Real dives into mobile world with WiderThan acquisition

LOS ANGELES — RealNetworks is taking what it learned on the personal computer and applying it to the cellphone. And to do it quickly, the Seattle company is acquiring South Korean company WiderThan for $350 million.

Based in Seoul, WiderThan is known for its mobile music expertise. It assists carriers in selling ringback tones and full-track music download services. Ringback tones are songs a person hears while waiting for a call to be answered.

The two companies announced the deal Tuesday at CTIA Wireless IT & Entertainment, an industry trade show this week at the Los Angeles Convention Center.

RealNetworks said the purchase will help it integrate technology such as its Rhapsody online music service into the mobile environment. Until now, the Seattle company's mobile business has been limited to providing back-end music infrastructure, video-gaming and video-streaming.

"I think we are going to be a mobile company at this point," John Giamatteo, executive vice president of worldwide technology products and solutions, said at a news conference. "Real has had a very strong position on the PC, through Real Rhapsody, and now this really gives us a boost on expanding out."

Giamatteo said the company isn't completely moving away from the PC, but rather looking at providing a service consumers can listen and watch no matter where they are or what device they are using.

With the acquisition, Giamatteo said Real will also be able to expand on a new business model, one in which technology is delivered to the customer as a service. Last year, Real made its first inroads in providing services when it started to manage Cingular Wireless' video-streaming.

Financing for the purchase came from the $760 million Real received from Microsoft after the two companies settled an antitrust lawsuit last October.

With that money, Real was able to look for companies to complement its business. It said it had been talking with WiderThan for five or six months about a merger.

RealNetworks said it will pay $17.05 a share for WiderThan for a total of $350 million, not including WiderThan's $93 million in cash.

WiderThan was spun out of SK Telecom, a large South Korean carrier, in June 2000. It entered the U.S. market in October 2004 with the purchase of Ztango.

Today, it has 470 employees, including 150 in the U.S., a handful of whom are in Bellevue.

WiderThan expects 2006 revenues to reach as much as $132 million, about a quarter of Real's. It had a profit last year of $11.8 million.

The acquisition is not expected to close until early 2007, at which point WiderThan will become a wholly owned subsidiary.

WiderThan Chief Executive Sang Jun Park said consolidation is the trend in the wireless industry and together the two companies could build something of great value.

A key to creating value would be in how well they fit. For instance, Giamatteo said Real has strong video relationships with Cingular and Sprint Nextel, while WiderThan has strong relationships with SK Telecom and Verizon Wireless, which uses its music download service.

WiderThan is strong in the U.S. and Asia, while Real is strong in Europe.

Brad Farkas, a general partner at i-Hatch Ventures, one of the original investors in WiderThan, said although WiderThan drew interest from a number of companies, Real was the most natural fit.

"This represents Real's arrival in the mobile scene," said Farkas at the CTIA show.

Hank Skorny, general manager of Bellevue-based Thumbspeed, said this marks a huge entrance into the mobile arena for Real.

Considering there are more mobile phones than PCs worldwide, the deal makes sense, Skorny said.

"A significant percentage of those phones are walking around with the equivalent of a Pentium processor inside," he said. "That's a compelling reason for Real."

Tricia Duryee: 206-464-3283 or tduryee@seattletimes.com