RealNetworks today unveiled plans to spin off the Rhapsody America music subscription service into an independent company.
Rhapsody America is a joint venture between RealNetworks and MTV Networks, formed after MTV shuttered its URGE music service and rolled staff and subscribers into one unit. Since then, RealNetworks has been the majority stakeholder in Rhapsody America with 51%.
According to an SEC 8K filing submitted today, RealNetworks will restructure the unit so it will no longer hold a controlling interest, but rather an undisclosed stake valued at less than 50%. RealNetworks will provide $18 million in operating capital in return for its new stake, but not retain operating control.
MTV meanwhile will contribute $33 million in advertising commitments, not cash. MTV as of December still had $111 million in advertising commitments due to the joint venture as part of the original transaction, but that is cancelled under the new deal.
The new company’s executive team has not been announced. Mike Lunsford will continue to lead the unit until the deal closes, expected by the end of March. John Irwin will remain as COO during that same time, and will remain with the company in an as-yet-to-be-defined role.
Additionally, both RealNetworks and MTV will appoint two representatives to a new board of directors, with a fifth member assigned independently.
Robert Kimball, who has served as RealNetworks acting CEO since Rob Glaser stepped down in mid-January, said the move was designed to “make RealNetworks a more focused and profitable company” in a statement.
According to a RealNetworks spokesman, there will be no interruptions to the Rhapsody service, and all music licenses will transfer to the new group. Rhapsody had 700,000 subscribers as of RealNetwork’s third-quarter earnings report. The company will update that figure Thursday when it releases its fourth-quarter earnings.
RealNetworks will remain in the digital music space as it still retains ownership of ringback tone and music download technology group gained through its acquisition of mobile services company WiderThan in 2006. It also retains the rights to two Internet radio services – one formerly offered to Comcast Internet subscribers and another international Internet radio aggregator.
The move was not entirely unexpected. RealNetworks highlighted that a spinoff was possible in an SEC filing earlier in November in which it announced its intentions to change the ownership structure of Rhapsody America.