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RealNetworks' suffers net loss as sales drop

Legal fees and the effects of foreign currency exchange rates hurt the digital entertainment company as first-quarter losses grow and revenues sink.

RealNetworks, best known for its RealPlayer software, saw weaker results for the first quarter of 2009, the digital entertainment company said Thursday.

Net loss for the quarter ended March 31 was $12.1 million, or a loss of 10 cents a share, versus net income of $2.4 million, or 2 cents per diluted share, in the first quarter of 2008. Revenue was $140.8 million, down 5 percent from $147.6 million a year ago. Results were below estimates from analysts polled by Thomson Reuters, who expected a loss of only 6 cents a share.

The Seattle-based company blamed the weaker results on two key factors. First, the ups and downs of foreign currency exchange rates hurt the bottom line. Excluding rate changes, revenue climbed 1 percent over the previous year's quarter.

Legal fees also took a major toll. Since late last year, RealNetworks has been embroiled in a legal battle over its RealDVD software, which can rip a digital copy of commercial DVDs onto a personal computer. Hollywood, courtesy of the Motion Picture Association of America (MPAA), has sued RealNetworks to prevent the company from selling the program. Since 2008 RealNetworks has shelled out $6 million in legal fees and associated costs to defend RealDVD.

Some of RealNetworks' business segments showed revenue growth. Music sales climbed 16 percent to $44.1 million, while sales of games eked out a 3 percent gain. This was offset by a 15 percent decrease in revenue from technology products and a 23 percent drop in sales of media software to $20.3 million. CEO Rob Glaser said the company showed "resilience amid the deepest recession in decades."

RealNetworks was cautious in its report about the outlook for 2009 due to weak consumer spending and foreign exchange rates. The company views the year ahead as a challenge for consumer spending, online advertising, and corporate spending. For the second quarter, RealNetworks sees a sales decline from the year-ago quarter and expects foreign currency rates to continue dragging down results.

On other news, John Chapple has been appointed to RealNetworks' board of directors. Chapple brings to the table experience with telecom companies, including Nextel Partners, where he was CEO for eight years.