RealNetworks' Real Strength
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It may not be reflected yet in its stock price, but the deal announced Monday between streaming multimedia software maker RealNetworks Inc. and music industry powerhouse Time Warner should considerably strengthen RealNetworks' already commanding leadership position in the Internet music software market.
Starting next month, users can download individual songs from Warner artists such as Jewel, Vitamin C and Edwin McCain, and then play the songs using RealNetworks' RealJukebox software.
The goal for Warner is to use the free downloads to entice customers to buy an entire CD. The goal for RealNetworks is the same as its always been: To make the Seattle-based company's software the de facto choice for customers and businesses using multimedia over the Internet.
RealNetworks claims that 85% of all Web sites offering audio and video content use its RealPlayer software. In the past year the number of registered users of RealNetworks' products has nearly triple, going from 27 million to 70 million.
Now the company is working the other end of the product pipeline with Time Warner's Warner Music Group, which along with EMI, Sony, Universal Music and BMG controls more than 80% of the global music market.
Whereas last year the major music companies saw the Internet as a threat - especially the MP3 digital format, which the industry feared would cost it millions through pirated music - this year they are tentatively embracing the 'Net.
In June EMI bought a 50% stake in Web site musicmaker.com and contracted digital music technology company Liquid Audio to encode music for download. And Sony now allows visitors to retail music stores to download songs from a kiosk.
The online music industry, slow to start mostly due to knee-jerk paranoia on the part of the companies that own the content, is just now entering a high-growth phase. By building market share and brand name over the past four years, and by embracing multiple formats such as Liquid Audio and MP3, I believe RealNetworks is perfectly positioned to ride the wave.
Shares of RNWK barely moved on Monday's news, rising only 63 cents to close at $67.63. But the market is gripped by a strong selloff that may continue until Alan Greenspan gives the word on interest rates in two weeks. I expect RealNetworks to bounce back stronger than most Internet stocks when the market turns.
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