Realnetworks Inc

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REALNETWORKS INC.

Headquartered in Seattle, Washington, RealNet-works Inc. offers Internet media delivery software and services. Its products allow computer users to send, receive, and view streaming media, including movie and video clips and audio programming, such as Internet radio broadcasts. In the early 2000s, RealNetworks offered several widely used software products including different versions of RealJukebox, which allowed users to record CD-and near-CD-quality versions of their own music onto PCs, and RealPlayer for playing streaming media via the Internet. In addition to offering products to individual users, RealNetworks also provided its products and services on an enterprise basis to large companies, schools, and government agencies for a variety of purposes including marketing, corporate communications, distance learning and training, investor relations, and customer service. According to Hoover's Online, more than half of RealNetworks' revenue comes from licensing fees consumers pay to receive premium versions of the company's software; basic versions are offered free of charge. RealNetworks CEO Robert Glaser holds a 35-percent stake in the firm.

EARLY DEVELOPMENT, 1994-1996

RealNetworks was founded in February 1994 under the name Progressive Networks by Rob Glaser, a former Microsoft executive. At Microsoft, Glaser worked in the area of applications and networking before becoming vice president of multimedia content and consumer systems. In high school, he demonstrated an early interest in media by wiring the school's radio station to the cafeteria, gym, and several other locations. As president and CEO of Progressive Networks, Glaser introduced RealAudio at the annual convention of the National Association of Broadcasters in April of 1995, and the commercial version of RealAudio 1.0 was released that July.

According to RealNetworks' 1997 annual report, the firm spent much of 1995 getting operations established. Efforts were focused on activities like recruiting staff, obtaining funding, research and development, establishing brand awareness, and working to create a market for streaming media products and services. That year, the RealPlayer began distribution with Netscape's Web browser, Apple Computer's Internet Connection Kit, and Microsoft's Internet Explorer, and ABC News added live RealAudio content to its RadioNet Web site. By the end of October, the company announced the development of RealAudio System 2.0, which supported mono-quality music and audio for those with 28.8 modems. Additionally, the company secured $5.7 million in financing from venture capital firm Accel Partners.

In 1996, Progressive Networks continued to focus on research and development. The firm developed sales channels in the United States and abroad, and began establishing its administration. In February, Progressive named Bruce Jacobsen as the company's president and chief operating officer (COO). Jacobsen, who earned degrees from both Yale and Stanford, had previously served as COO of Dream-Works Interactive, a partnership between Dream-works SKG and Microsoft. Glaser remained as chairman and CEO. Developments continued to unfold during 1996 when a premium version of the RealAudio Player was introduced in August and an additional $17.9 million in external financing was obtained in December from several investors.

OFFERINGS EXPAND TO INCLUDE VIDEO, 1997

In 1997, Progressive introduced RealVideo, which it touted as the Web's "first feature-complete, cross-platform video broadcast solution." Announced in February and commercially released in June, the software included "destination buttons" that allowed users to easily access programming from the likes of MSNBC, ABCNews.com, CBS/Sportsline, and Fox News. Computer Reseller News explained that the new RealPlayer, equipped with RealVideo, relied on a process known as dynamic streaming. The publication explained that the new version of RealPlayer "detects congested Internet traffic and adjusts the video-frame rate for continuous uninterrupted Web video." In addition to individual users, leading companies like Boeing Co. also began using the streaming video application to deliver training and corporate content to employees.

In August of 1997, Progressive partnered with MCI to create RealNetwork, which allowed multimedia content to be delivered more reliably and efficiently based on a user's geographic location. In September Progressive Networks changed its name to RealNetworks Inc. and announced that it had filed for its initial public offering (IPO). On the first day of trading, shares increased almost 50 percent, resulting in a market capitalization of $600 million. By October, more than 1 million people had downloaded RealPlayer 5.0, which included a variety of audio and video enhancements including near-CD-quality sound for those using 28.8 or greater modems. RealNet-works' revenues soared 134 percent in 1997 to $32.7 million, with a net loss of $11.2 million.

