RealNetworks Doubles Its Stake in Rhapsody International

RealNetworks (NASDAQ:RNWK) announced on Tuesday that it has acquired debt and equity interests in Rhapsody International, and thereby becoming the owner of Napster.

As quoted in the press release:

The purchase took place after RealNetworks sought and received special approval from the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) to purchase the sanctioned stake in Napster. Following the transaction, RealNetworks has become the majority owner of Napster, with approximately 84% of outstanding stock, up from RealNetworks’ previous stake of approximately 42%.

In exchange for all of the CNTP-managed equity, debt, and other interests in Napster, RealNetworks has committed to pay $1 million cash up front and an additional $14 million over time subject to certain conditions, with additional consideration depending on subsequent events, for a total of up to $40 million. The entity managed by CNTP would receive the full $40 million in the case of a sale or similar liquidity event within the next five years where total equity value of the 42% equity interest acquired would exceed $60 million. More details are available in the RealNetworks 8-K filed today to report the Napster transaction.

Rob Glaser, Chairman and CEO of RealNetworks and Chairman of Napster, commented, “We are very pleased to have deepened our partnership with Napster. Under Bill Patrizio’s leadership, Napster has delivered five consecutive quarters of positive operating income and generated over $14 million in operating income in the first three quarters of 2018. This success was achieved by pivoting to a B2B strategy focused on selling the Napster platform as a service. We think Napster’s future is very bright.”

Cary Baker, RealNetworks’ CFO, added, “The unique deal structure is one that we believe will drive significant value for RealNetworks’ shareholders. The terms and deal structure reflect the unusual circumstances that CNTP has been operating under since a major limited partner of its managed funds – including Applebee – was sanctioned by the U.S. Government in April 2018. In spite of these circumstances, Napster continued to execute on its business plan and had a strong 2018 operationally. These circumstances are now a closed chapter for Napster.”

Napster’s innovative “Powered by Napster” music and audio products and services generate revenue primarily through subscriptions either directly to consumers or through distribution partners, and through technology and platform licensing and operating fees.

Napster will continue to run as an independent subsidiary of RealNetworks with its own board of directors, strategy, and management team. Bill Patrizio will continue to be Napster’s CEO, and Rob Glaser will continue as Napster’s Chairman.

RealNetworks will report fourth quarter and full year 2018 results on February 6, and as customary, will discuss its go-forward strategy at that time.

Click here for the full text release.