Like everyone else, Real Networks is bracing for an uncertain economic future. But CEO Rob Glaser sees two potential bright spots that could help the company ride the storm. On an earnings call with analysts, Glaser said that the company's latest product, the controversial RealDVD, which allows users to import DVD movies into a computer hard drive, is a product worth fighting for.
A lawsuit by the Hollywood studios has prompted a temporary restraining order on the product but Glaser said the legal fees will be worth it and that RealDVD is product worthy of more investment, especially given the favorable reviews. "We're excited about this category," Glaser said. The case's next hearing is scheduled for January.
Secondly, he believes that big-ticket items will be harder hit by the economy, compared to smaller-sale items, such as individual music tracks or subscription services like the recently-launched partnership with Verizon Wireless, called VCast Music with Rhapsody. That monthly subscription is billed through Verizon Wireless.
On Wednesday, the company reported a third quarter loss of $4.5 million, or 3 cents per share, on revenue of $152.0 million. In the same quarter a year ago, Real Networks reported earnings of $4.3 million, or 3 cents, on revenue of $145.million. Gross margin was 59% in the third quarter of 2008, compared with 61% a year earlier. Analysts surveyed by Thomson Reuters had predicted a loss of 3 cents per share on revenue of $153.5 million.
The company also adjusted its guidance for the fourth quarter and full year. For the quarter, it expects a loss of 4 cents to 1 cent on revenue of $150 million to $157 million. For the year, it expects a loss of 6 cents to 3 cents on revenue of $602 million to $609 million.
RealNetworks said its fourth quarter outlook will be hurt by the stronger dollar - a common theme among companies with international operations. A strong dollar minimized international growth when revenue is converted back to the greenback. Conversely, a weak dollar boosts sales overseas. The company said 20 percent to 25 percent of its revenue is international--primarily the euro and Korean Won. While the currency fluctuations aren't the entire story - RealNetworks expects online advertising and consumer spending to slow - they play a role.