Rhapsody, the Seattle-based streaming music service, has received new loans totaling $10 million from RealNetworks and another of its investors, according to a regulatory filing this afternoon.
The filing with the Securities and Exchange Commission shows that Rhapsody posted an $8.9 million net loss for the first quarter, compared with a loss of just $1.6 million in the same period a year ago, despite boosting revenue to $46.3 million, from $42 million in the same quarter last year.
In addition, according to the filing, Rhapsody’s book value declined below $10 million in the quarter.
Rhapsody, one of the pioneers of the digital music business, has been making big bets to boost its reach and become more relevant in an increasingly competitive industry — going up against Spotify, Apple, Google, Amazon and many others in the broader market for digital music.
In March, for example, Rhapsody announced a new partnership with Twitter, letting its subscribers share songs from its 34-million track catalog with their followers on the social network.
In an interview with GeekWire at the time, Rhapsody’s chief financial officer Ethan Rudin acknowledged that the new initiatives would be costly, impacting the company’s timeline for profitability.
“2015 is a watershed year, not just for Rhapsody but for streaming music in general,” he said at the time. “It’s not a period in time in which we’re taking our foot off the gas. It’s an investment year. We’re thinking a lot about new product, we’re thinking a lot about promotional opportunities, and music sharing like this Twitter opportunity.”
Rhapsody declined to comment on the details of today’s filing.
The company, which also runs the Napster music service overseas, is privately held. However, its basic financial results are disclosed each quarter in SEC filings by publicly traded RealNetworks, which owns 43 percent of the company after spinning it off in 2010.
In addition to providing $5 million each in loans, RealNetworks and the other, unnamed investor have each provided a $5 million guaranty to Rhapsody’s senior secured lender for loans that mature in April 2018, according to the filing. Although the second investor isn’t disclosed in the filing, Columbus Nova Technology Partners made a “significant investment” in Rhapsody in 2013 as part of a broader shakeup at the company.
Here’s the relevant portion of the RealNetworks filing today.
We recorded our share of losses of Rhapsody of $6.2 million and $0.8 million for the quarters ended March 31, 2015 and 2014, respectively. Because of the $10.0 million liquidation preference on the preferred stock we hold in Rhapsody, under the equity method of accounting we do not record any share of Rhapsody losses that would reduce our carrying value of Rhapsody, which is impacted by Rhapsody equity transactions, below $10.0 million, unless Rhapsody’s book value is reduced below $10.0 million. Because Rhapsody’s book value declined below $10.0 million in the first quarter of 2015, we reduced our investment in Rhapsody below the $10.0 million liquidation preference and recorded $6.2 million of our share of losses of Rhapsody. On the unaudited condensed consolidated balance sheet, Investment in and advances to Rhapsody of $10.7 million includes the $5.7 million carrying value of our Rhapsody equity investment.In March 2015, RealNetworks extended a $5.0 million loan to Rhapsody, as did the other 43% owner of Rhapsody. The loans have maturity dates of June 2018 or earlier if Rhapsody’s certain loan to an external strategic partner is repaid on its due date of June 2015. The loans bear interest at the greater of prime plus 5.25% or 9% per annum, and interest accrues and is paid upon final maturity. In April 2015 RealNetworks and the other 43% owner of Rhapsody each provided a $5.0 million guaranty to Rhapsody’s senior secured lender, related to the senior lender’s loans to Rhapsody, which mature in April 2018. The guaranties will be released by the senior secured lender upon the June 2015 maturity of Rhapsody’s loan to the external strategic partner, or no later than April 2018 if Rhapsody’s loan to the external strategic partner is not repaid upon its due date.
