August 30, 2004

Music Metrics ROI

RealNetworks Promotion Sells 1 Million Songs in 1 week (49 cents a tune)

RealNetworks Promotion Sells 1 Million Songs

By Robin Arnfield
NewsFactor Network
August 27, 2004 10:11AM

"This strategy will cost it money -- RealNetworks could lose $2 million from below-cost sales -- but will give its service a huge boost," says Forrester Research analyst Rebecca Jennings. "Real's Harmony technology also hits Apple where it is weakest -- in its lack of compatibility."


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RealNetworks has sold one million songs from its RealPlayer online store in the week since it launched its 49-cent-per-track promotion, the Seattle, Washington-based company announced. In addition, RealNetworks cut the price of most albums to US$4.99.
The promotion is part of a concerted push to transform RealNetworks from its origins in the mid-1990s as a developer of streaming media software into a provider of paid Internet content.

"Selling 1 million songs from our Internet jukebox in one week is the highest level of sales we have ever experienced," RealNetworks spokesperson Matt Graves told NewsFactor. "RealNetworks is now the number-two [company] in a la carte music-download sales. We are also the number-one provider of online music-subscription services, as our Rhapsody platform now has 550,000 subscribers."

No Profits Yet

The move into the download market has offset declines in RealNetworks' software business, but there is no profit to show for it yet. Revenues from consumer services increased 50 percent in the first half of 2004 and accounted for four-fifths of the company's sales.

RealNetworks has posted five quarters of losses and, last week, increased its loss forecast for the third quarter after cutting prices on its music downloads. It said that the effect of the campaign would be to increase third-quarter net losses by 1 cent per share. The company revised its forecast of net losses from a range of 3 cents to 4 cents a share to a range of 3 cents to 5 cents a share.

Revenues from RealNetworks' consumer services rose 50 percent to $99 million in the first half of 2004, while its business-software sales fell 14 percent to $26 million.

Targeting Apple

Last week's announcement of price cuts formed part of RealNetworks' biggest-ever ad campaign for digital music, with print, radio and Internet spots being used to target customers of Apple's iPod music player.

At the end of July, RealNetworks announced a beta version of its new Harmony software, which allows songs sold by Real to be played on an iPod. Until this point, the only music store that could provide paid-for songs for the iPod was Apple's iTunes. Apple sells songs online for 99 cents each.

Harmony was launched last week as part of RealNetworks' latest player, RealPlayer 10.5 with Harmony Technology. The new player enables consumers to play songs downloaded from the RealPlayer Music Store on more than 100 portable music devices, including the iPod and iPod mini.

Freedom of Choice

RealNetworks has called its latest promotion the "freedom of choice" campaign, to stress that consumers do have options as to where they play the music they download. "Consumers didn't realize that they were being locked into a particular brand of portable player, such as the iPod, forcing them to buy music that only worked on that device," Graves told NewsFactor.

"Our freedom of choice campaign has certainly got a lot of people talking about consumer choice in online downloading," Graves said.

Huge Boost

"RealNetworks' 49-cent downloads were launched to provide a significant challenge to Apple's dominance, and on the basis of the initial selling figures, appear to be doing so," Forrester Research analyst Rebecca Jennings told NewsFactor.

"This strategy will cost it money -- RealNetworks could lose $2 million from below-cost sales -- but will give its service a huge boost. Real's Harmony technology also hits Apple where it is weakest -- in its lack of compatibility. Consumers want flexibility, and their adoption of Harmony will push the likes of Apple, Sony and Microsoft into improving the interoperability of their hardware and software," Jennings predicted.

"Real will get a short-term advantage while this happens -- although, once it has happened, it is likely to lose ground again," Jennings continued. "What will be achieved is that consumers will realize that Apple's iTunes proprietary technology locks them into Apple -- and will start questioning whether to buy iPods while this remains the case."

Student Deals

Separately, Real announced that it had signed deals to offer its Rhapsody Internet jukebox service to over 80,000 students at the University of California, Berkeley, and the University of Minnesota, starting this fall.

The discounted music program for college students is part of a one-year test program that Real expects to expand to other campuses next year. It offers a Rhapsody subscription to 30,000 Berkeley undergraduates for free through October 31st and at a deep discount after that date, RealNetworks said.

In Minnesota, over 50,000 students at four state university campuses can buy the service at reduced monthly rates or at even deeper discounts for 3- or 12-month subscriptions. Normally, the service costs $10 a month.

"By offering students legal alternatives to music piracy, we're investing in the future of the online-music industry," says Richard Wolpert, chief strategy officer, RealNetworks, in a statement.

CIO Today: NewsFactor Network - - RealNetworks Promotion Sells 1 Million Songs

Posted by Craig at August 30, 2004 11:24 PM