SAN FRANCISCO (CNN/Money) -
It's hard to believe in the midst of February's doldrums that baseball spring training starts in less than two weeks. But indeed, my beloved Red Sox will begin preparing for their 2004 World Championship any day now.
Unlike last season, however, I may not be able to watch their games with my RealPlayer -- a privilege for which I happily paid about $20. The reason? Last week RealNetworks (RNWK: Research, Estimates) decided not to renew its three-year contract with Major League Baseball to offer video and audio streams of baseball games exclusively on its player.
The loss of the baseball contract isn't much of a surprise to those who've followed the company closely; CEO Rob Glaser has hinted at the possibility for a couple of quarters, reassuring investors that it would have minimal effect on the company's financials (Glaser estimates that the MLB contract accounted for 2 percent of the company's revenue).
It's hard to tell exactly what happened with the baseball deal: A Real spokesperson couldn't comment on specifics, and a source at MLB.com who requested anonymity said only that "there's been bad blood building up ever since the deal was signed."
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But one thing's for certain: There's no joy in Realville this month. After a fourth-quarter earnings release on Jan. 29, the stock has been sliding downhill fast, losing about 10 percent of its value over the past month. It has lost nearly 30 percent since mid-January.
While the MLB loss may constitute only a small drop in revenue today, the company needs to hold on to its content exclusives -- the field will only get more crowded from here on in, with both Microsoft (MSFT: Research, Estimates) and Yahoo! (YHOO: Research, Estimates) rumored to be mulling music launches this year.
And with more consumers subscribing to broadband every day, a deal that constitutes only 2 percent of revenue today could easily make up 4, 6, or 8 percent in the near future -- especially an exclusive contract for content with as rabid a following as baseball has.
The MLB loss aside, Real has made great gains recently in its consumer content division, which now accounts for 76 percent of the company's total revenue.
Its music division (part of consumer), which includes its subscription service Rhapsody and its premium radio programs, now has more than 350,000 subscribers. Its game division has sold over 2 million games since launching two and a half years ago.
What's more, Real has done well thus far with its mobile efforts -- the company estimates that the mobile edition of its RealPlayer is currently on 7 million phones worldwide.
So what's driving the stock price down? Simply put, the company can't seem to turn a profit. Its revenues have been trending upward for six consecutive quarters, but it again ended in the red.
Real has predicted that it will return to quarterly profitability by the end of the year -- but only after expenses for its antitrust lawsuit against Microsoft are excluded, a stipulation that harks back to the pro forma results of yore.
With a depressed stock price, increased revenue, and projected profitability after lawsuit costs, is Real an investment opportunity? I'm not so sure. There are a few too many big variables in its future for my tastes, such as the aforementioned possible entry of Microsoft and Yahoo! into the marketplace and the outcome of the Microsoft trial.
The company does have a strong cash position that it can use to weather these storms, however, so if you're bullish on the outcome of the Microsoft trial and long on Real's ability to compete against other entrenched competitors, maybe you'll want in.
But don't expect the results of the Microsoft trial anytime soon. Even if Real were to prevail, Microsoft likely would launch an appeal that could take a long time (and subsequent expenses) to resolve. And if Real were to lose the suit, I think investor reaction would be very negative.
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