UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K10-K/A
(Amendment No.1)
(Mark One)
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2020
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to
Commission file number 1-37745001-37745
RealNetworks, Inc.
(Exact name of registrant as specified in its charter)
Washington91-1628146
Washington91-1628146
(State of incorporation)(I.R.S. Employer Identification Number)
1501 First Avenue South, Suite 600
Seattle, Washington
98134
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code:
(206) 674-2700
(Address of principal executive offices, zip code, telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class

Trading Symbol (s)Symbol(s)
Name of Each Exchange on Which Registered

Common Stock, Par Value $0.001 per shareRNWKThe NASDAQ Stock Market LLC
Preferred Share Purchase RightsRNWKThe NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨Noþ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act    Yes  ¨Noþ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yesþ    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yesþ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer   ¨
Accelerated filer  ¨
Non-accelerated filer   þ
Smaller reporting company  þ
Emerging growth company  ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ





The aggregate market value of the common stock held by non-affiliates of the registrant was $31 million on June 30, 2020, based on the closing price of the common stock on that date, as reported on the Nasdaq Global Select Market. Shares held by each executive officer and director have been excluded in that such persons may be deemed to be affiliates. In the case of 10% or greater shareholders, we have not deemed such shareholders to be affiliates unless there are facts and circumstances which would indicate that such shareholders exercise any control over our company. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of the registrant’s common stock outstanding as of March 1,31, 2021 was 38,525,790.38,602,450.


DOCUMENTS INCORPORATED BY REFERENCE
The registrant has incorporated by reference



EXPLANATORY NOTE

RealNetworks, Inc. is filing this Amendment No. 1 to our Form 10-K for the fiscal year ended December 31, 2020, originally filed with the Securities and Exchange Commission on March 15, 2021, for the purpose of providing the information required by Part III of this Annual Reportthat we intended to be incorporated by reference from its Proxy Statementour proxy statement relating to itsour 2021 Annual Meetingannual meeting of Shareholders or an amendment to this Form 10-K, toshareholders. Our 2021 proxy statement, however, will not be filed within 120 days after the endrequisite time period allowing such incorporation by reference.
This Amendment No. 1 speaks as of its fiscal year ended December 31, 2020.the original filing date of the Form 10-K and reflects only the changes to the cover page, Items 10, 11, 12, 13 and 14 of Part III and Item 15 of Part IV. No other information included in the Form 10-K, including the other information set forth in Part I and Part II, has been modified or updated in any way.
We have also included as exhibits the certifications required under Section 302 of the Sarbanes-Oxley Act of 2002. Because no financial statements are contained within this Amendment, we are not including certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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TABLE OF CONTENTS


Page
PART I
Item 1.
5
Item 1A.
10
PART III
Item 1B.10.
19
Item 2.
19
Item 3.
19
Item 4.
19
PART II
Item 5.
20
Item 6.
20
Item 7.
20
Item 7A.
29
Item 8.
30
Item 9.
65
Item 9A.
65
Item 9B.
65
PART III
Item 10.
655
Item 11.
6512
Item 12.
6640
Item 13.
6642
Item 14.
6643
PART IV
PART IV
Item 15.
6745
6846
6947


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PART I.III.
This Annual Report on Form 10-K
Item 10.    Directors, Executive Officers and the documents incorporated herein by reference contain forward-looking statements that have been made pursuantCorporate Governance
Information Concerning Our Directors
The name, age and certain background information regarding each member of our Board of Directors is set forth below as of March 31, 2021. There are no family relationships among our directors or executive officers. In addition to the provisionsinformation presented below regarding each director’s specific experience, qualifications, attributes and skills that led the Board of Directors to conclude that he or she is qualified to serve as a director, each of our directors has demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment to RealNetworks and our Board.


NameAgePosition(s)ClassDirector Since
Robert Glaser59Chairman of the Board of Directors31994
Bruce A. Jaffe56Lead Independent Director (2*, 3)32015
Christopher R. Jones51Director12016
Dawn G. Lepore67Director (2, 3*)12013
Erik E. Prusch54Director (1*)12019
Michael B. Slade63Director (1)22011
Tim Wan50Director (1)22019

* Denotes chair of such committee
(1) Member of the Private Securities Litigation Reform ActAudit Committee
(2) Member of 1995. These forward-looking statements are based on current expectations, estimates, and projections about RealNetworks’ industry, products, management’s beliefs, and certain assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. All statements contained in this report that do not relate to mattersCompensation Committee
(3) Member of historical fact should be considered forward-looking statements. Forward-looking statements include statements with respect to:Nominating & Corporate Governance Committee
•the expected benefits and other consequences of our growth plans, strategic initiatives, and restructurings;
•our expected introduction, and related monetization, of new and enhanced products, services and technologies across our businesses;
•future revenues, operating expenses, income and other taxes, tax benefits, net income (loss) per diluted share available to common shareholders, acquisition costs and related amortization, and other measures of results of operations;
•the effects of our past acquisitions, including our January 2019 acquisition of a controlling interest in Napster and subsequent sale of our entire Napster interest in December 2020, and expectations for future acquisitions and divestitures;
•plans, strategies and expected opportunities for future growth, increased profitability and innovation;
•our expected financial position, including liquidity, cash usage and conservation, and the availability of funding or other resources, and the potential for forgiveness of certain loans;
•the effects of legislation, regulations, administrative proceedings, court rulings, settlement negotiations and other factors that may impact our businesses;
•the continuation and expected nature of certain customer relationships;
•impacts of competition and certain customer relationships on the future financial performance and growth of our businesses;
•our involvement in potential claims, legal proceedings and government investigations, and the potential outcomes and effects of such potential claims, legal proceedings and governmental investigations on our business, prospects, financial condition or results of operations;
•the effects of U.S. and foreign income and other taxes on our business, prospects, financial condition or results of operations; and
•the effect of economic and market conditions, including global pandemics and financial crises, on our business, prospects, financial condition or results of operations.
These statements are not guarantees of future performance and actual actions or results may differ materially. These statements are subject to certain risks, uncertainties and assumptions that are difficult to predict, including those noted in the documents incorporated herein by reference. Particular attention should also be paid to the cautionary language in Item 1A entitled “Risk Factors.” RealNetworks undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise, unless required by law. Readers should, however, carefully review the risk factors included in other reports or documents filed by RealNetworks from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.





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Item  1.
Biographical Information

Specific Experience,
Qualifications
and Skills Considered
 by our Board
Class 1 Directors
Christopher R. JonesMr. Jones serves as SVP of Product for Amperity, Inc., a privately held company providing the world’s first intelligent customer data platform. Prior to joining Amperity, Mr. Jones spent over 25 years at Microsoft Corporation in leadership roles in product management and product development. As Engineering Director for Microsoft, a position he held from October 2015 to May 2018, he co-created Microsoft Healthcare NExT, an incubator created to accelerate healthcare innovation through artificial intelligence and cloud computing. From February 2000 to October 2015, he served as a Corporate Vice President in various business divisions at Microsoft, including OneDrive & SharePoint, Windows Services, and Windows, where he led the engineering teams for several Microsoft products, such as OneDrive and OneDrive for Business, SharePoint Online and SharePoint Server, Outlook.com and other consumer services, and Windows XP. Mr. Jones joined Microsoft in August 1991. Mr. Jones holds a B.S. degree in mathematical and computational sciences from Stanford University.
Senior leadership experience

Extensive experience in software engineering and development
Dawn G. Lepore
Ms. Lepore served as interim Chief Executive Officer of Prosper Marketplace, Inc., a privately held peer-to-peer lending marketplace, from March 2012 to January 2013. She served as Chief Executive Officer and Chairman of the Board of drugstore.com, inc., a leading online provider of health, beauty, vision, and pharmacy solutions, from October 2004 until its sale to Walgreen Co. in June 2011. Prior to joining drugstore.com, Ms. Lepore spent 21 years at the Charles Schwab Corporation and Charles Schwab & Co, Inc., a financial holding company, holding several leadership positions, most notably Vice Chairman of Technology, Active Trader, Operations, Business Strategy, and Administration, and Chief Information Officer. She also served as a member of Schwab’s executive committee and as a trustee of SchwabFunds. Since July 2019, Ms. Lepore serves on the board of directors of publicly traded Accolade, Inc., a provider of personalized health and benefits solutions; and since May 2015, she serves on the board of directors of publicly traded loanDepot, Inc., a retail mortgage lender. Ms. Lepore previously served on the boards of directors of Quotient Technology Inc. from February 2012 to November 2017, AOL Inc. from October 2012 until its sale to Verizon Communications Inc. in July 2015, The TJX Companies, Inc. from June 2013 to June 2014, eBay Inc. from December 1999 to January 2013, and The New York Times Company from April 2008 to June 2011. She also currently serves, and in the past has served, on the boards of several privately held companies. Ms. Lepore holds a B.A. degree from Smith College.


