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Investors give Real deal second look

A bundling deal with Intel, first announced last year, finally catches investors' attention, but analysts are still unimpressed with the agreement.

Investors drove up RealNetworks' stock more than 23 percent after Monday's news of a bundling deal with Intel, but they left analysts wondering what all the fuss was about.

The bundling deal, which puts copies of RealNetworks' RealOne player on CD-ROMs distributed with Intel chips to systems integrators, is an extension of a deal the two companies inked in May last year.

Investors snapped up shares of the Seattle-based streaming company Monday, pushing the price nearly $1.31 higher at $6.89. At the close of market Tuesday, shares fell 15 cents or more than 2 percent to $6.74.

Oddly enough, investors were unimpressed by RealNetworks' Intel bundling deal when it was originally announced in May. On May 30, the company's stock fell marginally, closing down 4 cents at $11.30.

Analysts, also lukewarm on the value of the deal last year, said the announcement didn't appear to give RealNetworks any more of an edge in the race to dominate the streaming media market.

"I don't think that conditions have changed all that much from those seen" last year, said Dan Kusnetzky, vice president of system software at IDC, who in May questioned the value of RealNetworks' Intel bundling deal. "If anything, it appears that more and more Web sites are offering only (rival Microsoft's) Windows Media streaming content. This would tend to lend even more support to my previous statements."

Although investors may have misjudged the importance of the bundling deal, one analyst said RealNetworks is holding its ground against Microsoft, which has tightly integrated its Windows Media Player with its Windows XP operating system.

"The market definitely overreacted," said David Smith, a knowledge specialist with research firm Gartner. "RealNetworks still has the edge in market share at home and in the workplace, but it's reaching parity."

RealNetworks' bundling announcement came a day before a RealNetworks press conference in Los Angeles touting new partnerships and improvements for the company's RealOne streaming technology and subscription service.

On Tuesday, the company defended its Intel deal, calling it a valuable means of bringing its software to so-called white box manufacturers, which build custom PCs for businesses and other organizations.

"It's a service for them and another distribution channel for us," RealNetworks representative Erika Shaffer wrote in an e-mail interview. "Larger (manufacturers), such as Compaq and Sony, don't build their PCs that way and would come to us directly to offer RealOne to consumers--as both those companies have."

Shaffer said 30 percent of Intel's chips find their way into white box computers, but she said the company would not break out to what degree last May's bundling deal has helped distribution.

Intel emphasized that RealNetworks' software has long been among the products offered on CDs distributed with its motherboards. These software titles include Adobe's Acrobat Reader, Symantec's Norton Internet Security 2002 with Antivirus, Macromedia's Shockwave 8 player, and NTI's CD-Maker 2000.

"We have been bundling RealNetworks' products quite a while with our motherboards," Intel representative George Alfs said. "It's one of a number of items including antivirus and system-monitoring software."