The spin out of Rhapsody, the RealNetworks originated subscription music service, is now complete and the company is now independent and quite frankly it has no remaining relevance to the future of online music.
RealNetworks now owns just under 47.5% of the company, and Viacom, through MTV, owns 47.5% and unspecified other shareholders, probably management, hold the rest.
In our view, this once supposed iTunes killer, will fade out of existence the moment that Verizon Wireless gets access to a device from Apple that can use iTunes. Its only chance is to try to leverage Android Market.
Recently the company has been burning through about $50 million of capital each year and it will only be funded with $18 million in cash, provided by RealNetworks and a $33 million advertising commitment from Viacom’s MTV. So around 1 year of life at its old spending rate is left to it.
The company has pinned its hopes on a new consumer deal at just $10 a month on a mobile phone and a PC, and it has launched an Android market application which it hopes will more than replace its strategic relationship with Verizon. This is $10 is down from a $15 a month deal for phones.
RealNetworks will also offload its games subsidiary and will now fall back on its MSS segment (media players) its TPS segment (DRM and media delivery) and its SaaS Software as Service which is really about services such as Ringback Tones, Music-On-Demand and Video-On-Demand on phones, as well as inter carrier messaging.
Going back to 2007 the Rhapsody plan was simple. Verizon Wireless would ensure music sales, by throwing away its music service and offering the new MTV backed Rhapsody as its VCast Music. MTV would put in money, and merge in the rights from its own rival service, and Rhapsody would be contributed by RealNetworks, who would own 51%.
It was thought that the global distribution of MTV, which operates on 135 television networks around the world and reaches 500 million people would have provided a basis for recommending the Rhapsody service, but so far this has not materialized, because largely the service hasn’t spread.
During 2009 RealNetworks total games revenue decreased, and its total music revenue was flat at $128.8 million with subscription revenue up and advertising down. But subscription growth was primarily driven by Verizon Wireless, and even this began to decline quarter to quarter at the end of the year. Add to that the constant noises that Verizon would soon have access to Apple products, and it made it clear that shortly Rhapsody music services would be in free fall.