Executive leadership experience

Business strategy experience

Experience with business and financial matters

Extensive experience as a director of public and private companies
Overview
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RealNetworks invented the streaming media category in 1995 and continues to build on its foundation of digital media expertise and innovation, creating a new generation of products and services to enhance and secure our daily lives. In recent years, we have increasingly focused on developing artificial intelligence (AI)-based products and services such as our Secure Accurate Facial Recognition (SAFR) computer vision platform and our Kontxt natural language processing-based message classification and analysis product. We provide our software and services to consumers, mobile carriers, device manufacturers, system integrators, and other businesses.
Consumers use our digital media products and services to store, organize, play, manage and enjoy their digital media content, either directly from us or through our distribution partners. For 25 years, RealNetworks has advanced the renowned RealPlayer, which has provided millions of people worldwide a powerful way to download, store, organize, and experience the rapidly expanding universe of digital media content, regardless of format. Our SAFR computer vision platform, a key investment initiative for us, enables new applications for security, convenience, and analytics, and is optimized for live video. Our consumer products feature GameHouse Original Stories, a unique IP portfolio of free-to-play mobile games. Our consumer products also include ringback tones, which we license to mobile operators, and our video compression and enhancement technology, which we primarily license to OEMs, including manufacturers of mobile devices, smart TVs, and set-top boxes. Our product line also includes Kontxt, our AI-based platform for categorizing Application to Person (A2P) messages to help messaging aggregators and mobile carriers provide a better customer experience, strengthen customer loyalty, and drive new revenue through text message management, classification and anti-spam.
The monetization, distribution, and licensing of our technology products and services are heavily dependent on contracts with third parties, such as mobile carriers, system integrators, and device manufacturers.
We were incorporated in 1994 in the State of Washington. Our common stock is listed on the NASDAQ Stock Market under the symbol "RNWK."
In this Annual Report on Form 10-K ("10-K") for the year ended December 31, 2020, RealNetworks, Inc., together with its subsidiaries, is referred to as "RealNetworks," the "Company," "we," "us," or "our." "RealPlayer," "RMHD," "RealMedia," "GameHouse," "Kontxt," "SAFR" and other trademarks of ours appearing in this report are our property.
Segments
We report revenue and operating income (loss) in three segments: (1) Consumer Media, (2) Mobile Services, and (3) Games. RealNetworks allocates to its Consumer Media, Mobile Services, and Games segments certain corporate expenses which are directly attributable to supporting these businesses, including but not limited to a portion of finance, IT, legal, human resources and headquarters facilities. Remaining expenses, which are not directly attributable to supporting these businesses, are reported as corporate items. These corporate items also can include restructuring charges and stock compensation expense.
As described in Note 4. Acquisitions and Dispositions, RealNetworks acquired an additional 42% interest in Rhapsody International, Inc. (doing business as Napster) on January 18, 2019, which brought our ownership of Napster's outstanding stock to 84%, thus giving us a majority voting interest. For fiscal periods following the closing of the acquisition, we consolidated Napster's financial results into our financial statements, where Napster was reported as a separate segment. In August 2020, we entered into a Support Agreement in connection with the execution by Napster of a definitive agreement pursuant to which Napster would become a wholly owned subsidiary of MelodyVR Group PLC. The transaction closed on December 30, 2020, resulting in our full disposition of our Napster stake. Effective on the execution of the Napster/MelodyVR merger agreement on August 25, 2020, Napster was treated as discontinued operations for accounting and disclosure purposes. As such, Napster's operating results for the years ended December 31, 2020 and 2019 and financial condition as of December 31, 2019 have been recast to conform to this presentation.
Consumer Media
In our Consumer Media segment, revenue is primarily derived from the licensing of our portfolio of video compression and enhancement technology, also known as codec technology. Codecs are an encoding and decoding technology designed to reduce the amount of bits required to stream or store media content, and modern codecs achieve significant savings in streaming bandwidth and storage costs. Our main codec products are RealMedia High Definition, which we refer to as RealMedia HD or RMHD, and RealMedia Variable Bitrate, or RMVB. Our codec technologies business is primarily focused on the Chinese market, where RMVB remains a prevalent, though declining format.
We continue to develop and innovate our video compression and enhancement technology to meet or exceed user demands for increasing compression efficiency and visual quality. We license our codec technology to a variety of electronic equipment, microchip, and integrated circuit manufacturers who embed our codec in their products, including mobile devices,
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laptops, smart TVs and other devices. To ensure a robust ecosystem for our codec technologies, we also promote the use of our codec technology to producers of media content and users of RealPlayer, thus encouraging the widespread adoption by device manufacturers.
We also generate revenue through online sales to consumers of our PC-based RealPlayer subscription products, including our SuperPass service, which provides consumers with access to digital entertainment content for a monthly fee. The RealPlayer media player, our enduring yet continually evolving software product, includes features and services that enable consumers to discover, play, download, manage and edit digital video, stream audio and video, download and save photos and videos from the web, transfer and share content on social networks, and edit their own photo and video content. As part of our RealPlayer download process, we also offer distribution of third-party software products to consumers, which generates additional revenue.
Mobile Services
Mobile Services consists of the various digital media services we provide to mobile and online service providers as software as a service (SaaS) offerings. In recent years, we have increasingly focused on AI-based products and services such as SAFR and Kontxt.
Included in our SaaS offerings are our messaging products, which include our Metcalfe intercarrier messaging service; Kontxt, our AI-based text message management, anti-spam, and classification product; and our ringback tone service. We provide these services to a large number of mobile carriers around the world, although a significant portion of our revenue for this segment results from contracts with a few mobile carriers and one service partner. We also offer business intelligence, subscriber management and billing for the carriers who make our offerings available to their customers. Also included in this segment is our computer vision platform, SAFR (Secure Accurate Facial Recognition) and our RealTimes platform.
Our Metcalfe intercarrier messaging platform enables operators to send and receive SMS messages worldwide between networks and service providers, regardless of network technology, typically processing billions of SMS messages per day between users on hundreds of different networks. A portion of the revenue we earn from our intercarrier messaging service is based on a revenue-sharing arrangement with one service partner. Our next-generation AI-based mobile messaging platform, Kontxt, evaluates message streams sent from an application to a person (A2P) and classifies those messages into various categories allowing network operators and other service providers to create policies for prioritization and delivery of messages and blocking spam and fraudulent messages, resulting in more efficient text message delivery.
Our ringback tone services enable callers to hear subscriber-selected music or messages instead of the traditional electronic ringing sound while waiting for the person they have called to answer. We primarily offer ringback tone services via mobile carriers, where, in return for providing, operating and managing the ringback tone service for the carrier customers, we generally enter into revenue-sharing arrangements with the carriers based on monthly subscription fees, content download fees or a combination of such fees paid by subscribers.
Our photo and video sharing platform, RealTimes, is offered to wireless carriers for integration in their hosted cloud solutions. Within our Mobile Services group, we focus on leveraging current and prospective wireless carrier relationships to increase integration of the RealTimes platform.
Our computer vision platform, SAFR, detects faces and other types of objects by leveraging AI-based machine learning. We continue to invest in and build industry partnerships for SAFR, typically licensing it to technology partners and system integrators through third-party resellers and directly to end customers. Our SAFR platform is a key investment initiative for us.
Games
Our Games segment is focused on the development, publishing, and distribution of casual games, which are offered via mobile devices, digital downloads, and subscription play. Casual games typically have simple graphics, rules and controls, are quick to learn, and often include time-management, board, card, puzzle, word and hidden-object games. Our primary focus is our free-to-play mobile games, most notably our Delicious Bed and Breakfast and our Delicious World games. These free-to-play games generate revenue from player purchases of in-game goods and from advertising displayed to consumers during play.
Our mobile games are digitally distributed through third-party application storefronts, such as the Apple App Store and Google Play, and are principally offered in North America, Europe and Latin America. Historically, we have also offered premium games that we typically introduce to consumers upon release on a free-trial basis. After reaching a certain level of game play, consumers then have the option of purchasing the full game. Although games previously offered for individual purchase will continue to be available, during 2019, we began to shift our strategy to free-to-play games and away from premium mobile games.
PC consumers can access and play both our Original Stories and hundreds of third-party games through individual purchases or a subscription service offered through our GameHouse and Zylom websites, and through websites owned or
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managed by third parties. Consistent with our mobile offerings, we have historically introduced new games by offering a free trial before purchase on an individual-game basis or as part of one of our subscription services.
See Note 18. Segment Information, in this 10-K for additional details on our segments and geographic concentrations.
Customers
Our customers include consumers and businesses located throughout the world. Sales to customers outside the U.S., primarily in Europe and Asia, were 36% and 40% of our revenue during the years ended December 31, 2020 and 2019, respectively. See Note 18. Segment Information, for details on geographic concentrations, and see Note 6. Allowance for Doubtful Accounts Receivable and Sales Returns, for details on customer revenue concentrations.
Research and Development
We devote a substantial portion of our resources to developing new products, enhancing existing products, expanding and improving our fundamental technology, and strengthening our technological expertise in all our businesses.
Sales, Marketing and Distribution
Our marketing programs are aimed at increasing brand awareness of our products and services and stimulating demand. We use a variety of methods to market our products and services, including paid search advertising, affiliate marketing programs, electronic and other online media, and email offers to qualified potential and existing customers, and providing product specific information through our websites. We also cross-market products and services offered by some of our businesses through the RealPlayer and Games marketing and distribution channels. We have subsidiaries and offices in several countries that market and sell our products outside the U.S.
Our products and services are marketed through direct and indirect channels. We use public relations, trade shows, events and speaking opportunities to market our products and services. We also use a variety of online channels, including social media, to promote and sell our products and services directly.
In our Consumer Media business, we market and sell our various RealPlayer services directly through our own websites such as Real.com, as well as indirectly through third party distribution partners. We also employ a sales team in China which works with distribution partners on marketing our codec technologies.
Our Mobile Services sales, marketing and business development teams works closely with many of our enterprise, infrastructure, wireless, broadband, media and governmental customers to identify new business opportunities for our entertainment applications, services and systems. Through ongoing communications with the product and marketing divisions of our customers, we tailor our SaaS offerings to their strategic needs and the needs of their subscribers.
In our Games business, we market directly from our GameHouse and Zylom websites and through third-party distribution channels, such as application storefronts, search engines, online portals, and content publishers.

