RealNetworks Looking More and More Like a Media Distributor

The firm's streaming technology could help it move into content distribution over the Net, now the territory of its customers.
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SAN FRANCISCO -- Despite

RealNetworks'

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humble claims to be a mere media technology company, it's looking more like a candidate to become the Net's leading media distributor.

That transformation is apparent whenever RealNetworks announces new initiatives, as it did Monday. The streaming-technology pioneer is introducing a new server and production tool for streaming media, new software that allows streaming-media ads and a new product developed with

Intel

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that delivers

Microsoft

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PowerPoint presentations over the Web.

All products fit within the mandate that RealNetworks has publicly declared -- technology that allows media companies to pump higher-bandwidth sounds and images over the Internet. But some of them also position the company to easily move into the business of its customers: the broadcasting of content, and possibly the distribution of software applications, over the Net.

Last month, RealNetworks unveiled a revamped multimedia guide and new products that heightened expectations that the company would leverage its dominance in streaming technology to become the Net's leading broadcast network. As RealNetworks slowly evolves into a media company, it's likely to generate more of its revenue from advertising and e-commerce instead of from licensing its streaming-media server software.

Some watching the company say the

morphing into a media company has been happening in a low-key fashion for some time. "RealNetworks is starting to cross over into the aggregation and management of content, focusing themselves as a hub instead of as a technology provider," says Rob Martin, an analyst with

Friedman Billings Ramsey

, which maintains a buy rating on the stock and which has done underwriting for RealNetworks.

Those grappling with the possibility of RealNetworks' emergence as an online media giant can chew over another question: Will the company capitalize on its chance to enter the fledgling market for application service providers -- companies that distribute software applications over the Internet rather than selling them in shrink-wrapped packages or bundled in PCs? The ASP market is one eyed closely by Microsoft, which makes some of the most popular applications in use today, including Word, Excel and PowerPoint.

The new PowerPoint-enabling product, called RealPresenter, provides RealNetworks with access to another vertical market -- the sales and marketing divisions of corporate America that have made PowerPoint one of the most popular business applications, says Dan Chung, senior analyst with

Alger Asset Management

, a RealNetworks investor.

But for now, the big news is that RealNetworks' new streaming server and software will make it much easier to distribute and track ads that contain more audio and video instead of simple text and graphics animations. That's important to content providers, who until now have not been able to take full advantage of increased bandwidth to pitch products to their audiences.

Microsoft declined to comment on the release of RealPresenter, but a source close to Microsoft is likely to unveil a similar product this week at the

Streaming Media West

conference in San Jose, Calif. Analysts say RealNetworks' new technology is sure to rankle Microsoft. "Everything

RealNetworks does pisses off Microsoft," says Martin.

Some predict that RealNetworks will roll out more products that stream other types of software during the next year. "I expect

RealNetworks to come out with modules built on top of their platform that add applications focusing on various vertical markets," says Chung.

The streaming-media ads, meanwhile, could overcome one of the key obstacles to a mainstream adoption of high-bandwidth content. "Currently streaming media is a cost center," says Paul Thelen, RealNetworks' Media Systems group product manager. Streaming ads could prove more effective than current ad banners. One study co-sponsored by Intel and

Excite@Home

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found that rich-media ads provide 22% higher recall and 35% more clickthroughs.

To stay on top of this shift, RealNetworks is rolling out a new advertising extension that allows media companies to integrate rich-media ads into their streaming-media files. "This allows content providers to generate revenue from those streams and build business models around them," says Thelen. RealNetworks will not receive any of that ad revenue, he says.

For companies that don't have the infrastructure to stream high-bandwidth advertising, RealNetworks is now offering such a service through

Real Broadcast Network

, its streaming-media hosting service, in partnership with ad-management firm

DoubleClick

(DCLK)

. Finally, Real has also developed a new product that enables radio broadcasters to insert Internet-only ads into the programming it distributes online.

Looking forward, Real's Thelen hinted that the company will continue to introduce more products that enhance the broadband experience and help businesses turn a profit off their technology. But he disagreed that RealNetworks is becoming a media company, a claim that that senior executives have recently made in the press.

"There's a lot of misleading articles saying we were a consumer media company," says Thelen. "The media systems division is not about eyeballs. We're about enabling content providers to deliver content."