RealNetworks Slashes Staff, Spending

Streaming media company RealNetworks (Nasdaq: RNWK) announced late Thursday that it is laying off approximately 15 percent of its workforce, or 140 employees.

In addition to the layoffs, Seattle, Washington-based RealNetworks said it would make “significant reductions in discretionary spending.” The company said the steps would allow the company to concentrate on long-term growth.

“I regret that the economic slowdown has required these changes, and I want to thank our departing employees for their dedication and service,” RealNetworks chairman and chief executive officer Rob Glaser said.

Employees let go by RealNetworks will receive a “comprehensive package of separation benefits and outplacement services,” according to the company.

Restructuring Charge

As a result of the restructuring, RealNetworks expects to take charge in the third quarter of US$4 million to $5 million. The company said that except for the charge, its financial guidance for the third quarter remains unchanged.

“We are refocusing and rebalancing our resources to invest in long-term growth,” Glaser said. “After we adjust our cost structure, it’s absolutely our intent to resume our track record of pro forma profitability and positive cash flow.”

On July 17th, RealNetworks reported pro forma net earnings for the second quarter of $2.4 million, or a penny per share. Analysts had predicted earnings of 2 cents per share. For the year earlier period, RealNetworks pro forma net earnings had been $10.6 million, or 6 cents per share.

Glaser also said last week that he expects RealNetworks earnings to dip even lower in the third quarter.

Stream Widens

Despite Thursday’s gloomy news, there are signs of hope for RealNetworks and other streaming media companies, as new streaming media markets open up.

A report released in June by Yankee Group said that with more consumers gaining access to broadband technology and interactive television, a new market for the sale of audio and video content and streaming media advertising is developing.

“A substantial opportunity exists for offering and distributing advertising via streaming media that consumers ask to see or hear,” the Yankee report said.

Yankee estimated that the market will grow to $3.1 billion by 2005 from $44 million last year.

Play On

RealNetworks is well positioned to take advantage of the growing online music market. In April, RealNetworks partnered with AOL Time Warner, Bertelsmann, and EMI to form MusicNet, a venture designed to provide streaming music and other services over the AOL and RealNetworks sites, as well as other distributors that might want to license the content properties. The venture is reportedly due to go live this fall.

In June, MusicNet signed a license agreement with Napster designed to allow users of the controversial file-swapping service access to copyrighted music. Napster has shut down its service and is preparing to reopen as a paid subscription channel.

MusicNet’s primary competition will come from Pressplay, a service Microsoft’s MSN has in partnership with Sony Music Network and Universal Music Group.

A report released Monday by Jupiter Media Metrix predicted that U.S. consumers will spend $6.2 billion on online music purchases by 2006, up from $1 million in 2001. Online music sales will make up 32 percent of total music sales in five years, up from 7 percent currently, the research firm said.

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