Customer Support
Customer support is integral to the provision of nearly all of our consumer products and services. Consumers who purchase and use our consumer software products and services can get assistance primarily via the Internet or email, depending on the product or service. For some of our consumer products, we contract with third-party outsource support vendors to provide the primary staffing for our first-tier customer support globally. We also provide various support service options for our business customers and for software developers using our software products and associated services. Support service options include online support services and on-site support personnel covering technical and business-related support topics.
Competition
The market for software and services for digital media delivery over the Internet and wireless networks is intensely competitive. Many of our current and potential competitors have longer operating histories, greater name recognition or brand awareness, more employees or significantly greater resources than we do.
In our Consumer Media segment, our codec technology faces competition from other next-generation video codecs, and many of our competitors have come together in patent pools to market and license a shared codec solution that competes with our own codecs. This coalition of multiple companies, which include some of the largest global technology companies, benefits from a significant inherent market penetration and, thus, a substantial competitive advantage over us. In addition, our RealPlayer media player continues to face competition from alternative streaming media playback applications that have obtained very broad market penetration.
In our Mobile Services segment, our SaaS business competes with a large and diverse number of domestic and international companies, and each of our SaaS offerings tends to face competitors specific to that product or service. Our SaaS
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business continues to experience significant competitive pricing pressure from carriers and the proliferation of smartphone applications and services, some of which do not depend on our carrier customers for distribution to consumers. Many of our SaaS services require a high degree of integration with carrier or service provider networks and thus require a high degree of operational expertise. Our ability to enhance services with new features as the digital entertainment market evolves is critical to our competitive position, as is our knowledge of the consumer environment to which these services are targeted. Also within our Mobile Services segment, our computer vision SAFR platform competes with a wide variety of companies, including small startups and well established, heavily resourced global companies. These competitors continue to develop technologies and launch products in the artificial intelligence and facial recognition markets.
Our Games business competes with a variety of distributors and publishers of casual games for PC and mobile platforms. Our in-house game development studios compete with other developers and publishers of mobile games based on our ability to create high quality games that resonate with consumers, and our ability to secure broad distribution.
Intellectual Property
We maintain patents in the U.S. and other jurisdictions relating to various aspects of our technology. We regularly analyze our patent portfolio and prepare additional patent applications on current and anticipated features of our technology, or sell or abandon patents or applications that are no longer relevant or valuable to our operations.
In addition to our patent portfolio, we have assembled, over time, an international portfolio of trademarks and service marks that covers certain of our products and services. We also have applications pending for additional trademarks and service marks in jurisdictions around the world, and have several unregistered trademarks. Many of our marks begin with the word “Real” (such as RealPlayer). We are aware of other companies that use “Real” in their marks alone or in combination with other words, and we do not expect to be able to prevent all third-party uses of the word “Real” for all goods and services.
Our ability to compete across our businesses partly depends on the superiority, uniqueness and value of the technology that we both develop and license from third parties. To protect our proprietary rights, we rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual provisions. These efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology, or may not prevent the development and design by others of products or technologies similar to or competitive with those we develop.
Human Capital
Recognizing that our employees are the company’s most meaningful asset, RealNetworks is committed to employing great people, treating each other with respect, and strictly adhering to the highest ethical and legal principles in its business activities. Each of our business units – Mobile Services, Consumer Media, and Games – have unique brands and products tied together by a workforce that is focused on excellence and on providing industry-leading technologies, applications, and products. This structure strongly informs our corporate culture: We strive to run a lean, agile organization that prioritizes innovation in all facets of our work.
Guiding Management Principles
Part of the fabric of the organization and key to the operation of a performance-based environment are our management principles including commitment to innovation, delivering results, raising the bar in all facets of our work, being inclusive and respectful, being great teammates for each other, and embracing the journey by working hard and celebrating our successes. We consider our workforce a significant competitive advantage and actively seek opportunities to reinforce behaviors that exemplify our management principles. We celebrate employees whose work and actions reflect and embody our management principles with company-wide acknowledgment and awards.
Respectful and Safe Workplace
We want RealNetworks to be a workplace that is open, respectful and safe. RealNetworks encourages and expects the individual actions of its employees at all levels to be consistent with our commitment to a respectful workplace including annual reconfirmation of individual employees’ adherence to our Global Code of Conduct and Ethics. RealNetworks has been and will continue to be fully committed to providing a work environment free from unlawful discrimination or harassment. Our global policies include prohibition of harassment, threatened or actual workplace violence, or any conduct that undermines an employee’s integrity or creates an intimidating, hostile or offensive work environment even if it does not rise to the level of illegal harassment under the law.
RealNetworks is committed to providing a safe and healthy work environment for all employees in compliance with occupational health, safety, and environmental laws. To accomplish this, RealNetworks and its employees adhere to work practices that will prevent accidents, injuries, and illnesses. We consider safety and health issues to be the responsibility of every employee of RealNetworks and we strive to maintain a preventative and cooperative attitude relating to safety issues.
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We have had a heightened focus on the safety of our employees and their families during the COVID-19 pandemic. In early March 2020, we quickly pivoted to a predominantly remote workforce and restricted employee travel. We have since followed guidance from local health experts to ensure our staff across the globe remain safe. We helped our employees with home office set up and added new system applications to foster virtual collaboration. We have also implemented mitigation practices in all offices to ensure employees are safe when on-site. We will continue to prioritize the well-being of our employees as the pandemic continues.
Compensation and Benefits
We operate in a highly competitive, global, and technologically challenging environment. We provide competitive compensation and benefits programs for our employees. In addition to market competitive salaries, we offer additional compensation in the forms of bonuses and stock, which will vary based on job level and location.
Our U.S. benefit programs include a 401(k) plan with employer matching, medical, dental and vision insurance, health savings and flexible spending accounts, group and voluntary life and disability insurance, business/travel and accident coverage, subsidized transit programs, paid time off, paid family leave including bonding time for new parents, financial literacy programs, and employee assistance programs. Our benefit programs in our international locations are tailored to local practices and compliant with local labor laws.
Talent Acquisition and Retention
RealNetworks strives to attract and retain a highly skilled, highly talented, and diverse work force. We recognize that we operate in a highly competitive, globally diverse marketplace when it comes to finding top talent. As a result, talent acquisition and the retention of employees continue to be a priority initiative for RealNetworks, and the Company complies with all applicable local, state, federal, and international laws governing nondiscrimination in employment in every location in which RealNetworks operates. All applicants and employees are treated with the same high level of respect regardless of their gender, ethnicity, religion, national origin, age, marital status, political affiliation, sexual orientation, gender identity, disability or protected veteran status.
In 2020, we implemented an Affirmative Action Plan, or AAP, as required by our new U.S. government contractor status. As part of our AAP, we will conduct annual internal reporting and auditing to ensure we are providing equal employment and pay opportunities for all applicants and existing employees. Equally important, we hope that this regular focus on the diversity of our U.S. workforce will make for a more dynamic culture and inclusive workplace.
RealNetworks maintains a global, ongoing performance review program, and encourages mentoring, stretch assignments, and other opportunities for internal career and occupational growth. Our median employee tenure is just over 5 years. We have a long-demonstrated history of employee advancement and promotion from within the organization. We also provide a variety of tools and methods for employees to provide feedback to managers and company leadership including global and local town hall forums, employee surveys, performance review discussions, and anonymous reporting tools.
Corporate Giving
RealNetworks has a strong history of giving back to the community. In 2000, the Company created the RealNetworks Foundation, which in recent years has generally made two annual grants to multiple charities, totaling about $1 million in annual charitable grants. The Foundation also makes ad hoc, emergency grants when deemed needed to support an urgent issue in the community. In 2020, our Foundation donated $500,000 to charities supporting racial justice and $500,000 to charities supporting COVID-19 relief. In addition, the Foundation's matching program supports the dollars and time that RealNetworks employees devote to eligible 501(c)(3) nonprofits.
RealNetworks also regularly supports participation by employees in activities of service to our local communities, including Day of Caring, local food drives and holiday toy and gift donations.
Employees
At December 31, 2020, we had approximately 325 employees, of which 101 were based in the Americas, 59 were based in Asia, and 165 were based in Europe. The number of our employees represented by unions is not significant.
Available Information
Our corporate Internet address is www.realnetworks.com. We make available free of charge on www.investor.realnetworks.com our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). However, the information found on our corporate website is not part of this or any other report.
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Item 1A.Risk Factors
You should carefully consider the risks described below together with all of the other information included in this Form 10-K. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the following risks actually occurs, our business, financial condition or operating results, and the trading price of our common stock, could be materially harmed.
Risks Related to the COVID-19 Pandemic
Our operating plans and financial condition have been adversely affected by the various impacts of the COVID-19 pandemic, and we expect to experience continued adverse effects in future periods in connection with the ongoing public health and safety, governmental, and economic implications.
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus that causes COVID-19 to be a global pandemic. As the virus spread throughout 2020, across the U.S. and the world, authorities implemented numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, business limitations, and shutdowns. In addition to the pandemic's widespread impact on public health and global society, reactions to the pandemic as well as measures taken to contain the virus initially caused significant turmoil to the global economy and financial markets. To address the public health and safety concerns, we have taken steps to support the health and well-being of our employees, customers, partners and communities, which include working remotely and learning to operate our businesses in a fundamentally different way.
To date, we have had to change certain strategy and product plans in order to address implications of the pandemic to our businesses, in particular, to our growth initiatives. Although forced to furlough some employees in the early days of the pandemic, we were able to bring those employees back to work during the second quarter of 2020. We also reduced expenditures during the year in an effort to efficiently manage our businesses in the restricted and uncertain climate, although we continue to face risk related to fixed facilities costs given the uncertain post-pandemic future of the use of physical office space. In addition, the initial turmoil in financial markets contributed to significant downward pressure on our stock price early in the pandemic. We cannot provide assurance that the actions we have taken will be sufficient, or that conditions will improve as the pandemic, and reactions thereto, continue to evolve.
The COVID-19 pandemic and the resultant economic instability and financial market turmoil has added complexity, uncertainty and risk to nearly all aspects of our business. We are unable to fully predict the near-term and long-term impacts that the pandemic will have on our results from operations, financial condition, liquidity and cash flows for fiscal 2021 or beyond.
Risks Related to our Strategy
Our growth initiatives could take longer than planned, be unsuccessful, or deplete our cash resources, any of which would have a material adverse effect on the performance of our businesses and financial results, and could cause us to pursue additional debt or other funding sources.
In recent years, we have developed new products and technologies, and funded initiatives, intended to create growth in our businesses, while simultaneously taking steps to reduce costs and increase profitability. These growth initiatives, several of which have been unsuccessful over recent years, have impacted all segments of our organization, requiring us to allocate limited resources among our diverse business units. Our financial sustainability is largely dependent on the success of our growth initiatives, and there are many risks to that success, some of which are internal to our company, including our ability to develop and monetize our products and services, and some of which are externally driven and outside of our control, such as the potential impact of macroeconomic pressures and global pandemics. In particular, we expect that progress with our growth initiatives will be negatively impacted by various reactions to the global outbreak of the coronavirus that causes COVID-19, such as travel restrictions, community lockdowns, tightening of corporate budgets, reduction in consumer confidence, and instability in financial markets. We cannot predict the duration or severity of these reactions or impacts to our business and, if prolonged, our cash reserves may prove insufficient, requiring us to pursue additional debt or other funding sources.