RAPID GROWTH AND DEVELOPMENT, 1998-2001

By 1998, more than 20 million RealPlayers had been downloaded and more than 150,000 Web sites used the firm's software to offer streaming content. Early in 1998, RealNetworks rolled out Mobile Daily Briefing, an Internet site that provided audio content to portable devices. In February, it acquired competitor Vivo Software Inc., which developed applications that Web developers used to create streaming digital media. The acquisition, which was completed in late March, increased RealNetworks' market share and added a base of talented individuals who could further develop RealNetworks' product line. It also was in 1998 that RealNetworks formed an alliance with Internet advertising firm 24/7 media to create an advertising network of Web sites offering rich media content. Prior to forming the alliance, RealNetworks had conducted an analysis of Web sites that included rich media ads and found them to have higher response (click-through) rates than traditional ads. The new network presented broader rich media opportunities to advertisers.

In November of 1998, Microsoft announced that it would sell the minority stake it held in RealNet-works. Glaser cited growth in the streaming media market, and the fact that Microsoft was an emerging competitor, as reasons for the move. Glaser eventually claimed that Microsoft added code to its Windows operating system that caused operating problems for RealPlayer, and tension developed between the two companies. Also in November, RealNetworks shipped RealSystem G2, which included 3D technology and search tools for finding multimedia content, along with many other enhancements. Revenues for the year reached $66.4 million.

Several developments unfolded at RealNetworks in 1999. The company introduced its free RealJukebox, which allowed users to record near-CD-quality versions of their own music onto PCs, and RealJukebox Plus, a premium version of the free product which the company heralded as "the first complete digital music system with CD-quality recording and playback." After the beta version of RealJukebox was launched in May 1999, RealJukebox quickly became a hit with computer users. Media Metrix placed the number of unique users at 2.2 million after only one month. In September, RealNetworks named Thomas Frank as the company's COO. Two months later, it announced the formation of the Real.com Network, which provided users with a single source for locating and accessing a wide variety of streaming media. RealNetworks also unveiled RealPlayer 7, which performed better than its predecessors and included better navigation capabilities. Seven days after it was introduced, a record-breaking 3 million copies of the new player had been downloaded. On a sour note, RealNetworks was hit with two class-action lawsuits in 1999. The company was accused of violating user privacy by collecting information about their listening habits without consent. However, good news came in the form of healthy net revenues, which soared 98 percent over the previous year, reaching $131.2 million.

Venturing into the new millennium, RealNet-works acquired Netzip Inc. in 2000. Netzip developed software for managing the downloading of files via the Internet. The acquisition improved RealNetworks' ability to deliver its products to customers throughout the world. In 2000, the company also introducedReal.com Games, a site for downloading computer games from leading developers, and unveiled nine international editions of RealJukebox and RealPlayer 7. Adoption of RealNetworks' products continued to soar. Media Metrix indicated that approximately 29 million people used RealPlayer during March. Additionally, the number of unique registered RealPlayer users exceeded 115 million. RealNetworks introduced RealPlayer GoldPass in 2000, which it described as "the first all-in-one media subscription service on the Internet combining premium audio and video content, value-added software and games, and advanced services for consumers." Subscribers to the service would surpass the 150,000 mark by the end of January 2001. Besides introducing improved product offerings in RealVideo 8 and RealAudio 8, the company ended 2000 on a positive note as net revenues increased 84 percent over 1999, reaching $241.5 million.

In February 2001, Larry Jacobson was named RealNetworks' president and COO and assumed responsibility for the firm's daily operations. A graduate of Harvard Business School, prior to joining RealNetworks Jacobson served as president and COO of Ticketmaster Corp. and president of FOX Television Network. The company introduced RealArcade, which expanded the existing gaming offerings on the Real.com Games Web site. RealNetworks also joined with AOL Time Warner, EMI Group, and Bertels-mann to create a separate, independent company known as MusicNet to offer a subscription-based online music service. As high-speed Internet connections became more commonplace and the processing speed of the average PC increased, the market for streaming digital media looked promising, boding well for the future of RealNetworks.