RNWK: MICROSOFT ACKNOWLEDGES NEED FOR COMPATIBILITY WITH REALNETWORKS March 17, 1999
SYMBOL(S): RNWK
ANALYST(S): POWERS, JOHN
RATING: BUY
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Synopsis:
The following synopsis is qualified in its entirety by the more detailed information contained in the full research report, including the discussion of certain risks associated with an investment in this security contained in "Investment Risks."
Key Points:
We believe Microsoft (MSFT $167) will enable its new web-browser (IE5), which is being released today, to connect to RealNetworks' RealGuide. RealGuide is a directory that facilitates locating RealAudio and RealVideo clips on the Internet, much like a TV Guide for the Internet. Previously, Microsoft has sold its 10 percent share of RealNetworks in a highly-publicized falling out between the two companies. We believe that this announcement demonstrates that despite past tension, Microsoft is acknowledging the large market share of RealNetworks in the streaming multimedia market. Microsoft's Media Player is a direct competitor of RealNetworks' RealSystem G2.
RealNetworks announced today that it will be significantly expanding its current version of RealGuide. This resource which can be found at realguide.real.com will have links to more than 200 RealChannels and RealStations as well as more than 1700 TV and radio stations broadcasting in RealNetworks' format and more than 3000 sites providing streaming content. Although RealGuide is not new, this upgrade represents a continued focus from RealNetworks on connecting its users to content, a theme we also saw when Excite's search engine to find streaming content was integrated into RealPlayer.
Downloads of RealPlayer continue to be strong. Current download rates for RealPlayer are approximately 175,000 clients per day with the percentage of individuals choosing to purchase RealPlayer Plus ($29.99), the higher-end client, remaining consistent with historical rates at approximately 1% of client downloads.
More than 55 million unique individuals have downloaded RealPlayer and the number of unduplicated home users increased more than 300% annually according to Media Metrix to 15.5 million in December 1998. We believe that business in general at RNWK continues to be healthy.
Recently, RealNetworks has started to further recognize the value of advertising through its RealPlayer client. This new focus has been reflected in adding managerial depth to the advertising sales force and RNWK plans to take advantage of its large share of real estate on the desktop. Because this reorganization is fairly recent, we do not expect a significant change in advertising trends to be apparent this quarter.
Although we do not believe that streaming video advertisements will increase dramatically in the near term, we believe that the arrival of broadband technologies will enable streaming video advertising to be as commonplace as television advertising. We believe this change will occur when resolution of the ad is consistently excellent, a change which will continue to take place over the next several years as broadband becomes pervasive. In our view, RealNetworks is well positioned for this move to broadband through its existing partnerships with @Home/Excite as well as AOL and Lotus.
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