The news was announced last night as part of Real's Q1 financials, in which first-quarter profit was $2.4m, down from $40m a year previous.

In a stark contrast to the company's overall results, Real revealed that the games business' revenues In the first quarter of 2008 rose 33 per cent year on year to $31.8 million. For the 2007 financial year, games revenue overall was $108.5 million, up 26 per cent over 2006.

Real said it would distribute shares of the new independent casual games company to its shareholders and is considering an initial public offering of up to 20 per cent of those new shares.

Founded in 2001 as RealArcade, the company's casual games business has grown into a unit that includes development, publishing, licensing, distribution and retail interests.

"RealNetworks was a pioneer and has been a leader in the casual games industry since we introduced RealArcade in 2001," said Rob Glaser, chairman and CEO of RealNetworks. "We believe that spinning off our casual games business will give it the best opportunity to continue to flourish and lead."

Glaser added that separating Real's games effort out will not just "result in two more flexible and focused companies", but also give it a better position to look at acquisitions and talent retention via "an industry-specific currency".

Speaking to the Seattle Times, Glaser described the unit as "an incredible entrepreneurial success story" which would be poised to act better independently "as the casual-games industry continues to grow and consolidate."

Michael Eggers, SVP and CFO of RealNetworks, added: "Today's announcement demonstrates our commitment to create long-term value for RealNetworks' shareholders.

"For investors, we anticipate that the spin off will create a pure-play casual games business with increased transparency, and that it will result in lower complexity in understanding and tracking RealNetworks' performance. We also think that the new structure will provide current and potential shareholders with two attractive investment options that may be more closely aligned with their various investment objectives."