RealNetworks Takes Subscriber Lead

RealNetworks Inc. on Tuesday claimed the lead among online music services, announcing that it had more than 250,000 paying subscribers for its Rhapsody and RealOne RadioPass offerings at the end of September.

Boosted by Real’s gains, subscription music services now appear to generate more revenue than Apple Computer Inc.’s well-publicized downloadable music store. Apple executives, however, say their store is breaking even whereas most subscription services still are reporting losses.

Real, for example, posted a net loss of $3.7 million, or 2 cents a share, on $51.8 million in revenue in its third quarter, which ended Sept. 30. That compares with $45.4 million in revenue and a net loss of $35.4 million, or 22 cents a share, in the same quarter last year.

Real’s subscriptions for online audio and video services generated almost $28 million, up 10% from the second quarter. The Seattle firm’s subscribers grew to 1.15 million, a 15% rise from the previous quarter.

Those services are a hodge-podge of sports, news and entertainment programming, including football and basketball games, ABC News broadcasts and behind-the-scenes footage from “Big Brother 4” on CBS. The number of subscribers to Rhapsody and RadioPass grew nearly 50% during the quarter, making it the fastest-growing segment of Real’s business, Real Chief Executive Rob Glaser said.

Several online music services do not disclose how many subscribers they have, but analysts say none are likely to come close to Real’s latest figure. Other leading services include Time Warner Inc.’s MusicNet@AOL, with about 150,000 paying subscribers, and MusicMatch Inc.’s MX, with about 160,000.

RadioPass is a $50-a-year service that provides access to more than 3,000 online stations. Rhapsody lets subscribers play an unlimited number of songs from an online jukebox for $10 a month, with copies of songs available for 79 cents each.

Apple CEO Steve Jobs has belittled the idea of subscription services, saying music fans want tracks they can burn onto CDs, move to portable devices or transfer to computers around the home. Apple’s iTunes Music Store offers songs for 99 cents and most CDs for $10.

The store sold about 500,000 songs each week when it was available only to Mac users, or about four times as many downloadable tracks as all other online music services combined. When Apple expanded its stores to Windows users, it sold more than 1 million tracks in the first week.

The subscription services typically charge $3 to $5 a month for customized radio and $8 to $10 for online jukebox services or music rentals, putting them on a pace to generate more than $4 million in monthly revenue. Apple’s store has been producing more than $2.2 million in monthly sales since its inception April 28.

Glaser, who plans to launch a downloadable music store by the end of the year, said those operations typically get off to a faster start than subscription services. Over time, however, “subscription services will be more and more like a snowball rolling downhill,” he said, whereas stores’ revenues are likely to drop over time as the novelty wears off.

Sean Ryan, vice president for RealOne music services, said Rhapsody’s growth had been fueled mainly by promotions on Real’s Web site and RealOne digital audio-video players and a new partnership with retailer Best Buy Co. But there also are signs that all the industry-authorized online music services, whose usage still is tiny in comparison with unauthorized sources of free music online, are picking up steam, he said.

“We’re just seeing ... increased interest in people we have not marketed to,” Ryan said. “They’re getting told by their friends that they need to try it.”

Real’s shares closed Tuesday at $7.09 on Nasdaq, up 11 cents, before its earnings were announced. Shares were mixed in after-hours sessions, trading from $6.81 to $7.12.