RealNetworks' (RNWK) CEO Rob Glaser on Q4 2016 Results - Earnings Call Transcript

| About: RealNetworks, Inc. (RNWK)

RealNetworks Inc. (NASDAQ:RNWK)

Q4 2016 Results Earnings Conference Call

February 08, 2016, 05:00 PM ET


Rob Glaser - CEO

Marjorie Thomas - CFO and Treasure


Eric Wold - B. Riley & Co.

William Meyers - Miller Asset Management

Daniel Weston - WestCap Management


Welcome to the RealNetworks' Fourth Quarter 2016 Earnings Call. Your lines have been placed in listen-only until the question-and-answer session. [Operator Instructions] This conference is being recorded. If you have any objections, you may disconnect at this time.

I would like to introduce your first speaker, Ms. Mary [Indiscernible]. You may now begin.

Unidentified Company Representative

Thank you, Tony. Welcome to the RealNetworks' fourth quarter and full year 2016 conference call. Before we begin, I remind you that some matters discussed today are forward-looking, including statements regarding RealNetworks' future revenue, adjusted EBITDA, and operating expenses and trends affecting its businesses and prospects for future growth and profitability.

Other forward-looking statements include the company’s plans to implement its strategy and invest in its product and initiatives, as well as the expected growth, profitability and other benefits from these activities.

All statements other than statements of historical fact are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements.

We describe these and other risks in our SEC filings. A copy of those filings can be obtained from the SEC or from the Investor Relations' section of our corporate website. These forward-looking statements reflect RealNetworks' expectations as of February 8, 2017.

The company undertakes no duty to update or revise any forward-looking statements made during this call whether as a result of new information, future events, or any other reason. We will present certain financial measures on this call that will be considered non-GAAP under the SEC's Regulation G.

For a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, please refer to the information included in our press release and in our Form 8-K dated and submitted to the SEC today, both of which can be found on our corporate website at under the tab Financial Information.

With me today are Rob Glaser, Chairman and CEO; and Marjorie Thomas, our Chief Financial Officer. Rob will discuss company’s strategy and the progress the company has made in recent months, then Marj will provide a financial review of the fourth quarter and full year of 2016, and the outlook for the first quarter of 2017, after their prepared remarks, they will be pleased to answer questions.

Now, I'll turn the call over to Rob.

Rob Glaser

Thanks Mary. Good afternoon everyone. Thanks for joining us today. Before I start, my voice sounds a little bit nasal. It's because I'm recovering from the [Indiscernible] of a cold, so my apologies in advance. I will try extra hard to enunciate.

Today, I will review and discuss our results for the fourth quarter and full year 2016. As I typically do in the first call after year, I will step back and review what we achieved in 2016 and look forward towards what we expect to achieve in 2017.

2016 was a year of significant progress for RealNetworks in four important ways. One, we achieved two-key financial goals for the year, stabilizing our business returning to growth. Two, we made great progress in scaling up our mobile games division business.

Three, we went and deployed our Mobile Services with several new Tier 1 carriers around the world. And four, we started the first phase of our rollout of our next-generation codec RMHD. In addition, our Rhapsody affiliate made significant progress in positioning itself for the future.

First, we had three major financial goals for 2016, stabilizing our business returning to growth, returning to profitability. We achieved two of those two objectives. In 2016, our consolidated revenue was comparable to 2015 excluding the Social Casino Games business we sold in 2015 and we saw a quarter-on-quarter growth during 2016. Specifically, Q3 and Q4 of 2016 were 4% and 5% higher respectively than the comparable quarters in 2015.

Our third financial goal was to return profitability by the end of the year. While we made significant progress towards that goal, we haven't quite achieved it yet. Moving into 2017, we intend to continue to reduce cost in certain areas and also invest in growth initiatives.

While I'm disappointed that we haven't yet returned to profitability, we have certainly created a discipline to the stable financial foundation for our company. We believe that our growth initiatives will create value and we think they continuing to make measured investments in them is the right way to grow the topline and create value over the mid to long-term.

