Lauren Goode

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RealNetworks Clings to GameHouse, Hoping to Ride Social Gaming Wave

Things are looking grim for RealNetworks.

The maker of digital media delivery software reported $80.2 million in revenue for the fourth quarter of 2011, a decrease of 5 percent from the previous quarter and an 18 percent year-over-year decrease. That included a 21 percent decrease in games revenue to $21.6 million.

And its net loss for the year was $27.1 million, compared to a $5 million profit a year ago. In its outlook, RealNetworks said it expects revenue from each of its segments to decline sequentially and year over year, as new CEO Thomas Nielsen continues to restructure and simplify its businesses.

But, amid a growing social gaming market, RealNetworks is clinging to its GameHouse business — at least for now. The company has said twice before it was planning to spin off the unit, but is still holding on to what it believes could be a social gaming “powerhouse.”

While RealNetworks doesn’t break out gaming data other than the aggregate games revenue, the company’s declines were offset somewhat by gains in its social gaming business, it said.

RealNetworks’ GameHouse, as my colleague Tricia Duryee explains here, concentrates on casual games, such as puzzle games, slot machines or what might be described as “match-three” games. Currently some of its best titles are UNO, Scrabble, Collapse! Blast and its latest, Bayou Blast. Its revenues are generated from microtransactions of virtual goods.

Over the past year, GameHouse has been edging toward a top 10 ranking in terms of game makers on Facebook.

And it’s seeing a boost in daily and monthly active users that is encouraging to Matt Hulett, who’s been running the gaming arm as its president for the past year.

GameHouse’s daily active users have now hit 1.3 million, up from 700,000, Hulett said, and its monthly active users increased around 3 million to more 7.5 million. (For perspective, Zynga now has 240 million monthly active users.)

Hulett also said that GameHouse’s daily user traffic is up 75 percent quarter over quarter. Users seem to like the new Blast games, Hulett said, which he’s hoping will drive growth in the first quarter, and GameHouse plans to introduce two or three new games in the next few months, including a slots game. It also plans to expand its 270-person staff by about 45 people by the end of this year.

But on the earnings call, RealNetworks’ Nielsen would say only that GameHouse “could” be a business the company might anchor itself around, and that if it focuses entirely on gaming, the other parts of RealNetworks, which include digital video delivery and download tools and the Rhapsody subscription music service, would no longer fit into RealNetworks. (In January, RealNetworks successfully sold $120 million worth of software and patents to Intel, as the chip maker looks to use the technology in current and upcoming video streaming products.)

Another scenario could be that previously mentioned spinoff as RealNetworks looks to streamline. And the market is ripe for social gaming companies: In recent months, DoubleDown and PopCap have sold to bigger gaming companies for $500 million and $1 billion, respectively.

“We have perhaps been sniffed more times than a dog at a dog park,” Hulett said, reiterating that there’s been a lot of inbound interest for GameHouse.

Whether one of those sniffs has come from a gaming company named after a dog — Zynga — Hulett declined to say. “When we’re ready to do something, we’ll do it.”

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Just as the atom bomb was the weapon that was supposed to render war obsolete, the Internet seems like capitalism’s ultimate feat of self-destructive genius, an economic doomsday device rendering it impossible for anyone to ever make a profit off anything again. It’s especially hopeless for those whose work is easily digitized and accessed free of charge.

— Author Tim Kreider on not getting paid for one’s work