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Real revenue up; loss widens

RealNetworks announces executive changes and predicts a profit for 2004, excluding Microsoft litigation costs.

RealNetworks on Wednesday reported a wider net loss and brisk revenue growth compared with the same period a year ago, and announced that the company's president, Larry Jacobsen, is stepping down.

The Seattle-based digital media company posted a net loss of $10.4 million, or 6 cents a share, compared with a net loss of $2.8 million, or 2 cents a share, in the first quarter of 2003. Revenues hit $60.4 million, a gain of 29 percent over the 2003 first quarter.

Separately, the company said Jacobsen will step down from his post after an interim period, with no replacement for now. Dan Sheeran, formerly RealNetworks' senior vice president for marketing, will take over international responsibilities as senior vice president. RealNetworks also created a position of chief technology officer and named Edmond Mesrobian to the post to oversee development of its digital media technology.

The company's business services division has lagged in recent years, with sales remaining slightly below year-ago results in the first quarter of 2004.

Losses included charges of $4.9 million to unwind a golf sports programming deal with the Professional Golfers' Association and $2.3 million in litigation expenses related to an antitrust suit against Microsoft last year. Excluding those charges, RealNetworks lost $3.2 million, or 2 cents a share, for the period.

"Our business accelerated in the first quarter," RealNetworks CEO Rob Glaser said in a statement. "We believe we are well on our way to achieving quarterly profitability by the end of 2004, excluding antitrust litigation expenses."

RealNetworks' revenue gains come as the company has shifted gears away from business software to consumer products and online video programming. That strategy has taken a new turn recently, with the company opting to pursue back-end technology deals for third-party programming sites. At the same time, it is concentrating on music and games for its own consumer plans, rather than seeking to renew expensive exclusive sports-programming contracts inked several years ago.

For example, Real this spring ended a deal to carry Major League Baseball games on its Internet video and audio subscription service, effectively handing the deal to archrival Microsoft. The move has so far led to the loss of about 142,000 MLB subscribers, the company said Wednesday. In regard to the PGA, Real agreed to pay a $4.9 million penalty to back out of its contract 21 months early.

Subscriber losses were offset by new customers in higher-margin businesses, including music, the company said.

RealNetworks last year acquired online music company Listen.com and took over its Rhapsody music subscription service. Real also offers a Net radio service and launched a music download service last year.

RealNetworks added 100,000 new music subscribers in the first quarter, for a total of 450,000 music subscribers, the company said. Music revenue grew to $12.3 million, up 55 percent from $7.9 million in the fourth quarter of 2003.

RealNetworks' earnings report came as Apple Computer celebrated the one-year anniversary of its iTunes Music Store, widely seen as the leader in purchased music downloads. Apple said it has sold 70 million downloads since the store opened last year, giving it 70 percent of the commercial music download business.

Glaser has for months exorted Apple to open up its proprietary music format to third parties such as RealNetworks. Those pleas have so far been rebuffed, however.