Long-Awaited Remake of RealNetworks is Under Way-Again

1/26/12Follow @curtwoodward

About a year ago, RealNetworks said the elimination of about 10 percent of its workforce officially marked the end of a difficult restructuring period, one that saw nearly 400 layoffs since 2009 and left the digital-media pioneer more focused, efficient, and ready for the future.

Turns out that was just a prelude.

On Thursday, the dot-com era survivor announced it was selling a chunk of its video software and some patents to Intel for $120 million. The deal, which significantly boosts RealNetworks’ cash reserves, also sent its stock price (NASDAQ: RNWK) rocketing up by a third. And it’s a signal of things to come as new CEO Thomas Nielsen repositions Real to focus on a smaller set of businesses.

Nielsen, a former VP at Adobe, joined RealNetworks in November after what founder and chairman Rob Glaser called the most exhaustive hiring process he’d seen in his career. Since then, Nielsen says, he went through a “bottom-up” review of everything the company did, and came away surprised at the sprawling businesses the company had been chasing.

Thomas Nielsen

If he had to give an elevator pitch for RealNetworks’ businesses, Nielsen joked, it would have to be in a very tall building. That won’t be the story in the future, however—Nielsen says the next several months will showcase more changes that reflect his strategy to refocus RealNetworks. And there is very little that is off the table.

“I’m basically turning over all the rugs within the company right now and looking at where there is value in each of our businesses—which ones will be strategic moving forward, and which ones won’t,” Nielsen says. “It’s very unlikely that this is a one-time transaction. On the same level here, I’m not trying to sort of break up the company into little pieces … My job, and what I’m doing here over the next 12 to 18 months, is really to focus the company and be really good about not being in 26 businesses, but being really good about one vision and one mission.”

The stock price shows how welcome the approach is on Wall Street. But new signs of life at RealNetworks will also probably be welcomed within the overall tech and business communities in the Seattle area. Real has produced plenty of notable alums over the years—including a U.S. senator!—and was once among the calling cards of a vibrant tech scene in the Emerald City.

In more recent years, the company has been kind of a question mark. Its once widely used media player software was bypassed by competitors even as Web and mobile video and music consumption skyrocketed, its Rhapsody music joint venture was spun out, and consumer offerings in cloud services and gaming were getting a new focus.

The game unit, GameHouse, has been discussed as a spin-of candidate in the past. But under new president Matt Hulett, GameHouse has focused heavily on the rapidly growing social games business, as AllThingsD’s Tricia Duryee detailed recently.

Asked about GameHouse’s future, Nielsen first talked about the ways that gaming was going through massive transformations in audience, distribution, and business models with the spread of social and mobile platforms. He also said that the company was “firing on all cylinders on social and mobile, and we have several things coming out over the next few months that will fuel that.”

At the same time, he said it’s still too early to tell how that fits into the company’s long-term plans.

“If RealNetworks becomes a powerhouse in gaming, then GameHouse should belong there. And if we decide to take a very different direction, then we will explore options like—I do realize that previous management looked at spinning it off,” Nielsen says. “It’s not off the table, but nothing’s off the table right now. It goes back to focus. I don’t think we can be in the gaming business and the potato-chip factory business and the networking business.” (No, they don’t really own potato-chip factories).

The sale of the RealNetworks’ video codec software, which makes those files easier to stream, means seven employees from that unit will be joining Intel. Nielsen acknowledged that the rather large restructuring he’s talking about would result in cutting some jobs, but he said the idea is to grow the remaining businesses rather than just getting smaller overall.

“I don’t have a target, but what I do know is that you don’t cut your way to growth,” he says.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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