Given the ambitious and significant nature of our growth initiatives, there is substantial risk that we may be unsuccessful in implementing our plans in a timely manner, our cash reserves may be depleted or insufficient to fully implement our plans, our growth initiatives may not gain adequate momentum, or the combination of our growth initiatives and cost reductions may not prove to be profitable. Moreover, our acceptance of outside funding for any of our growth businesses, such as Scener's 2020 fundraising, exposes us to new risks and potential liabilities, including possible payment obligations and securities liability. Our business would suffer, and our operational results and financial outlook would be negatively impacted to a significant degree in the event that any of our growth initiatives fail.
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In August 2019, RealNetworks and Napster entered into a loan agreement with a third-party financial institution. Following the December 2020 sale of Napster to MelodyVR, the loan agreement was amended to remove Napster as a co-borrower and, among other modifications, to reduce the amount available under the revolving line of credit to a maximum of $6.5 million. The loan agreement, as amended, matures August 1, 2022 and contains customary covenants, including financial covenants, minimum EBITDA levels, and maintaining an unrestricted cash balance of $1.5 million. We have not had a debt facility in our recent past, therefore the entry into this facility has introduced new risks to the company, including the risk that constraints around covenants may lead to less flexibility in operational decision making, the risk of default and various implications thereof, and the potential increase in liabilities on our balance sheet in the event that we draw down the line of credit.
In April 2020, following an assessment of eligibility and upon approval by our Board of Directors, RealNetworks issued a promissory note in the principal amount of $2.9 million pursuant to the Paycheck Protection Program, or PPP, of the CARES Act. In May 2020, Napster, then-majority owned by RealNetworks though it maintained distinct legal status and control, issued its own promissory note in the principal amount of $1.7 million pursuant to the PPP. On April 23, 2020, the Small Business Administration issued new guidance that introduced some uncertainty as to whether a public company with substantial market value and access to capital markets would qualify for participation in the PPP. Subsequently, on April 28, 2020 the Secretary of the Treasury and Small Business Administration announced that the government would review all PPP loans of more than $2 million for which the borrower applied for forgiveness. While we believe that RealNetworks and Napster fully qualified for the loans, should we be audited or reviewed by the U.S. Department of the Treasury as a result of filing an application for forgiveness or otherwise, such audit or review could result in the diversion of management’s time and attention and legal and reputational costs. RealNetworks applied for forgiveness of its PPP loan in January 2021; Napster applied for forgiveness of its PPP loan in December 2020. If an audit were to be conducted and an adverse finding received, all or a portion of the PPP loan could be required to be returned, which would reduce our liquidity and potentially result in fines and penalties.
The inability to obtain additional debt, whether through draws on our current line of credit or through a new debt facility, or the raising of funds through other means, could negatively impact our liquidity and ability to invest in our growth initiatives, or cause us to consider funding that would impact our governance structure. The occurrence of these or any of the risks described above would impair our financial results and stock price.
We need to successfully monetize our new products and services in order to sustain and grow our businesses, and manage our cash resources.
In order to sustain our current level of business and to implement our growth initiatives, we must successfully monetize our new products and services, including through existing and new relationships with distribution partners, establishing new sales channels, and managing new supply chains. Our digital media products and services must be attractive and useful to distribution partners and end users. The successful acceptance and monetization of these products and services, therefore, is subject to unpredictable and volatile factors beyond our control, including end-user preferences, competing products and services, the rapid pace of change in the market, the effectiveness of our distribution channels, and significant global crises. Any failure by us to timely and accurately anticipate consumers’ changing needs and preferences, emerging technological trends and data privacy norms, or changes in the competitive or regulatory landscape for our products and services could result in a failure to monetize our new products or the loss of market opportunities, both of which we have experienced at various times in our past.
Moreover, in order to grow our new businesses, we must make long-term investments, develop or obtain appropriate intellectual property and commit significant resources before knowing whether the products and services that we are developing or have introduced will meet the demands of the relevant market. As we have experienced, we may not realize a sufficient return, or may experience losses, on these investments, thereby further straining our limited cash resources and negatively affecting our ability to pursue other needed growth or strategic opportunities.
Sustaining and growing our businesses, and managing our cash resources, are subject to these risks inherent in developing, distributing and monetizing our new products and services. Our failure to manage these risks could further impair our operations and financial results to a material degree, and could cause an unsustainable depletion of our cash resources.
Furthermore, our products and services have been in the past and may be in the future subject to legal challenge. Responding to any such claims may require us to enter into royalty and licensing agreements on unfavorable terms, require us to stop distributing or selling, or to redesign our products or services, or to pay damages, any of which could constrain our growth plans and cash resources.
Our businesses, including in connection with our growth initiatives, face substantial competitive challenges that may impair our success, thus negatively impacting our future growth.
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Our digital media products and services, including legacy and products/services central to our growth initiatives, face a wide variety of competitors, many of which have longer operating histories, greater name or brand recognition, deeper and more expansive market penetration, more employees, and significantly greater resources than we do. In addition, current and potential competitors may include relatively new businesses that develop or use innovative technologies, products or features that could disrupt the market for technologies, products or features that we currently develop and market or seek to develop and market. In attempting to compete with any or all of these competitors, we may experience, as we have in the past, some or all of the following consequences, any of which would adversely affect our operating results and the trading price of our stock:
•reduced prices or margins;
•loss of current and potential customers, or partners and potential partners who distribute our products and services or who provide content that we distribute to our customers;
•changes to our products, services, technologies, licenses or business practices or strategies;
•lengthened sales cycles;
•inability to meet demands for more rapid sales or development cycles;
•industry-wide changes in content distribution to customers or in trends in consumer consumption of digital media products and services;
•pressure to prematurely release products or product enhancements; or
•degradation in our stature or reputation in the market.
Our Consumer Media technologies for media playback and production (RealPlayer, RealMedia VB and RealMedia HD) compete with alternative media playback technologies and audio and video content formats that have obtained broad market penetration. RealMedia VB and RealMedia HD are codecs, technology that enables compression and decompression of the media content in a (usually proprietary) format. We license our codec technology primarily to computer, smartphone and other mobile device manufacturers, and also to other partners that can support our efforts to build a strong ecosystem, like content providers and integrated circuit developers. To compete effectively, codec technologies must appeal to, and be adopted for use by, a wide range of parties: producers and providers of media content, consumers of media content, and device manufacturers who pre-load codec technologies onto their devices. Our ability to sustain or grow this business, which has recently experienced downward pressure, is dependent on the successful promotion and adoption of our codec technologies to a wide and diverse target market, which is a complex and highly uncertain undertaking. If we are unable to compete successfully, our Consumer Media business could decline as it has in the recent past or on a more accelerated basis.
The market for our Mobile Services business is highly competitive and continues to rapidly evolve. Our SaaS services face competition from a proliferation of applications and services, many of which carriers can deploy or offer to their subscribers, or which consumers can acquire independently of their carrier. We expect pricing pressure in this business to continue to materially impact our operating results in this business. Our Mobile Services growth initiatives compete with a wide variety of companies, as small startups and well established, heavily resourced global companies race to develop AI-based technologies and launch products in the computer vision market. The success of these initiatives is highly dependent on our ability to differentiate our product offering within this highly competitive environment.
The branded services in our Games business compete with other developers, aggregators and distributors of mobile, online, and downloadable games. Our competitors vary in size and capabilities, some of which have high volume distribution channels and greater financial resources than we do; while others may be smaller and more able to quickly or efficiently adjust to market conditions. We also face significant price competition in the casual games market, as our competitors increasingly focus on free-to-play games or reduce prices more aggressively. We expect competition to continue to intensify in this market. Our games development studios compete primarily with other developers of mobile, online, and downloadable games, and must continue to develop popular and high-quality game titles. Our Games business must also continue to execute on opportunities to expand the play of our games on a variety of non-PC platforms, including mobile, in order to maintain our competitive position and to grow the business. Moreover, continued growth in our Games business is in part dependent on the availability of funds to invest in marketing, which availability cannot be assured.
Risks Related to our Operations
The distribution and license of our technology products and services are governed by contracts with third parties, the terms of which subject us to significant risks that could negatively impact our revenue, expenses and assumption of liability related to such contracts.
In our Consumer Media and Mobile Services segments, we distribute and license most of our technology products and services pursuant to contracts with third parties, such as mobile carriers and their partners, online service providers, and OEMs and device manufacturers, many of whom may have stronger negotiating leverage due to their size and reach. These contracts govern the calculation of revenue generated and expenses incurred, how we recognize revenue and expenses in our financial statements, and the allocation of risk and liabilities arising from the product or service or distribution thereof. Terms impacting revenue, over which we may have limited if any control, may involve revenue sharing arrangements, end user pricing, usage levels, and exclusivity, all of which significantly affect the level of revenue that we may realize from the relationship.
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Moreover, contract terms around marketing and promotion of our products and other expense allocation could result in us bearing higher expenses or achieving weaker performance than we had anticipated from the relationship.
In addition, although our contracts with third parties are typically for a fixed duration, they could be terminated early; and they may be renegotiated on less favorable terms or may not be renewed at all by the other party. We must, therefore, seek additional contracts with third parties on an ongoing basis to sustain and grow our business. We expect to face continuing and increased competition for the technology products and services we provide, and there is no assurance that the parties with which we currently have contracts will continue or extend current contracts on the same or more favorable terms, or that we will obtain alternative or additional contracts for our technology products and services. As we have experienced over the past several years relating to our technology sales in China, the further loss of existing contracts, the failure to enter new contracts, or the deterioration of customer creditworthiness or the terms in our contracts with third parties could continue to materially harm our operating results, financial condition, and cash flow.
Nearly all of our contracts in which we provide to another party services or rights to use our technology include some form of obligation by us to indemnify the other party for certain liabilities and losses incurred by them, including liabilities resulting from third party claims for damages that arise out of the use of our technology. These indemnification terms provide us with certain procedural safeguards, including the right to control the defense of the indemnified party. We have in the past incurred costs to defend and settle such claims. Claims against which we may be obligated to defend others pursuant to our contracts could in the future result in payments that could materially harm our business and financial results.
In our Games segment, we rely on third-party platforms to distribute our games and collect revenue from players. We are subject to the standard terms and conditions that these platform providers have for application developers, which govern the content, promotion, distribution, operation of games and other applications on their platforms, as well as the terms of the payment processing services provided by the platforms, and which the platform providers can change unilaterally on short notice or without notice. If our platform providers do not perform their obligations in accordance with our platform agreements, our operations and financial condition could be adversely impacted. Moreover, Internet-connected devices and operating systems controlled by third parties increasingly contain features that allow device users to disable functionality that allows for the delivery of advertising on their devices, including through Apple’s Identifier for Advertising, or IDFA, or Google’s Advertising ID, or AAID, for Android devices. Device and browser manufacturers may include or expand these features as part of their standard device specifications. For example, Apple's upcoming iOS update is expected to require app users to affirmatively opt in for their IDFA to be accessed by an app. In the likely event that a significant percentage of players decline to opt in, our ability to run effective user acquisition campaigns may be challenged potentially causing our spending to increase, and our advertising revenue may decline, thus harming our financial results.
Our operating results are difficult to predict and may fluctuate, which may contribute to weakness or volatility in our stock price.
