RealNetworks Takes New Aim at Microsoft

RealNetworks ( RNWK), contending with weak demand for its systems software, will fire about 10% of its workforce and restructure its operations.

The reorganization, which RealNetworks says will result in a charge of $4 million to $6 million, is intended to help the company focus on two promising areas of its business: its growing RealOne consumer subscription service and its recently announced Helix software, intended to be a universal platform for enabling audio and video transmissions across the Internet.

The move -- not the first time the Internet media company has cut its staff (now numbering around 800) -- represents the latest effort by RealNetworks in its multiyear effort to escape the shadow of Microsoft ( MSFT), the marketer of the Windows Media format that RealNetworks competes against and the alma mater of RealNetworks CEO Rob Glaser.

Shares in RealNetworks, which traded above $80 in early 2000, fell 9 cents to close at $3.89 Wednesday, then dropped an added 11 cents in after-hours trading once the company announced the restructuring.

"The impact of the ongoing turbulence in the telecommunications industry and the weak capital spending environment on our systems business has caused us to step back and thoroughly review our strategy and operations," Glaser said in a statement.

RealNetworks, which says it isn't changing guidance except for the aforementioned charge, says the company's systems business is being refocused around the Helix software platform announced last month. The software, a particularly aggressive challenge launched against Microsoft, will be able to deliver audio and video media in any format, says RealNetworks, including Windows Media. In addition, RealNetworks says it will release the software code behind Helix so that companies and programmers can modify it as they see fit.

If RealNetworks manages not to be thwarted by Microsoft in the courtroom, the new venture could reduce demand for Microsoft's proprietary software for transmitting Windows Media.

One RealNetworks shareholder, familiar with the company's ups and downs, called the Helix launch a "brilliant" move in Glaser's continuing struggle with Bill Gates' empire, given Microsoft's current antitrust fight.

"It's a very bad time for Microsoft to raise a stink about this," said the shareholder, speaking on condition of anonymity. "If they sue them, they're screwed. If they don't sue them, they're screwed."

The second area of focus that RealNetworks announced Wednesday -- its RealOne consumer business -- has been the highlight of RealNetworks' recent financials. RealOne's growth has been vigorous, with the company reporting 150,000 new subscribers in the second quarter, bringing the total subscriber count to 750,000 in the June quarter. Subscription revenue grew 31% from the first quarter of 2002 to the second quarter, in sharp contrast to systems sales, which fell 24%.

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