Next, I'd like to turn to progress we've made in our specific businesses starting with our Games business. Our Games business consist of two parts, a legacy PC Subscription business and our new, primarily, Mobile Studio business.

We originally thought there would be significant synergy between the two businesses, but as 2016 developed, we determined that this will not be the case. Accordingly, we decided to optimize for the growing Mobile Studio business and treat the PC Subscription business as primarily a legacy business focused in an operational efficiency.

Accordingly, our Mobile Games business 28% in 2016 over2015, almost completely offsetting the decline of the legacy PC subscription business. Our popular GameHouse Original franchise Delicious continued its strong performance in 2016.

In addition, two new GameHouse Original franchise were launched in 2016. Heart's Medicine, launched in the spring of 2016 has become one of our best performing GameHouse Originals due to its compelling storyline and a great mobile [Indiscernible].

The Fabulous franchise was relaunched in 2016 and is also doing quite well. In coming months, we're expecting to bring to market a number of additional new GameHouse Originals. All these games embody the person providing fun and exciting gameplay with compelling storytelling to create a new entertainment genre.

We currently have 60 GameHouse Original titles in our portfolio. We think we're on a promising path to scale this business up and to unlock additional value in the quarters ahead.

Let me now turn to progress in our Mobile Services segment. In 2016, we rolled out our mobile products with major carriers such as Vivo in Brazil and Vodafone in Europe and continue to develop a RealTimes business with KDDI in Japan and Verizon in the U.S. as well as over 15 carriers worldwide who deliver Ringback Tones, RBT, products to us through us.

We believe these deployments can provide us a stable revenue base and a healthy foundation for the future growth. We're also bullish about new messaging products that we'll be bringing to market in 2016, which we think can create significant growth for our Mobile Services business overtime. That's related to our ICM or Inter-Carrier Messaging business. So, next-generation products coming out of that business.

Next, our Consumer Media business. 2016 was a transition year for Consumer Media as we launched our next-generation RMHD codec in China and began to pave the way for its global release in 2017.

In 2016, we saw the first deployment of RMHD based products, most notably the new Mate 9 phone by Huawei. This product is primarily targeted at the Chinese domestic market.

The nature of a new codec launch is that it's a multi-dimensional process that are now developing core technology, then deploying it in series about their own products and partner products and then eventually allowing the third-parties to starts to deploy content in the codex format.

While it takes time to successfully build a codec ecosystem, we're confident we're on a good path to do so first in China and then overtime, in other markets.

My final topic is Rhapsody, which is independent company that Real has a significant stake in and in which I'm Co-Chairman. 2016 was a year of significant progress for Rhapsody highlighted by our hiring of Mike Davis, our CEO in mid-year, the reintroduction of the Napster brand in the U.S. market and signing up new partners such as iHeartRadio.

Rhapsody recently entered a process to review a strategic options for the future and has hired Investment Bank Rothschild to run that process. While it's early in the process, I think it's fair to say that Rhapsody has built a unique position in the market and is fundamentally aligned with a key trends in the music industry.

In summary I'm very pleased that we've stabilized our business. Now that we've stabilized Real, we'll be focused on initiatives we believe will set us up for growth and profit over the next few years.

We will continue to be disciplined in where and how we spend money and continue to manage our cost carefully.

I'd like to take this opportunity to thank our employees and other stakeholders for their dedicated hard work during 2016 as well as all of our partners for their support. While there's much more to do, we've made significant progress in 2016 to set our company up for success in the quarters and year ahead.

With that, let me turn the call over to Marj to review the financials.

Marjorie Thomas

Thanks, Rob. Let’s go through the results for the fourth quarter and the full year 2016, starting with our consolidated results. For the fourth quarter, revenue was $31.5 million, up 5% from the fourth quarter of 2015. For the full year 2016, revenue was $120.5 million, approximately comparable to 2015, excluding $4.9 million in revenue from the Social Casino Games business, which was sold in August, 2015.

Our revenue stability in recent quarters along with our significant cost reduction steps is reflected in the year-over-year improvement in EBITDA. Adjusted EBITDA for the fourth quarter of 2016 was a loss of $4.2 million compared to a loss of $4.4 million for the previous quarter and $4.2 million loss for the fourth quarter of 2015. Adjusted EBITDA for the full year of 2016 was a loss of $21.6 million compared to a loss of $38.6 million for the prior year excluding the Social Casino Games business.