The trading price for our common stock has been in steady decline for many years, though, particularly more recently, has also been vulnerable to significant volatility caused by general market conditions or unusual stock-specific trading activity. There can be no assurance that our common stock will not experience additional, and potentially more significant, volatility in the future caused by unpredictable external factors. In addition, as a result of the rapidly changing markets in which we compete, and restructuring, impairment and other one-time events specific to us, our operating results may fluctuate or decline from period to period, which may contribute to weakness or volatility in our stock price. Moreover, the general difficulty in forecasting our operating results and identifying meaningful performance metrics, especially when factoring in our growth initiatives, could result in actual results that differ materially from expected results, again causing weakness and volatility in our stock price. Compounding these internal factors are external factors, such as the significant instability in global financial markets experienced over the past year, that will impact our operating results and stock price, potentially driving our stock price to record lows as occurred in 2020 or to significant activity levels as occurred in early 2021.
The difficulty in forecasting our operating results may also cause over or under investment in certain growth initiatives, as such investment is often planned based on expected financial results, thus causing more severe fluctuations in operating results and, likely, further volatility in our stock price.
Further, because our common stock is listed on the Nasdaq Global Market, we must meet Nasdaq's continued listing requirements, in particular, financial requirements that include maintaining a minimum bid price of at least $1.00. In April 2020, we received a letter from the Listing Qualifications Department of the Nasdaq Global Market indicating that, based upon the closing bid price of our common stock for the 30 consecutive business day period from March 11, 2020 to April 23, 2020, we did not meet the minimum bid price of $1.00 per share required for continued listing on Nasdaq. In June 2020, we received a second letter from Nasdaq Staff indicating that we had regained compliance with Nasdaq Listing Rule 5450(a)(1) based on its determination that the closing bid price of our common stock had been at $1.00 per share or greater for the 10 business days from May 15 to May 29, 2020. Although we are currently in compliance with all applicable continued listing requirements and have received no contradictory notification from Nasdaq, our stock price could again fall below the $1.00 minimum as a result of valuation pressure, stock-specific trading activity or general declines in the stock market. We regularly monitor our
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compliance with Nasdaq's continued listing requirements, and, as necessary, our Board will consider the implementation of various measures intended to support continued compliance.
Any impairment to our goodwill, definite-lived, and right-of-use operating lease assets could result in a material charge to our earnings.
In accordance with GAAP, we test goodwill for possible impairment on an annual basis or more frequently in the event of certain indications of possible impairment. We review definite-lived and operating lease assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in a reporting unit’s fair value, changes in our operating plans and forecasts, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of our business, a significant sustained decline in our market capitalization and other factors. If we were to determine that an impairment had occurred, we would be required to record an impairment charge, which could have a material negative, and unanticipated, impact on our financial results.
Continued loss of revenue from our subscription services is likely to cause further harm to our operating results.
Our operating results have been and will continue to be adversely impacted by the loss of subscription revenue related to our more traditional products and services. Subscribers cancel their subscriptions to our services for many reasons, including a perception that they do not use the services sufficiently or that the service does not provide enough value, a lack of attractive or exclusive content generally or as compared with competitive service offerings, or because customer service issues are not satisfactorily resolved. Revenue from our SuperPass subscription service, for example, has continued to decline over several periods, due to changes in consumer preferences and changes on our part to focus on other products and services we offer, and we expect this trend to continue.
Difficulty recruiting and retaining key personnel could significantly impair our operations or jeopardize our ability to meet our growth objectives.
Our success depends substantially on the contributions and abilities of certain key personnel, and we cannot provide assurance that we will be able to retain them in the near term or recruit them in the future. In 2020, we experienced a significant level of executive turnover, as we have experienced in the past and could experience in the future, which could impact our ability to retain key personnel. Also, qualified individuals are in high demand and competition for such qualified personnel in our industry, particularly engineering talent, is extremely intense, and we may incur significant costs to attract or retain them. Changes in immigration or other policies in the U.S. or other jurisdictions that make it more difficult to hire and retain key talent, or to assign individuals to any of our locations as needed to meet business needs, could adversely affect our ability to attract key talent or deploy individuals as needed, and thereby adversely affect our business and financial results. Further, repeated restructuring of our businesses and related cost-reduction efforts, as well as declines and volatility in our stock price, have caused instability in our workforce that makes it more difficult to retain and recruit key personnel. Given these factors, there can be no assurance that we will be able to attract and retain the key personnel necessary to sustain our business or support future growth.
Acquisitions and divestitures involve costs and risks that could harm our business and impair our ability to realize potential benefits from these transactions.
As part of our business strategy, we have acquired and sold technologies and businesses in the past and expect that we will continue to do so in the future. The failure to adequately manage transaction costs and address the financial, legal and operational risks raised by acquisitions and divestitures of technology and businesses could harm our business and prevent us from realizing the benefits of these transactions. In addition, we may identify and acquire target companies, but those companies may not be complementary to our current operations and may not leverage our existing infrastructure or operational experience, which may increase the risks associated with completing acquisitions.
For example, our January 18, 2019 acquisition of a controlling interest in Napster represented a significant acquisition for RealNetworks. To effectuate the acquisition and incorporate Napster's financial results into our financial statements, we incurred significant transaction-related costs throughout fiscal year 2019 and early in 2020. Moreover, the 2020 sale of our Napster stake in connection with the merger of Napster and MelodyVR resulted in further significant transaction-related expenses, certain ongoing indemnification obligations, and the payment of a portion of proceeds to a third party.
Transaction-related costs and financial risks related to completed and potential future purchase or sale transactions may harm our financial position, reported operating results, or stock price. Previous acquisitions have resulted in significant expenses, including amortization of purchased technology, amortization of acquired identifiable intangible assets and incurring charges for the impairment of goodwill and other intangible assets, which are reflected in our operating expenses. New acquisitions and any potential additional future impairment of the value of purchased assets, including goodwill, could have a material negative impact on our future operating results. In compliance with GAAP, we evaluate these assets for impairment at least annually. Factors that may be considered a change in circumstances, indicating that our goodwill or definite-lived assets may not be recoverable, include reduced future revenue and cash flow estimates due to changes in our forecasts, and
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unfavorable changes to valuation multiples and discount rates due to changes in the market. If we were to conclude that any of these assets were impaired, we would have to recognize an impairment charge that could materially impact our financial results.
Purchase and sale transactions also involve operational risks that could harm our existing operations or prevent realization of anticipated benefits from a transaction. These operational risks include:
•difficulties and expenses in assimilating the operations, products, technology, information systems, and/or personnel of the acquired company;
•retaining key management or employees of the acquired company;
•entrance into unfamiliar markets, industry segments, or types of businesses;
•operating, managing and integrating acquired businesses in remote locations or in countries in which we have little or no prior experience;
•diversion of management time and other resources from existing operations;
•impairment of relationships with employees, affiliates, advertisers or content providers of our business or acquired business;
•assumption of known and unknown liabilities of the acquired company, including intellectual property claims; and
•potential impacts to our system of internal controls and disclosure controls and procedures.
Risks Related to Regulations and Other External Factors
Government regulation of the Internet, facial recognition technology, artificial intelligence and other related technologies is evolving, and unfavorable developments could have an adverse effect on our operating results.
We are subject to regulations and laws specific to the marketing, sale and delivery of goods and services. These laws and regulations, which continue to evolve, cover taxation, user privacy, data collection and protection, copyrights, electronic contracts, sales procedures, automatic subscription renewals, credit card processing procedures, consumer protections, digital games distribution, broadband Internet access and content restrictions. We cannot guarantee that we have been or will be fully compliant in every jurisdiction, as it is not entirely clear how existing laws and regulations governing issues such as privacy, taxation and consumer protection apply or will be enforced with respect to the products and services we sell. Moreover, as Internet commerce continues to evolve, increasing regulation and/or enforcement efforts by federal, state and foreign agencies and the prospects for private litigation claims related to our data collection, privacy policies or other e-commerce practices become more likely. In addition, the adoption of any laws or regulations or the imposition of other legal requirements that adversely affect our ability to market, sell, and deliver our products and services could decrease our ability to offer or customer demand for our service offerings, resulting in lower revenue. Moreover, in the U.S., certain states have and more states may impose stricter privacy laws that may impact accepted business practices. We cannot provide assurance that the changes that we have adopted to our business practices will be compliant or that new compliance frameworks such as this will not have a negative impact on our financial results.
In addition, through the operation of our SAFR product, we are subject to regulations and laws generally and specifically applicable to the provision of facial recognition technology. New laws and regulations are under discussion and those that exist are untested, thus we cannot guarantee that we have been or will be fully compliant in every jurisdiction. Moreover, the voluntary development of norms, standards, and best practices by companies providing facial recognition and similar technology could require modifications to our technology or practices that may be costly or incompatible with our financial model. Moreover, as we pursue further sales of our SAFR product to governmental agencies, such as the Small Business Innovation Research (SBIR) contracts with the U.S. Air Force in 2020, we may become subject to more extensive contracting rules and standards.
Future regulations, or changes in laws and regulations or their existing interpretations or applications, could require us to further change our business practices, raise compliance costs or other costs of doing business and result in additional historical or future liabilities for us, resulting in adverse impacts on our business and our operating results.
As a consumer-facing business, we receive complaints from our customers regarding our consumer marketing efforts and our customer service practices. Some of these customers may also complain to government agencies, and from time to time, those agencies have made inquiries to us about these practices. In addition, we may receive complaints or inquiries directly from governmental agencies that have not been prompted by consumers. We cannot provide assurance that governmental agencies will not bring future claims, as they have on occasion in the past, regarding our marketing, or consumer services or other practices.
We face financial and operational risks associated with doing business in non-U.S. jurisdictions and operating a global business, that have in the past and could in the future have a material adverse impact on our business, financial condition and results of operations.
A material portion of our revenue is derived from sales outside of the U.S. and most of our employees are located outside of the U.S. Consequently, our business and operations depend significantly on global and national economic conditions and on
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applicable trade regulations and tariffs. For example, our business in China could be negatively affected by an actual or perceived lack of stability or consistency in U.S.-China trade policy. The growth of our business is also dependent in part on successfully managing our international operations. Our non-U.S. sales, purchases and operations are subject to risks inherent in conducting business abroad, many of which are outside our control, including the following:
•periodic local or geographic economic downturns and unstable political conditions;
•price and currency exchange controls;
•fluctuation in the relative values of currencies;
•difficulty in repatriating funds, whether as a result of tax laws or otherwise;
•compliance with current and changing tax laws, and the coordination of compliance with U.S. tax laws and the laws of any of the jurisdictions in which we do business;
•difficulties protecting intellectual property;
•compliance with labor laws and other laws governing employees;
•local labor disputes;
•changes in trading policies, regulatory requirements, tariffs and other barriers, or the termination or renegotiation of existing trade agreements;
•impact of changes in immigration or other policies impacting our ability to attract, hire, and retain key talent;
•potential implications resulting from the outbreak of disease on a global scale or localized in countries in which we do business or have employees; and
•difficulties in managing a global enterprise, including staffing, collecting accounts receivable, and managing suppliers, distributors and representatives.
