Will consumer economics have an impact on RealNetworks?

RealNetworks CEO Rob Glaser almost made it through his company's quarterly earnings call without taking a jab at Apple and the iPhone. But near the end of the call, he took a quick mathematical poke at Apple to drive home his point that there are plenty of opportunities to launch a mobile music service that utilizes a device other than the iPhone.

If you measured mobile music devices by column inches. you'd think everyone has an iPhone. Apple's goal is to sell 10 million iPhones... If they sold 10 million, that would be one percent of the market. That means 99 percent of the market is not buying an iPhone.

Point taken. There's a lot of room out there for some solid competition and, on the surface, Real's latest attempt to revitalize its music business through the Music Without Limits initiative that launched one month ago has some attractive components, including the marketing message that its mp3 files are compatible with the iPod.

Still, I still tend to cringe when I hear the word "subscription" and it doesn't matter if we're talking about Rhapsody or Verizon's VCAST (one of Real's partners). Glaser made an interesting point during his call with analysts today. As part of a larger point he was making, he noted that macroeconomics will have an small impact on his company, most likely by an overall advertising slowdown. Advertising, he said, is one of those expenditures that companies can reduce or eliminate for short-term savings without compromising revenues. They do it even when there's a rumor of an economic slowdown, referring to it as a sometimes knee-jerk reaction. But revenues from other sectors, notably ringtones and other small scale transactions, don't feel the pinch. "That's 1$ or $1.50 for consumers. That pocket change level of expenditure doesn't seem to change," Glaser said.

Here's the thing: Businesses aren't the only ones who make knee-jerk spending cuts when economics shift. So do consumers. And, at least in my household, some of the first things to get sacrificed are the monthly subscriptions that we can quickly eliminate without impacting our livelihood.  It's harder to cancel electricity than it is to, say, cut out HBO. It's not so easy to get out of the monthly cell phone bill these days but the Rhapsody subscription could easily go. Of course, I don't want to be a complete curmudgeon in the eyes of my kids so when they ask if they can download a ringtone to their phones, I usually give in. It's a buck or so. Pocket change.

The company also noted that it is still developing a plan for the spin-off of its games division, which was the best performer of the quarter, and how that will be conducted. The company plans to file the necessary paperwork for the spin-off by the end of the year. For the full year, it adjusted its expected revenue to a range of $620 million to $630 million and a net loss of 2 cents to 6 cents per share. For the second quarter, it reported a loss of $1.3 million, or 1 cent per share, compared to a profit of $1.3 million, or 1 cent per share, for the same quarter lsat year. Revenue was $152.6 million, up from $136.2 million a year ago. Wall Street had been expecting a net loss of 2 cents per share on $153 million in sales, according to a survey by Thomson Reuters.