Trading at $9.50 as of May 7, 2001

Fess up, Mom. I was a good kid. While many parents come across bizarre scenes when they stumble into their children's rooms, the worst you ever got was me playing air guitar with headphones on in front of the mirrored closet door. Then again, I guess that was pretty bizarre. Still, through piano lessons, then guitar lessons, and all the trips to the mall record store and garage band practice sessions, you encouraged me and my love for music.

This year, let me return the favor and introduce you to RealNetworks(Nasdaq: RNWK). The company is the world's leader in online media delivery. From video webcasts to audio streams, the ever-growing line of Real media software players is as close to becoming an aural standard as possible.

I know what you're thinking. If I love you so much, why am I sending you a dot-com? Well, let's think about this. The market hasn't been kind to Internet stocks lately, true. A lot of them aren't even around anymore. But, on the flip side, there are more people online right now than ever before. Tomorrow there will be even more than today. And the amount of time a person spends online is also on the uptick. It's like that time you made a huge bowl of your famous ambrosia fruit salad for Nicky's birthday party, but it rained so hard that just a few people showed up. Remember what happened? We all had plenty to go around.

That's what we're down to here in the dot-com time line. Survive to thrive. Live, and you get heaping servings of market share. Like your salad, RealNetworks has all the right ingredients to make that happen. For starters, the company has been consistently profitable on a pro-forma basis for nearly two years now. Trust me, that's pretty good, relatively speaking. 

An important piece of the RealNetworks allure is its mailing list. Providing free basic versions of its media-playing software has garnered the company more than 200 million registered users. How coveted do you think that connection with Internet-ready music and video fans is? Let's just say that RealNetworks is always drawing a crowd. From Major League Baseball to NBA hoop action to licensing deals with three of the five major record labels, RealNetworks has become online entertainment's gatekeeper.

Wait. It gets better. Until recently, RealNetworks only capitalized on its popularity by charging for amped up versions of its software and by serving the streaming needs of the corporate market. It's solid business, sure, but now that the online community is ready to be weaned off free content, it's time for RealNetworks to cash in on its 200 million registered users.

Last summer, the company launched its premium GoldPass service. For $9.95 a month, subscribers have been receiving access to exclusive video and audio streams along with a features-packed upgrade to the company's free RealPlayer software. At a time when most companies are still scrambling to find anyone willing to pay for content, GoldPass has signed up 200,000 subscribers. That's impressive in absolute terms, but when you consider that it's just 0.1% of RealNetworks' user base, you can see that it's just skimming the surface.

If RealNetworks could grow its GoldPass citizenry to just 1% of its registered user base, that would mean $240 million a year in margin-rich residuals. That's how much the company made in sales all of last year. But will the media-hungry pay up?

That's the sticking point. It's easy to see why folks expect free online content. That's all they were getting back when Wall Street didn't mind subsidizing the losses for Internet upstarts. That song no longer remains the same. There is also the couch potato mentality. Someone pays the monthly cable or satellite bill and expects hundreds of channels. He may not realize that the cable company has to foot the bill for part of the network programming. By the same token, someone will pay the monthly access fee to an Internet service provider, but not realize that the service doesn't share its take with the content sites. The websites are on their own to justify their existence.

That is why so many seemingly popular properties have been rained out. Meanwhile, RealNetworks continues to build its prized user base and extend its entertainment network. If any for-fee model will win out, my money is riding on RealNetworks' wide library of content. Standalone sites are too limited in delivering the complete premium experience. RealNetworks comes the closest in delivering the Internet-friendly cable subscriber solution.

So let it rain. RealNetworks has the profits, public, and package to ride out the storm. I love you, Mom. Seconds on the ambrosia?   

Rick Aristotle Munarriz shocked his mother when he experimented with dark eggplant streaks in his hair -- once. Still, while he is a regular user of RealNetworks' products, he does not own shares in the company. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.

A Stock for Mom represents the opinion of one Fool and should in no way be taken as the opinion of either The Motley Fool, Inc. or the company in question, or as representative of anyone or anything other than that specific Fool's thoughts.

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