Because consumers may consider the purchase of our digital entertainment products and services to be a discretionary expenditure, their decision whether to purchase our products and services may be influenced by macroeconomic factors that affect consumer spending such as unemployment, access to credit, negative financial news, and declines in income. In addition, mobile telecommunication carriers and other business partners may reduce their business or advertising spending with us or for our products and services they distribute to users in the face of adverse macroeconomic conditions, such as financial market volatility, government austerity programs, tight credit, and declines in asset values. We have in the past recorded material asset impairment charges due in part to weakness in the global economy, and we may need to record additional impairments to our assets in future periods in the event of renewed weakness and uncertainty in the global or a relevant national economy. Accordingly, any significant weakness in the national and/or global economy could materially impact our business, financial condition and results of operations in a negative manner.
Our international operations involve risks inherent in doing business globally, including difficulties in managing operations due to distance, language, cultural differences, local economic conditions, outbreak of diseases, different or conflicting laws and regulations, taxes, and exchange rate fluctuations. The functional currency of our foreign subsidiaries is typically the local currency of the country in which each subsidiary operates. We translate our subsidiaries’ revenues into U.S. dollars in our financial statements, and continued volatility in foreign exchange rates may result in lower reported revenue or net assets in future periods. If we do not effectively manage any of the risks inherent in running our international businesses, our operating results and financial condition could be harmed. As another example, the COVID-19 pandemic has resulted in travel and work restrictions globally, and may further disrupt our ability to produce and sell products. We continue to monitor the impacts of the pandemic to our business, as well as rapidly evolving expectations regarding its severity and duration. We are unable to predict the full effects of this pandemic on our operations and financial results.
Our business is conducted in accordance with existing international trade relationships, and trade laws and regulations. Changes in geopolitical relationships and laws or policies governing the terms of foreign trade, such as the recent rise in protectionist politics and economic nationalism, could create uncertainty regarding our ability to operate and conduct commercial relationships in affected jurisdictions, which could have a material adverse effect on our business and financial results. Additionally, our global operations may also be adversely affected by political events, domestic or international terrorist events and hostilities or complications due to natural or human-caused disasters. These uncertainties could have a material adverse effect on the continuity of our business and our results of operations and financial condition.
We may be unable to adequately protect our proprietary rights or leverage our technology assets, and may face risks associated with third-party claims relating to intellectual property rights associated with our products and services.
Our ability to compete across our businesses partly depends on the superiority, uniqueness and value of our technology, including both internally developed technology and technology licensed from third parties. To protect our proprietary rights, we rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual provisions. Our efforts to protect our intellectual property rights may not assure our ownership rights in our intellectual property, protect or enhance the competitive position of our products, services and technology, or effectively prevent misappropriation of our technology.
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From time to time, we receive claims and inquiries from third parties alleging that our technology used in our business may infringe the third parties’ proprietary rights. These claims, even if not meritorious, could force us to make significant investments of time, attention and money in defense, and give rise to monetary damages, penalties or injunctive relief against us. We may be forced to litigate, to enforce or defend our patents, trademarks or other intellectual property rights, or to determine the validity and scope of other parties' proprietary rights in intellectual property. To resolve or avoid such disputes, we may also be forced to enter into royalty or licensing agreements on unfavorable terms or redesign our product features, services and technology to avoid actual or claimed infringement or misappropriation of technology. Any such dispute would likely be costly and distract our management, and the outcome of any such dispute (such as additional licensing arrangements or redesign efforts) could fail to improve our business prospects or otherwise harm our business or financial results.
Nearly all of our contracts by which we provide to another party services or rights to use our technology include some form of obligation by us to indemnify the other party for certain liabilities and losses incurred by them, including liabilities resulting from third party claims for damages that arise out of the use of our technology. Claims against which we may be obligated to defend others pursuant to our contracts expose us to the same risks and adverse consequences described above regarding claims we may receive directly alleging that our trademarks or technology used in our business may infringe a third party's proprietary rights.
Disputes regarding the validity and scope of patents or the ownership of technologies and rights associated with streaming media, digital distribution, and online businesses are common and likely to arise in the future. We also routinely receive challenges to our trademarks and other proprietary intellectual property that we are using in our business activities. We are likely to continue to receive claims of third parties against us, alleging contract breaches, infringement of copyrights or patents, trademark rights, trade secret rights or other proprietary rights, or alleging unfair competition or violations of privacy rights.
Our business and operating results will suffer and we may be subject to market risk and legal liability if our systems or networks fail, become unavailable, unsecured or perform poorly so that current or potential users do not have adequate access to our products, services and websites.
Our ability to provide our products and services to our customers and operate our business depends on the continued operation and security of our information systems and networks and those of our service providers. A significant or repeated reduction in the performance, security or availability of our information systems and network infrastructure or that of our service providers could harm our ability to conduct our business, and harm our reputation and ability to attract and retain users, customers, advertisers and content providers. Many of our products are interactive Internet applications that by their very nature require communication between a client and server to operate.
We sell many of our products and services through online sales transactions directly with consumers, and their credit card information is collected and stored by our payment processors. The systems of our third party service providers may not prevent future improper access or disclosure of credit card information or personally identifiable information. We have an extensive privacy policy concerning the collection, use and disclosure of user data involved in interactions between our client, third party payment providers, and server products. A security breach that leads to disclosure of consumer account information, or any failure by us to comply with our posted privacy policy or existing or new privacy legislation, could harm our reputation, impact the market for our products and services, or subject us to litigation. We have on occasion experienced system errors and failures that caused interruption in availability of products or content or an increase in response time. Problems with our systems and networks, or the third party systems and networks that we utilize, could result from a failure to adequately maintain and enhance these systems and networks, natural disasters and similar events, power failures, intentional actions to disrupt systems and networks and many other causes. Many of our services do not currently have fully redundant systems or a formal disaster recovery plan, and we may not have adequate business interruption insurance to compensate us for losses that may occur from a system outage.
Changes in regulations applicable to the Internet and e-commerce that increase the taxes on the services we provide could materially harm our business and operating results.
As Internet commerce continues to evolve, increasing taxation by state, local or foreign tax authorities becomes more likely. For example, taxation of electronically delivered products and services or other charges imposed by government agencies may also be imposed. We collect transactional taxes and we believe we are compliant and current in all jurisdictions where we have a collection obligation for transaction taxes. Any regulation imposing greater taxes or other fees for products and services could result in a decline in the sale of products and services and the viability of those products and services, harming our business and operating results. A successful assertion by one or more states or foreign tax authorities that we should collect and remit sales or other taxes on the sale of our products or services could result in substantial liability for past sales.
In those countries where we have a tax obligation, we collect and remit value added tax, or VAT, on sales of “electronically supplied services” provided to European Union residents. The collection and remittance of VAT subjects us to additional currency fluctuation risks.
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Changes in accounting standards and subjective assumptions, estimates, and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition.
We prepare our financial statements in conformity with GAAP. These accounting principles are subject to interpretation or changes by the Financial Accounting Standards Board, or FASB, and the SEC, and new accounting pronouncements and varying interpretations of accounting standards and practices have occurred in the past and are expected to occur in the future. Moreover, our financial statements require the application of judgments and estimates regarding a wide range of matters that are relevant to our business, such as revenue recognition, asset impairment and fair value determinations, and the acquisition method of accounting and its related estimated fair value amounts. Changes in accounting standards or practices, or in our judgments and estimates underlying accounting standards and practices, could harm and/or materially impact our operating results and/or financial condition. Changes to existing accounting rules or to our judgments and estimates underlying those rules could materially impact our reported operating results and financial condition.
We may be subject to additional income tax assessments and changes in applicable tax regulations could adversely affect our financial results.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes, income taxes payable, and net deferred tax assets. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different than that which is reflected in our historical financial statements. An audit or litigation can result in significant additional income taxes payable in the U.S. or foreign jurisdictions which could have a material adverse effect on our financial condition and results of operations.
Risks Related to our Governance and Capital Structure
Our Chairman of the Board and Chief Executive Officer beneficially owns 38.5% of our common stock, which gives him significant control over certain major decisions on which our shareholders may vote or which may discourage an acquisition of us.
Robert Glaser, our Chairman of the Board and Chief Executive Officer, beneficially owns 38.5% of our common stock. As a result, Mr. Glaser and his affiliates will have significant influence to:
•elect or defeat the election of our directors;
•amend or prevent amendment of our articles of incorporation or bylaws;
•effect or prevent a merger, sale of assets or other corporate transaction; and
•control the outcome of any other matter submitted to the shareholders for vote.
Furthermore, on February 10, 2020, we entered into a Series B Preferred Stock Purchase Agreement with Mr. Glaser pursuant to which Mr. Glaser invested approximately $10.0 million in RealNetworks in exchange for the issuance to him of approximately 8 million shares of our Series B Preferred Stock, par value $0.001 per share. The rights, preferences, limitations, and powers of the Series B Preferred Stock are set forth in and governed by the designation of rights and preferences of Series B Preferred Stock filed with the Secretary of State of the State of Washington. Those rights, preferences, limitations, and powers include the right to proportional adjustment and the right to any dividends or distributions declared with regard to our common stock, but the Series B Preferred Stock has no voting or consent rights, has no liquidation preference, has no preferred dividend, and has limitations on transferability. Each share of Series B Preferred Stock is convertible into one share of our common stock, however no conversion is permitted in the event that it would cause Mr. Glaser’s beneficial ownership of our common stock to exceed the 38.5% threshold set forth in our shareholder rights plan dated November 30, 2018.
The stock ownership of Mr. Glaser may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of RealNetworks, which in turn could reduce our stock price or prevent our shareholders from realizing a premium over our stock price.
Provisions of our charter documents, shareholder rights plan, and Washington law could discourage our acquisition by a third party.
Our articles of incorporation provide for a strategic transactions committee of the board of directors. Without the prior approval of this committee, and subject to certain limited exceptions, the board of directors does not have the authority to:
•adopt a plan of merger;
•authorize the sale, lease, exchange or mortgage of assets representing more than 50% of the book value of our assets prior to the transaction or on which our long-term business strategy is substantially dependent;
•authorize our voluntary dissolution; or
•take any action that has the effect of any of the above.
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Mr. Glaser has special rights under our articles of incorporation to appoint or remove members of the strategic transactions committee at his discretion that could make it more difficult for RealNetworks to be sold or to complete another change of control transaction without Mr. Glaser’s consent. RealNetworks has also entered into an agreement providing Mr. Glaser with certain contractual rights relating to the enforcement of our charter documents and Mr. Glaser’s roles and authority within RealNetworks. These rights and his role as Chairman of the Board of Directors, together with Mr. Glaser’s significant beneficial ownership, create unique potential for concentrated influence of Mr. Glaser over potentially material transactions involving RealNetworks and decisions regarding the future strategy and leadership of RealNetworks.
We adopted a shareholder rights plan in December 1998, which was amended and restated in December 2008, amended in April 2016 and February 2018, and again amended and restated in November 2018. The plan provides that shares of our common stock have associated preferred stock purchase rights, the exercise of which would make the acquisition of RealNetworks by a third party more expensive to that party, having the effect of discouraging third parties from acquiring RealNetworks without the approval of our board of directors, which has the power to redeem these rights and prevent their exercise.
Washington law imposes restrictions on some transactions between a corporation and certain significant shareholders. The foregoing provisions of our charter documents, shareholder rights plan, our agreement with Mr. Glaser, and Washington law, as well as our charter provisions that provide for a classified board of directors and the availability of “blank check” preferred stock, could have the effect of making it more difficult or more expensive for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. These provisions may therefore have the effect of limiting the price that investors might be willing to pay in the future for our common stock.

