Internet Video Heads for Cell Phones

RealNetworks (Nasdaq: RNWK) announced Wednesday that it has forged an alliance with Nokia (NYSE: NOK) to distribute multimedia content to cell phones and other mobile devices.

Nokia, one of the largest mobile terminal manufacturers in the world, will implement RealNetworks’ RealPlayer technology in its EPOC-based communicators and smart phones, making the new service available sometime next year. The companies did not release details on how the service will be marketed or priced.

Head-to-Head with Microsoft

The move comes as RealNetworks finds itself under increasing pressure to compete with Microsoft Corp.’s (Nasdaq: MSFT) new Windows Media Player 7 software.

Last week, Microsoft announced an alliance with Compaq Computer Corp. (NYSE: CPQ), Intel (Nasdaq: INTC) and Digital Island to build a streaming video network on the Internet. The companies say the network will provide broadcast-scale streaming media for the first time on the Web.

The Nokia deal will take RealNetworks in a different direction — into the mobile computing realm. RealNetworks may be a looking to cell phone users as an additional revenue source to help offset the impact Microsoft’s free Windows Media Player 7 may make in sales of RealNetworks’ enhanced online media viewer.

The Real Entertainment Center sells for about $50 (US$). RealNetworks also offers a free viewer, RealPlayer 8, but many consumers purchase the enhanced version for downloading music, books and videos sold on the Web.

Though it makes its Media Player available free of charge, Microsoft is also looking to make money on the product through alliances with fee-based Internet audio and video distributors.

In May, the software giant took an equity stake in Music Choice to help the online music service increase its channels to more than 30 — two-thirds of which are available only through a new subscription service called “Backstage Pass,” which is priced at $4.99 per year.

Market Leadership Threatened?

Since its launch in 1995, RealNetworks has consistently held about 80 percent of the online video and audio market. When Microsoft unveiled its new Windows Media Player 7 in March, RealNetworks’ consumer division product manager Rob Grady called it “a product that’s a couple of generations behind us.”

However, doubt about its ability to maintain market dominance may have been the impetus for RealNetworks to look beyond the traditional PC-based Internet for expansion ideas.

“RealNetworks strongly believes that mobile devices will play a paramount role in the future of computing and information exchange,” RealNetworks Chairman Rob Glaser said.

Battling in the Mobile Phone Fray

Adding streaming media will help Nokia in the mobile Internet field, where it faces aggressive competition from Ericsson and Motorola.

“Streaming media is a good fit with our vision of the mobile information society and introduces a new dimension to the mobile phone user experience,” Nokia Mobile Phones Executive Vice President Anssi Vanjoki said.

The announcement was not enough to halt the Nokia stock slide that began in mid-June. The stock has dropped from around $63 per share to $50 per share where it closed on Wednesday.

RealNetworks stock, on the other hand, jumped to as high as the mid-50s Wednesday before closing the day up more than $4 at $48.50 per share.