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A Real big target for acquisition

In the wake of Yahoo's acquisition of, industry eyes are beginning to focus on RealNetworks as the next possible takeover target.

In the wake of Yahoo's acquisition of, industry eyes are beginning to focus on RealNetworks as the next possible takeover target.

RealNetworks stock chart RealNetworks' stock hit a new 52-week high today as interest in Web streaming reached a fever pitch as a result of today's $5.7 billion buyout of by Yahoo.

Other streaming firms also got a boost today on new interest in streaming media. Intervu, for example, shot up nearly 40 percent.

RealNetworks, which says its RealPlayer has 57 million registered users and is the best-known streaming firm, jumped 23.06 to 145.25 in afternoon trading. Other gainers included, a supplier of audio programming, which rose 1.69 to 12.75.

All the activity in this space flies in the face of those who were predicting doom for RealNetworks, which last summer was embroiled in a distribution battle with Microsoft. RealNetworks alleged during a Senate hearing that Microsoft's Windows Media Player "broke" RealNetworks' G2 player. Microsoft denied the claims, pinning RealNetworks' problems to a bug.

In November 1998, a few months after chief executive Rob Glaser testified before the Senate, Microsoft divested its 10 percent stake in RealNetworks, pitting the two camps squarely against each other. During the year-plus relationship, the two companies sparred over compatibility and market share issues that eventually led to the relationship deterioration and the divestment.

Analysts said the deal will spark more interest from both online and offline media firms to develop their own Web streaming strategies, placing RealNetworks in a prime position to leverage its user base and brand recognition.

"We believe that the recently announced merger will accelerate demand for Internet-based streaming media content," analyst David Readerman of Thomas Weisel Partners wrote in an analyst note today. "Yet we believe this merger will also accelerate Internet user demand for both RealNetworks servers and clients."

Readerman added that more traditional media will have to add streaming features to their Web sites or face being left behind. "The merger could precipitate a rush by traditional broadcasters (TV/radio) to 'Web-ify' as mass media broadcasting shifts onto the Internet.

"Traditional broadcasters risk further erosion of the projected $67 billion in 1999 advertising revenues across TV and radio at $50 [billion] and $17 billion, respectively. The Internet has eyeballs and now is 'packaging' an equivalent audio/video experience for both national and local markets," he added.

Takeover a Real possibility?
The pool of companies that need a streaming media play remains large. Plus, Real offers technology that is developed and also accepted by a critical mass of Net users--which is a rich package. An outright acquisition could be the easiest way for a company to set itself up.

"RealNetworks has a market cap that is similar to's," said Jupiter Communications analyst Patrick Keane. "It seems that they could be a potential target now."

Keane added that offline media companies such as Disney own the media content, but not the delivery mechanism. This factor could accelerate the need for traditional media companies to develop more compelling Web offerings.

"All the major portals are going to need to [make a streaming media play]," he said. "Disney is potentially in that category, but they'll have to build and aggregate that content."

America Online's name has been tossed into the hat as a potential suitor for RealNetworks. Some analysts say the partnership makes sense, since the companies already have a deal to distribute the RealPlayer through 1.3 million AOL 4.0 CD-ROMs. However, other analysts are doubtful, saying the online giant already has the technology platform to deliver broadband media.

The deal "does show AOL who the future competitor will be," said William Blair analyst Abhishek Gami. "But does AOL need Real to drive traffic? Probably not."

Streaming market opportunity lies ahead
However, some analysts are not convinced that the deal will result in a similar move by RealNetworks. Lehman Brothers equity analyst Michael Stanek noted that RealNetworks remains inherently a different company than, and, moreover, it depends on for consistent revenue.

"Our opinion is that RealNetworks is not in play," Stanek wrote in an analyst note. "RealNetworks is on the record, as late as two weeks ago, saying that they have no intention to sell. Management reiterated that stance last night. From the point of view of the company, the market opportunity remains significant given that we are early in the growth cycle for streaming media.

"The acquisition gives RealNetworks another avenue from which to pursue a deepening of relationships with Yahoo," he added.

Stanek today reiterated his "buy" rating for RealNetworks and raised his price target from 125 to 165.

"This reflects recognition of RealNetworks' market leadership and multibillion-dollar market opportunity that lies ahead," Stanek wrote.