We improved our gross margins by 2.2 percentage points in 2016 compared to the prior year, primarily driven by improvements in bandwidth and infrastructure costs.

Our GAAP operating expenses for the full year of 2016 were down $31.5 million, or 25% from the prior year. Adjusting for the impact of the Social Casino Games operating expenses in 2015, operating expenses decreased $20.9 million, or 18%.

Our headcount net of increases in Games business has decreased by 65, or 11% since a year ago. These reductions along with a number of other initiatives have helped us move toward right-sizing the business.

Now, let's look at our 2016 Q4 and full year results by our business segments, starting with Mobile Services. For the fourth quarter of 2016, Mobile Services revenue was $18.8 million, up 7% sequentially from the prior quarter and up 15% from the fourth quarter of 2015. The increase in revenue was due to an increase in RealTimes and our low-margin Music On-Demand business in Korea.

For the fourth quarter, the segment had a negative contribution margin of $2.1 million, an improvement of 28% from the same period in 2015. For the full year, Mobile Services revenue was $70.3 million, up 7% from 2015.

We lowered operating expenses related to Mobile Services by $9.9 million, or 22% year-over-year. As a result, we had a negative contribution margin of $11.5 million for 2016, an improvement of 49% from the same period in 2015.

Our Consumer Media segment combines the RealPlayer products and the IP video codec including our new RMHD codec technology. For the fourth quarter of 2016, our Consumer Media revenue was $6.4 million, essentially flat from the prior quarter and down 6% from the fourth quarter of 2015. The segment had a positive contribution margin in the fourth quarter of $600,000.

For the full year, Consumer Media revenue was $25.1 million, down 12% from 2015. We reduce operating expenses related to Consumer Media by $8.1 million, or 31% year-over-year. As a result, the segment had a positive contribution margin for the year of $1.8 million.

Our Games revenue was $6.2 million for the fourth quarter, down 10% from the prior quarter and down 8% from the fourth quarter of 2015. As Rob mentioned, the primary reason for the decline was lower legacy PC business revenue, plus we had a third-party games release that didn’t perform as expected.

At the same time, we're pleased to see a strong shift to Mobile Games mostly offsetting declines in the PC-based games. For the fourth quarter of 2016, the Games segment had a negative contribution margin of $700,000, reflecting continued investment in this segment to build our capability to produce even more GameHouse Original titles.

For the full year 2016, Games revenue excluding Social Casino Games was down 3% for the Games segment -- and Games segment had a negative contribution margin of $1.7 million.

Unallocated corporate operating expenses decreased $4.1 million in 2016. However, the 2015 totals include one-time benefits of $3.6 million. Disregarding those one-time benefits, the year-over-year improvement was $7.7 million, driven primarily by lower restructuring cost and reductions in ongoing expense.

As to our cash balance, we had $77.1 million in unrestricted cash, cash equivalents, and short-term investments at the end of the fourth quarter. In the fourth quarter, we had the EBITDA loss of $4.2 million.

During the quarter, our cash consumption was mostly offset by a net benefit of $2.5 million from the recent sale of our remaining investment in J-Stream and positive timing of customer payment.

As Rob mentioned earlier, Rhapsody has entered into a process to review its strategic options for the future. In that context, in December, we agreed to loan Rhapsody up to $5 million for operating purposes on appropriate terms. $3.5 million of that loan was made in the fourth quarter and the remaining $1.5 million was loaned this past month. Columbus Nova, Rhapsody's other 42% shareholder, made a loan in the same amount under identical terms. Due to the loan arrangement, we have taken an additional $5 million of previously suspended losses related to Rhapsody on to our P&L.

As far as -- as Rob said, we're happy with the stability in our topline for 2016. We believe that our efforts to rebalance resources, reduce costs, and optimize our investments are paying off with smaller losses and lower cash consumption.

