Media Metrix (January) had RNWK attracting more unique visitors (7.8M) than BCST (7.7M). I am afraid that once RealGuide hits its stride, the comps for BCST could start to really stink. I know Mark would say he is a customer of RNWK, rather than a competitor. But I thought this was interesting...
March 17, 1999
Tech Stocks
Cuban's Comments Highlight
Tensions With RealNetworks
By NICK WINGFIELD
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- Comments from the president of a key
customer of RealNetworks sent its shares to record highs this
week. But while investors rejoiced, RealNetworks made clear that
it wasn't pleased.
Last Sunday, at an industry conference in Austin, Texas,
Broadcast.com President Mark Cuban was predictably bullish on
future growth of streaming media, which his company uses to
transmit radio stations, shareholder meetings and other
programs over the Internet. But he couldn't resist making a
prediction about RealNetworks, the leading streaming-media
software company. Within a year or so, he said, the Seattle
company will be acquired, perhaps even by Broadcast.com itself.
Following Mr. Cuban's speech, RealNetworks' executives
emphatically denied the company was up for sale. In any case,
Mr. Cuban's impolitic remarks highlighted the increasingly
strained relationship between Broadcast.com and RealNetworks,
the company that has supplied Mr. Cuban's firm with software for
years but which now seems poised to compete with it as a hub
for multimedia on the Internet.
As Mr. Cuban's comments from the South by Southwest
Interactive festival trickled out to investors Monday,
RealNetworks' stock shot up 26 1/8, or 27%, to an all-time high of
121 1/4 on more than twice its normal volume of 955,000 on the
Nasdaq Stock Market. After slipping on Tuesday, RealNetworks
jumped 11 1/2, or 10%, to 126 1/2 Wednesday on news that
Microsoft would help promote a revamped version of RealGuide,
the company's destination site for listing sources of streaming
audio and video content.
But despite the sharp stock gains, RealNetworks executives
bristled at the suggestion that their company was on the block.
"We are on the record denying categorically what Mark Cuban
said," said Steve Haworth, vice president of communications at
RealNetworks. Added Jay Wampold, director of communications
at RealNetworks: "We are denying categorically that we are even
in play."
The notion that RealNetworks would be an attractive acquisition
target isn't absurd, according to some analysts. Robert Martin, an
analyst at Friedman, Billings Ramsey & Co., said the company
would be a "great takeout candidate." That's because
RealNetworks is largely synonymous with audio and video
streaming, a technique that allows a user to listen and watch
multimedia content as it's being downloaded to their machines
rather than after it's been downloaded.
In an interview, Mr. Cuban said he had no knowledge of
acquisition talks between RealNetworks and other companies,
saying his comments were meant to make a larger point about
audio and video content on the Internet. "It's so important to the
future of media that it would be shocking if someone didn't try to
consolidate the industry," said Mr. Cuban, who confirmed that
he'd aired similar thoughts about RealNetworks at a separate
technology conference last week.
Still, it's clear Mr. Cuban's remarks -- and the discomfort they
provoked at RealNetworks -- represent a new chapter in a
relationship that's grown more tangled over time. Although
RealNetworks started out as a software company, supplying firms
like Broadcast.com with servers for streaming media over the
Internet, the company has become a major publisher of Web sites
in its own right, operating a collection of popular online
destinations like RealGuide, Film.com and others that showcase
multimedia clips. According to measurements from Media Metrix,
RealNetworks sites' reached 7.8 million unique visitors in
January, compared with 7.7 million for Broadcast.com.
As a result, RealNetworks is beginning to compete more with
customers like Broadcast.com, who sell advertisements on sites
that seek to aggregate sources of multimedia. Although
RealNetworks maintains that it has strong ties to media
companies on the Internet, it admits there are challenges to its
relationship with Broadcast.com. "It is a complicated
partnership," said Mr. Haworth. "At one and the same time, we
are a premier streaming software provider and also a major
aggregator of content."
Some estimates place RealNetworks' share of the streaming
multimedia market at upwards of 80%, with Microsoft's NetShow
a distant second. The company claims to have 54 million
registered users of its RealPlayer software.
The one hitch in RealNetworks being acquired, according to Mr.
Martin: RealNetworks' founder and CEO, Rob Glazer, appears
fiercely committed to keeping the company independent. That
may be because an acquisition by a bigger firm like America
Online could aggravate some of its customers, particularly media
firms that might compete with the likes of AOL. "You sort of have
to say if someone buys Real, some of the breadth of Real's
business opportunity is almost inevitably constrained," said John
Powers, an analyst at BancBoston Robertson Stephens.
Friedman's Mr. Martin had his own pet theory for why Mr. Cuban
would float the possibility that Broadcast.com might be a suitor
for RealNetworks. It's Broadcast, not RealNetworks, that is
"probably the one in play," he said, adding that Mr. Cuban
"probably wants to inflate his own price so he can get a higher
valuation on a takeout."
Broadcast.com, in fact, did see its share price surge 5% to 93
3/8 Monday.
For now, advertising on RealNetworks' Web sites amounted to
only 5% of its total 1998 revenues of $64.8 million. But some
analysts are expecting more of its sales to come from advertising
in the near future, particularly if the company gets more
aggressive about streaming advertisements directly through its
54 million RealPlayers.
Optimism about that prospect prompted Friedman's Mr. Martin to
raise his investment rating on the company to a "buy" in January.
Mr. Martin predicted new advertising opportunities might add as
much as $26.7 million to his current fiscal 1999 revenue estimate
of $90.6 million for RealNetworks. By 2001, he believes
advertising could add $46.2 million on top of his $192 million
revenue estimate.
"They will definitely alienate some customers," said Friedman's
Mr. Martin. "But what they're trying to do is delicately build
revenue streams that are additive. From that perspective, they
have to walk a fine line."
That view is shared by Josh Felser, president of Spinner.com, a
Burlingame, Calif., company that uses RealNetworks software to
stream dozens of music channels to listeners over the Internet.
While Spinner.com has benefited from promotions on
RealNetworks' Web sites, Mr. Felser said the company would
have to rethink its relationship with RealNetworks if it launched a
competing service.
"There is a line they can cross but they haven't," Mr. Felser said. |
