage who fit in this market. I think we fit in personal media cloud section of the market. We do provide backup, but we’re not a pure backup. We’re much more about control and access and organization than they are.

Nobody is quite approaching it the same exact way we are. The people doing backup today are Mozy and Carbonite. They’re the traditional backup players. We have a very pure media focus on music, media and photos. We’ll also include documents over time.

So within a year is it fair to say that this may be one of largest revenue drivers for RealNetworks?

This is starting from zero, and we have businesses that have been around for a long time. I don’t think that would be a realistic expectation. We have a very big carrier business. RealPlayer is still a big business. That would not be a rational expectation.

What would be a rational expectation?

We haven’t put any specific numbers out there yet.

Within five years, will this be a major business for RealNetworks?

I would love for that to be the case. We’re going after it with that in mind. It has the potential to evolve as the way people interact with media evolves. You can readily imagine adding more to this — adding premium content services to this and really expanding beyond just personal media.

I feel like non-personal media, though, is moving more to a rental or streaming model, where you won’t need to actually store the media online.

You still might want one place where you can see what you have the rights and access to. I’m a big believer in simplicity, and for me it would be a lot easier if I could just go to one place where I have all my media on any device or any service, and maybe it’s the right to stream a song from Rhapsody. I’d like to feel good to go to one place and click on it and it plays for me. I want to mix my premium content with my own content at some level. I like it simple.

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