Item 1B.Erik E. PruschUnresolved Staff Comments
Mr. Prusch was chief executive officer at Harland Clarke Holdings Corp., a provider of integrated payment solutions and integrated marketing services, a position he held from January 2019 through March 2019. Previously, Mr. Prusch served as chief executive officer and a member of the board of directors of Outerwall Inc. (formerly, Coinstar, Inc.), a provider of automated retail solutions, from July 2015 until its sale to a private equity firm in September 2016. Mr. Prusch also served as interim president, Redbox Automated Retail, LLC, a wholly-owned subsidiary of Outerwall, beginning December 2015. Previously, Mr. Prusch served as chief executive officer of NetMotion Wireless, Inc. from January 2014 to November 2014 and of Lumension Security, Inc. from May 2014 to November 2014, both providers of mobile and enterprise security products and services. He also served as an advisor to Clearlake Capital, a private equity fund, from January 2014 to November 2014. Prior to that, Mr. Prusch served as chief executive officer and president of Clearwire Corporation, a provider of 4G wireless broadband services, from August 2011 until July 2013, as its chief operating officer from March 2011 to August 2011, and as its chief financial officer from August 2009 to March 2011; he served as a member of the board of directors of Clearwire from February 2012 to July 2013. Before that, Mr. Prusch served as president and chief executive officer of Borland Software Corporation, a provider of enterprise software tools and solutions, from December 2008 to July 2009 and as its chief financial officer from November 2006 to December 2008. Previous to Borland, Mr. Prusch served in various finance roles at Intuit Inc., a provider of business and financial management solutions software; Identix Incorporated, a provider of identification and authentication platforms and solutions; and Gateway Computers, a computer hardware company. He began his career at Touche Ross, an accounting firm, and PepsiCo, a food and beverage processing company. Mr. Prusch holds a Bachelor’s degree from Yale University and an M.B.A. from the NYU’s Stern School of Business.


