Netco sees healthy increases in online music, games

Digital media company RealNetworks swung to a huge profit in the fourth quarter, due primarily to a $478 million cash payment from Microsoft as part of the companies’ legal settlement.

Excluding the settlement, revenue was up 15% to $83.6 million in the quarter ending Dec. 31 as Netco saw healthy 29% and 52% increases, respectively, in its online music and games business. Other categories that are becoming less important to RealNetworks, such as video, software and business services, declined by smaller amounts.

RealNetworks now has 1.425 million music subscribers, primarily to its Rhapsody service. That’s up from 1.3 million as of Sept. 30.

Net income was $295.6 million, up from a $1 million loss in the same quarter of 2004.

Cash payment from Microsoft was part of a $761 million settlement over a suit in which Real alleged Microsoft used monopoly power to promote its Windows Media Player software.

Remaining $283 million the software giant owes will be paid off in part by Microsoft promoting Real’s Rhapsody music service on the MSN network of Web sites.

RealNetworks stock was up 15% to $8.53 Tuesday before earnings were announced due to an analyst upgrade, but were trading down 5% after-hours following earnings as investors were somewhat disappointed with future guidance.

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