RealNetworks to spin off growing casual-games business

RealNetworks Chairman and Chief Executive Rob Glaser called the casual-games business his company has built "an incredible entrepreneurial success story."

Now, he plans to spin the business off as an independent, public company — a move that could help it focus on the fast-growing market and add credibility to the region's already strong casual-games industry.

RealNetworks on Thursday announced plans to distribute shares in the new company to its current shareholders. But it could make an initial public offering, selling up to 20 percent of the shares, with the remainder going to existing investors.

RealNetworks plans to make a decision and file paperwork with the Securities and Exchange Commission by the end of this year. Lehman Brothers is advising.

The new company has not been named; it's expected to stay in Seattle.

Real entered the casual-games business in 2001, with "a very modest initial investment," Glaser said.

The company took advantage of a new genre — generally easier, nonviolent games that often include puzzles and trivia.

The category was made possible by the Internet, Glaser said.

Real entered original game production when it bought GameHouse in 2004, adding to its content marketing and distribution business.

It launched 38 new PC and mobile games in the first quarter. Six were developed in house, Glaser said.

That's "a combination of assets across the distribution chain ... that we believe is unmatched in the PC casual-games industry," Glaser said.

RealNetworks' games business had sales of $31.8 million in the first quarter, up 33 percent from a year ago. That represented 21.6 percent of the quarter's $147.6 million in revenue, which the company reported Thursday.

Real's other consumer businesses include music and media software and services. It also sells mobile-carrier application services, including ringback tones, music-on-demand and media-delivery system software support.

First-quarter profit was $2.4 million, or 2 cents a share, down from $40 million, or 22 cents a share in the year-ago period. The 2007 results included $61 million from Microsoft, the final payment related to the companies' antitrust settlement and commercial agreements.

Real has continued to expand its games business through partnerships and acquisitions, something the independent company could continue, using its stock, "as the casual-games industry continues to grow and consolidate," Glaser said.

Stock in the new company could also be used to attract talent.

Glaser acknowledged the 1,700-employee company may be giving up some synergies that come from having both operations under one roof, but the most important ones can be retained through contracts between the two.

Jessica Tams, managing director of the Seattle-based Casual Games Association, said a public company focused on casual games would counter the perception that this is a sideline of the gaming industry.

"It's really bringing credibility into the casual-gaming space," she said.

RealNetworks already is a big player in casual games and one of only two public companies that regularly reports casual-games revenue. The other is video-games giant Electronic Arts.

Other big companies, such as Yahoo and Microsoft, do not report casual-games revenue separately.

The casual-games industry is worth about $2 billion a year, Tams said. More of that revenue flows through Seattle than the other casual-games hubs, including San Francisco, New York and Eastern Europe.

"Seattle's already one of the big epicenters of the space," Tams said.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com