We expect to continue to see periodic variability in revenues from our Games and Consumer Media businesses and we've learned that the length and timing of large carrier deployments can be uneven, also impacting revenue timing.

That said, we do see a path forward that includes both continued cost reductions and investments and initiatives that we expect will allow us to grow the topline and return to profitability.

For Q1 2017, we expect total revenue of $29 million to $32 million with an adjusted EBITDA loss in the range of $4 million to $6 million. Moving into 2017, each business has a clear agenda, driving growth that will lead to sustainable profitability for the company.

And those are our prepared remarks. Rob and I would be pleased to answer your questions now. Operator?

Question-and-Answer Session


Thank you, speakers. At this time, I'd like to begin the question-and-answer session of the conference. [Operator Instructions]

We do have a first question Eric Wold. Sir, your line is now open.

Eric Wold

Thank you. Good afternoon. Couple of questions, I guess one, kind of thinking back to the Q3 conference call, one of the reasons for not achieving EBITDA on the fourth quarter was noted due to some of the delays with carrier integrations and the associated revenue recognition from those integrations.

Can you maybe update us -- not necessarily naming them specifically, but just the ones that were delayed, where are you on those integrations? Are they back on track? And so if they are, is that maybe just a quarter or so behind where they were originally? Then I have a follow-up.

Rob Glaser

Well, so Eric, good to talk to you. So, we don't typically just talk about specific partner deployments, but I would the following. There are none that we counted on happening that have gone away. And some of the deployed ones are happening at the slower pace we expected when we gave you that feedback earlier in the year.

And I would say that pretty much everything else is in the sort of put and take category. So, there has been no major shift in terms of anything that's accelerated superfast on the positive side or anything that's gone like super-bad.

There have been a few things where it's sort of -- its continuing to take a little bit longer than we thought, but I would say that relative to our previous earnings call guidance, it -- A, the results are consistent with where guided last time, I guess, on the top end relatively speaking. But strategically consistent with what we said before.

The one new thing I would say as we talk about investments is we identified three or four initiatives in our company that we think have mid-term upside. And we are making modest investments in those in 2017. And our budget and the guidance we provided, reflects those modest investments. So, that's probably in terms of new things -- the biggest things that's new, which is not a topline thing, it’s -- it's consistent to other statement about managing cost carefully and in effect carving our resources to invest in our future.

Eric Wold

Okay. And then just kind of follow-up on that then. I know you gave your guidance officially one quarter out, but thinking about early last year you commented that you expect to achieve positive EBITDA by year end 2016. We know that that didn't happen, but thinking about the comments in the press release this morning or sorry this afternoon, their processes low softer around that and you're getting back to your momentum towards the growth -- is that something we should not expect this year?

Rob Glaser

So, our track record -- so, I've been back around the company a little over four years and our track record in hitting in-quarter guidance is, if not 100%, is extremely close to 100%. I mean I think of the plus or minus four years, every 16 quarters plus or minus that I've back, we're 16 for 16 or 15 to 15 in in-quarter guidance.

We said we had a goal of returning to profitability for the year in January by the end of the year to be clear and well we achieved the stabilization grow and the growth goal we established -- I mean the growth goal we established in terms of the quarter-on-quarter growth in the second half of the year, we did achieve that goal.

So, we sat together as team and we thought what are we going to commit to internally, what are we going to commit to externally. We decided to be a little bit more circumspect because we like hitting 100% of our goals around here.

So, we clearly have goals, we clearly have a plan, but in terms of what we're publically saying, we're moving back to the quarter-and-quarter review for 2017 and so in 2017, you shouldn’t expect us to make commitments or make assertions more than a quarter out.

That's a philosophical view about how we want to run the company and going back to the primary thing that we've been doing which is basically putting points up on the board, reporting on them and explaining one quarter where we think we're going to land rather than going as far forward which we did last year.

So, that -- you shouldn't read the decision not to do that as a negative statement about anything other than -- or watching the games from 2016 and saying we want to -- on the disclosure side operate in a little more conservative fashion in 2017.

