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9/13/2006
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RealNetworks Gets Into Mobile Entertainment

The digital media company known for its Rhapsody music service agreed to pay $350 million to acquire a South Korean provider of ringtones and other mobile services. This was followed on Wednesday by the launch of the RealArcade Web site, which offers ringtones and mobile video games.

RealNetworks Inc. planted a stake in the mobile entertainment space this week with two strategic moves.

The digital media company known for its Rhapsody music service and RealArcade game service agreed to pay $350 million to acquire South Korea's WiderThan Co. Ltd., followed on Wednesday by the launch of the RealArcade mobile content Web site that offers ringtones and casual video games.

The announcements made at the CTIA Wireless IT and Entertainment 2006 conference in Los Angeles.

WiderThan, a spinoff from South Korea's SK Telecom, sells ringback tones callers hear while waiting for the recipient to answer their phone. It also offers service support, mobile music and other entertainment services. Customers include Cingular Wireless, SK Telecom, Verizon Wireless, and Vodafone.

Jointly designed by SK Telecom and WiderThan, the ringback music platform consists of a player, software and server that sit in the carriers' network. The player inserts music, rather than the tone of a ring, as the call goes through.

"We manage the complete system for the carriers," said Vern Poyner, president and CEO of WiderThan Americas, who will step in to run RealNetworks' application service provider business in the Americas. "There's also a Web site to change the ringback tones. For Verizon, we do this with a BREW application."

WiderThan launched one of the world's first ringback tone services and now operates ringback tone services for 14 carriers; the combined subscriber base of approximately 191 million. Of these subscribers, approximately 16.9 million consumers use ringback tone services.

The mobile entertainment market will grow from $15 billion in 2005 to $38 billion in 2009, at a compound annual growth rate (CAGR) around 25 percent, according to Juniper Research.

As for gaming, about 13.5 million wireless subscribers downloaded a mobile game between April and June 2006, according to Telephia Research.

Casual games like puzzles and card games don't require hours of play to understand how they work. The game industry views the casual game segment as a growing market.

"RealNetworks is banking on the mobile space for key growth in music and games," said D.A. Davidson & Co. analyst Alan L. Davis. "The acquisition makes strategic sense. They appear to have a lot of excess cash from the Microsoft settlement."

In July, RealNetworks posted record revenue of $89.4 million in the second quarter, ended June 30, helped in part by a 55 percent jump in casual game revenues, and a $57.9 million payment from Microsoft Corp. courtesy of a court settlement related to digital media player technology.

RealNetworks' revenue could reach $369 million this year, and climb to $425 million in 2007, Davis estimates. WiderThan won't add to this year's earnings, but could account for another $150 million in 2007.

Through the partnership, RealNetworks will launch the direct-to-consumer game venture with PlayPhone, which can provide customers access to a catalog of more than 150 games and thousands of ringtones and wallpaper graphics for mobile phones.

The RealArcade mobile content portal supports more than 500 mobile phones on Cingular, AT&T Wireless, Sprint and T-Mobile wireless networks, and is accessible on the Internet from any connected PC or mobile phones.

The new portal allows customers to quickly and easily load their phones with a variety of entertainment content. Mobile games like Luxor, Gorillaz and The Apprentice are available, as well as top ringtones such as Sean Paul's "We Be Burnin" and Madonna's "Hung Up." The $9.99 monthly fee is added to customers' mobile phone bill, and includes 14 download credits that roll over for up to 90 days if unused.

But RealNetworks isn't alone in the mobile games market. Big Fish Games Inc. specializes in selling downloadable casual games. Microsoft and Yahoo! Inc. also offer casual games.

Nokia expects to launch a service by June 2006, available through carriers. The cellular phone maker announced a deal on Tuesday that Electronic Arts (EA) Inc. would provide content.

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