RealNetworks Eyes the Tube Warily

As viewers demand more from their television sets, will they demand less from the Internet? That's a question RealNetworks (RNWK) must ponder.

Little by little, TV viewers are gaining access to entertainment on demand, both in the form of video on demand distributed via cable operators, and hard-drive-equipped set-top boxes distributed by cablers, satellite broadcasters and consumer electronics retailers.

That trend raises the question of whether -- and if so, how soon -- media consumers will turn away from what has appeared to be an increasingly popular platform for VOD: services from RealNetworks, Yahoo! (YHOO) and AOL Time Warner's (AOL) America Online that deliver video clips on demand to PC screens.

Certainly, a clear vision of RealNetworks' role in the world of on-demand entertainment might improve the outlook for the stock. Once RealNetworks' shares came down from their 2000 dot-com peak, they've budged little over the past two-and-a-half years. While revenue grew year over year in the first half of 2003, the company's loss expanded from $4 million in the first half of 2002 to $11.5 million in the first six months of 2003. RealNetworks stock, which has ranged from $2.68 to $9.29 over the past year, fell 24 cents Wednesday to close at $6.94.

Evolving

RealNetworks, which launched its online subscription media services more than three years ago, says it will have an important role to play in aggregating on-demand entertainment -- including video, music and games -- as the distribution landscape shifts.

But others aren't so sure.

In a recent report surveying how the Internet has changed the entertainment landscape over the past five years, technology research firm Forrester Research forecasts that entertainment lovers -- who have been driven to the Internet by the growth of broadband and the shortage of TV-delivered video on demand -- will migrate back to TV. "Beneficiaries like RealNetworks have seen their finest days," according to the Forrester report, authored by analyst Chris Charron.