Eric Wold

Okay. And then just final question then on Rhapsody, what else can you say about the loan commitment you've made to them, is there any other commitments beyond that $5 million or would you -- say in another way, would you be willing to loan more beyond the $5 million at similar terms? And is this just in place until the review is completed? And does any of this convert into additional equity in Rhapsody or is it purely interest-based loan?

Rob Glaser

Well, in terms of the details of what we are disclosing both today and in our subsequent K, I'll leave that our Marj to go through the details. Obviously, these agreements are done at arms-length basis, our Independent Directors review them.

As we said in the -- I think it was Marj's comments, the terms under which we made the loan were identical to the terms that our partner Columbus Nova made the loan. So, we're continuing to be equal partners and how we engage with Rhapsody for a bunch of reasons that continue to make good sense.

In terms of what the strategic process will yield in 2017? That remains to be seen. The nature of these processes are just kicked-off pretty recently. The [Indiscernible] guys are doing a good job as far as I can tell. They have been thorough, very rigorous, but until that process is over, I can't speak to what it's going to result in.

I think we're disclosing that the loan is a one-year loan. So, the loan is intended to have a horizon, then expands the normal length of these processes. And in terms of anything beyond that, I'd be speculating.

Eric Wold

All right. Thank you.

Marjorie Thomas

That's right. And Eric the only other thing I'd add is you had asked if we had made any other commitments and the commitments we made today are basically summed-up in this $5 million.

Eric Wold

So, no other commitments?

Rob Glaser


Eric Wold

Okay. Thank you.

Rob Glaser

Operator, next question.


Yes sir. We do have our next question from William Meyers. Your line is now open.

William Meyers

Hi. So, this year you had a -- in your sorry -- Mobile Services segment, you had a revenue increase of over $2 million for the fourth quarter from the previous year. Are you expecting the same kind of revenue increase this coming year? Or just how do you see the future for that segment? Thanks.

Rob Glaser

So, good talking to you. We do not do segment-by-segment external projections or forecast or guidance. So, there's the -- internal answer to the question, not to be coy, but the external answer is that we don't do guidance by segment.

I think it's fair to say our goal is to grow all three of our businesses. And they have different characteristics, so I don't expect each of them to grow at the same pace or in the same way. But I think we see opportunities for each of them to grow and we will report results the way we do, which is we report aggregate quarter results and breakdown by chief division revenue, individual contribution, and then we will guide for the overall for the subsequent quarter. But we don't do breakdown guidance by division.

William Meyers

Okay. Thanks.

Rob Glaser

Okay. Next question operator.


Thank you. We have our next question from Daniel Weston. Your line is open.

Daniel Weston

Hi, yes. Thanks guys for taking the questions. Maybe as a starting point on the previous caller's question on the Mobile Services division, I think Marj you indicated that the delta going from Q3 to Q4 was primarily the result of RealTimes, just want to make sure I understood that properly first of all?

Marjorie Thomas

It's both the RealTimes and the Korean MoD business. This is the Music Streaming business in Korea that we help operate.

Daniel Weston

Got it. Okay. And then to refresh my memory, last quarter didn’t you guys announce that you displaced a Ringback Tone competitor, I think maybe in the Latin American markets, which presumably would have added 2 million or 3 million subscribers, did I get that right?

Marjorie Thomas

That's right.

Rob Glaser

Yes. So, we -- the carrier Telefonica Vivo which I mentioned in my call is the large carrier in Brazil and I think the single largest carrier given that Brazil for the most profit [ph] country in Latin America, I don't think there's anybody in Mexico that's bigger, so the biggest single carrier in Latin America.

And that was a great design win for us. And that's a phased rollout. And we have not -- we don't break out subscriber counts by carrier, but they have millions of win back from customers and so we inherited, if you will, a significant number, then we have the opportunity with good marketing and good business partnership to grow from there. But that obviously is work that has to be done in the future.

Daniel Weston

Got it. Understood. But at the time of signing of that deal, the 2 million or 3 million or so subscribers that you kind of layer on top, I would have thought that the Mobile Services division -- even though you had nice growth sequentially, but it sounds like none of that growth really was the contributed by that particular customer.

