RealNetworks Ups its Stake in Napster

RealNetworks (NASDAQ:RNWK) announced on Tuesday (January 22) that it has acquired debt and equity interests of Rhapsody International for US$1 million in cash up front and US$14 million over time.

Rhapsody International is engaged in digital music and operates the Napster platform in 33 countries, including a premium subscription for ad-free access to music on any device.

Napster from Rhapsody Applebee is an entity managed by Columbus Nova Technology Partners (CNTP). RealNetworks are now set to become the majority owner with approximately 84 percent interest of the outstanding stock.

It was said that the transaction is subject to certain conditions and has an additional consideration depending on subsequent events, for a total of up to US$40 million. Prior to this transaction, RealNetworks’ stake in Napster was approximately 42 percent.

Further, the entity managed by CNTP would receive the full amount of US$40 million in the case of a sale or similar liquidity event within the next five years whereby total equity value of the 42 percent equity interest would exceed US$60 million.

“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,” Rob Glaser, CEO of RealNetworks, said in the release. “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.”

Following the transaction, Napster would continue to run as an independent subsidiary of RealNetworks with Bill Patrizio remaining as Napster’s CEO.

RealNetworks also highlighted that Napster’s “Powered by Napster” music and audio products and services generates revenue through subscriptions, which range from consumers or through distribution partners and platform licensing and operating fees.

“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 US Government in April 2018,” Cary Baker, CFO of RealNetworks, said in the release. “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.”

In a report published in September, Persistence said that the global music streaming market is expected to grow at a compound annual growth rate of 19.8 percent from US$6.4 billion in 2017 toUS$33.48 billion by 2026.

Following the announcement, shares of RealNetworks were up one percent and closed the trading session on Tuesday at US$3.03. The stock has a “Buy” ranking on TradingView with 17 verticals in favor, seven in neutral and four against.

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Securities Disclosure: I, Bala Yogesh, hold no direct investment interest in any company mentioned in this article.