Rob Glaser

Well, I'd say one other thing -- and this is Marj's territory. Anytime you have a brand-new customer, you get into the vagaries of revenue recognition. So, one of the things that I have learned is there's three phases of any deal in the Mobile Services, especially, in international markets that are new markets for us.

There is the signing of the deal or the creation -- formulation of a deal. There's the deployment of the deal and then there's a set of things that allow us to all get confident that from a revenue recognition standpoint, we're able to go. And that includes formulization of the agreement in terms of long-form, I heard about short-form, but getting the long-form done, it includes actually getting payment in hands; you establish payment history, et cetera, and reporting history.

So, you have -- you got -- you can't just do it off the short-form, you got to go long-form, you got to do it -- you got to be paid and you got to have a report to reconcile what you're paid and what price, but what the customer and you agree was the performance.

So, sometimes in these situation, we don't talk about predicting the carriers, you end up seeing a lag in one of those -- one or more of those aspects that has a timing impact and revenue recognition, but it's no impact on overall value of the deal.

Daniel Weston

I think I understand. Basically, isn’t that a long way of saying there's a little bit of a lag between the actual services being implemented and used before you can actually report them on your income statement?

Rob Glaser

As a general statement yes, and I'm just being careful to answer it in a way that does not imply particular answer and a particular customer. As matter of policy we don't talk about individual business partnerships, but when you have large ones and you try to interpret numbers, sometimes you might make your own influences.

Daniel Weston

I get the picture. Okay, that's great stuff. Rob I appreciate the color there. Let me move onto the Games division. I think on your last quarter call, looked like you had some real momentum going there with a couple of new titles being launched and I think you indicated you expected that there would be sequential growth backed by strong demand for those titles going into Q4. Was there anything that occurred during the quarter, which kind of depressed that initial expectations in Games?

Rob Glaser

There were a couple of things that I considered tactical and not fundamental in nature. One is that the team had an experiment underway where it was trying to take third-party games that we had not developed, but we were essentially a distributor for. These are working at the same margin as on own IP obviously, but there the theory was that we would be able to -- that we had enough distribution success that we would be able to primarily through the app stores and cross-promotion with our other titles be a good distributor for these titles. And there was only two of them, so it was a small experiment. But they did not succeed in a way that we hoped.

Marj made -- mentioned about it in her part of the script in terms of third-party titles. So, that doesn’t mean GameHouse Originals; that means third-party titles. That was probably the single biggest sort of contour shaping event that happened. There were a few other puts and takes around the edges, but the overall view that the growth in GameHouse Originals 28% year-on-year solid throughout the year is the foundation of future businesses 100% our view going forward.

And now that we've got 15 of them, we think we get into critical mass with that titles business and look forward to doing a lot with that in the quarters ahead.

Daniel Weston

No, appreciate the color there too. But let's continue on Games for a sec. I think in your prepared comments you mentioned that -- on your commentary on Games that in the future you will -- you said something like unlock additional value in the quarters ahead, were you speaking from an operational standpoint there or more of a strategic basis on Games?

Rob Glaser

I'm not sure I understand the difference, operational and strategic. By that -- but what I mean by that is that the team is getting more and more efficient at scaling up and putting out more games. So, we have multiple studio lines operating in parallel throughout Europe that are taking our IP and are building it as in we're developing affiliations with companies that are taking our IP and also creating interest.

So, we continue to scale up the number of GameHouse Original titles. We have goal of putting out one game as Original title a month. I think the team has said that and we think 2017 will be the year to achieve that goal and we're going to be doing that, we have doubling the staff. So, that's what I think I mean by increased operational efficiencies.

So, leveraging our increased capacity are the fact that we have some trusted partners. Our third-party people that are publishing their own games with companies that are basically working with us as development partners, in many case, using our own tools to build games for us exclusively and creating leverage from that.

So, we have -- we're -- the Studio operations which are headquartered in the Netherlands are doing a very good job of scaling up and I look forward to working in the success of that scale-up in 2017.

Daniel Weston

Got it. Okay, my last one revolves around Rhapsody and I had a question for you. I guess maybe not so long ago you guys think the partnership with Sprint and just a few weeks ago as we all know Sprint bought a 33% stake in the music service, Tidal and I'm wondering, first of all, does that affect any of the business with Sprint and Rhapsody?

And number two, maybe you can just give a little commentary from your own beliefs as to why Sprint opted to go with Tidal? Anything -- any commentary you can talk about there, I know it's just speculation in your own opinion, but what you think of that deal what it brings to Sprint and what Tidal had that was so wound beneficial presumably to Sprint.

Rob Glaser

Well, I would leave almost all of the answers and questions to Rhapsody's CEO, Mike Davis, who obviously is not on this call. Real does -- Real is a significant shareholder in Rhapsody, I'm Co-Chairman of the Board. I spent a significant amount of time on it.

But you are asking, in that case, operational questions that would not be within my wheelhouse to answer. I would say the following anytime you have a market like the U.S. carrier market with their four players and one of them aligns with one of the competitors; it creates an opportunity to partner perhaps more deeply with one of the other three.

Rhapsody already has a partnership with T-Mobile, for instances, and I'm not meaning to imply anything about that partnership, but the point is that Sprint is not the only carrier in the market and these things often stimulate the competitors of the carriers to get more active in competing offerings. So, that's one observation of the dynamics, the push and pull of these things.

In terms of why Sprint chose to make a partnership with Tidal, I don't know the answer to that question, so I will be speculating. My general impression of the carrier market in the U.S. is that it is bisected into two sub-segments. You got the premium providers, AT&T and Verizon, who have higher ARPU, who don't lead with price in most markets, in most segments, although in some. But they focus on quality and value and reliability and triple-play bundles and other things.

And then you got the pure-plays at the other end of the market, T-Mobile and Sprint. And T-Mobile with their Uncarrier initiative has done a spectacular job of gaining lion share in that segment. So, T-Mobile is very well known as a disruptor. They -- there was this Super Bowl ads last week were quite attention-grabbing and they -- I think they like playing that role of the rebel.

So, if you are the other guy trying to figure out how to make some noise going to artists who are themselves famous and you get a lot of attention and saying hey, can you do something to help raise the sizzle of my brand is a logical thing to do and of course, one of the things about Tidal is, it's got a lot of artists and there's relatively small sable of artists, but Jay Z is one of the main owners of Tidal and is also very talented super high profile artist. So, speculation of my part, I guess that Sprint was looking for some sizzle.

The last thing I'll say is the valuation -- the reported valuation, again, I don't see these documents, so I don't know what they mean. Certainly, if you're in the business and we have -- I'm guessing in order of magnitude more subscribers than Tidal, Tidal has really stretched numbers, but we have a much, much higher base of subscribers than Tidal.

So, if Tidal has achieved a valuation of $600 million in the mind of Sprint, which is the reported number; that sounds like good news to me. That doesn’t mean that you get -- that 275 will get you on the New York Subway. So, -- take that to the bank, but it does strike me as atmospherically interesting corroboration of what we already know which is this -- what we're doing with Rhapsody, mostly with Napster brand around the world now, is where the Music industry is going. And so we're on the right side of history there.

Daniel Weston

Very good. And RealNetworks, just to confirm, at the end of Q4 still had a 43% ownership in Rhapsody, is that correct?

Rob Glaser

I think Marj maybe give us a number 42%, you can count it a few different ways. But that's based on the primary we count, I think we've said 42%, yes, plus or minus.

Daniel Weston

Thanks so much for the color there. Marj do you have anything else?

Marjorie Thomas

No, I think Rob explained it very well.

Daniel Weston

He did, indeed. Rob thanks very much for taking the time and questions as well.

Rob Glaser

Excellent. Thanks everyone. Operator, do we have any more questions or should we wrap-up?


I show no further question at this time sir.

Rob Glaser

All right. Well, thank you all very much for joining us. Look forward to seeing all face-to-face, hopefully maybe in few day, weeks ahead. And thank you for tolerating my nasal voice and look forward to chatting again in three months if not sooner. Take care.

Marjorie Thomas

Thank you.


And this concludes today's conference for all participants. Thank you all for your participation. You may disconnect at this time.

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