Executive leadership experience

Business strategy experience

Extensive experience, expertise and background with business, accounting and financial matters

Significant experience as a director of public companies
None.

Item 2.Properties
Our corporate and administrative headquarters and certain research and development and sales and marketing personnel are located at our facility in Seattle, Washington.
7
We lease properties primarily in the following locations that are utilized by all of our business segments, unless otherwise noted below, to house our research and development, sales and marketing, and general and administrative personnel:





Location
Biographical Information

Area leasedSpecific Experience,
(sq. feet)Qualifications
and Skills Considered
 by our Board
Class 2 Directors

Michael B. Slade

Lease expiration
Mr. Slade is a co-founder of Second Avenue Partners, a provider of management, strategy and capital for early stage companies, where he has served as a partner since 2000. From 2005 to 2006, Mr. Slade served as a strategic advisor for RealNetworks. From 2002 to May 2007, Mr. Slade served as a director of aQuantive, Inc., a publicly traded digital marketing service and technology company that was acquired by Microsoft Corporation in May 2007. From 1998 to 2004, Mr. Slade served as a consultant and member of the executive team at Apple Inc. From 1993 to 1998, Mr. Slade was chairman of the board of directors and chief executive officer of Starwave Corp., a Paul Allen-funded startup that was sold to The Walt Disney Corp. From 1983 to 1992, Mr. Slade held various executive and leadership positions with technology companies including Microsoft Corporation, Central Point Software, NeXT Computer, Inc. and Asymetrix Corp. Mr. Slade holds a B.A. in Economics from Colorado College and an M.B.A. from the Stanford University Graduate School of Business.

Executive leadership experience

Business strategy and management advisory experience

Executive-level experience with technology companies

Experience as a director of public and private companies
Seattle, Washington (1)73,000
Tim WanAugust 2024, withMr. Wan is the Chief Financial Officer at Asana, Inc., a publicly traded company that develops and offers a SaaS-based work management platform. Previously, Mr. Wan served as Chief Financial Officer of Apigee Corporation, a cloud-based API management and predictive analytics software provider, from March 2015 until its sale to Google, Inc. in November 2016. From 2000 to February 2015, Mr. Wan held various positions at RealNetworks, most recently serving as its Senior Vice President, Chief Financial Officer and Treasurer beginning April 2012. Mr. Wan holds a B.A. in economics from the University of California, Los Angeles and an option to
renew for two five-year periods
Eindhoven, Netherlands (2)M.B.A. from the University of Southern California.23,000June 2022
Executive leadership experience

Business strategy experience

Extensive experience, expertise and background with business, accounting and financial matters

Executive-level experience with technology companies

(1)This facility is utilized only by headquarters. We have reduced our use of the facility by 63%. The space which we no longer occupy as of December 31, 2020 is currently under sublease for all or a portion of the remaining lease term.
(2)This facility is utilized only by our Games segment.
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In addition, we lease smaller facilities in the U.S. and foreign countries, some of which support the operations of all of our business segments while others are dedicated to a specific business segment. We believe that our properties are in good condition, adequate and suitable for the conduct of our business. For additional information regarding our obligations under leases, see Note 15. Leases, in this 10-K.




Item 3.Legal Proceedings
Biographical Information

Specific Experience,
Qualifications
and Skills Considered
 by our Board
Class 3 Directors

Bruce A. Jaffe
Mr. Jaffe is a consultant and investor with Three Point Group, LLC, which he founded in 2008 and which focuses on early stage and growth technology companies. Mr. Jaffe previously served as President and Chief Executive Officer of Donuts Inc., a privately held registry operator of top-level domain names, from January 2017 through its sale to a private equity firm in November 2018. Mr. Jaffe served as Chief Financial Officer and EVP Corporate Development of Glam Media, a privately held media company, from May 2010 to December 2011. From June 1995 through February 2008, Mr. Jaffe held various positions at Microsoft Corporation, most recently serving as its Corporate Vice President, Corporate Development, where he managed M&A, investments, and strategic transactions. Mr. Jaffe serves as a director of several privately held companies. Mr. Jaffe holds a B.S. degree from UC Berkeley and an M.B.A. from the Stanford University Graduate School of Business.


Senior leadership experience, in the U.S. and Europe

Business strategy and management advisory experience

Extensive experience, expertise and background with business, accounting and financial matters

Executive-level experience with global technology companies, including companies focused on networking, mobile, and wireless communications
Robert GlaserMr. Glaser, founder of RealNetworks, currently serves as our Chief Executive Officer. He has served as Chairman of the Board of Directors of RealNetworks since its inception in 1994 and served as Chief Executive Officer of RealNetworks from 1994 through January 2010, returning as interim CEO in July of 2012 and becoming permanent CEO in July 2014. Mr. Glaser has served as a venture partner at Accel Partners, a venture capital firm, since May 2010. Mr. Glaser’s professional experience also includes ten years of employment with Microsoft Corporation where he focused on the development of new businesses related to the convergence of the computer, consumer electronics and media industries. Mr. Glaser holds a B.A. and an M.A. in Economics and a B.S. in Computer Science from Yale University.
Experience with technology companies through service as a founder, investor, executive and director

Extensive historical knowledge of RealNetworks and the industries in which it operates

Management advisory experience
See Note 16. Commitments and Contingencies in this 10-K.
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Information Concerning Our Executive Officers
Background information about each of our current executive officers as of March 31, 2021 who does not also serve on our Board of Directors is set forth below:
Item 4.Mine Safety Disclosures
Not applicable.
PART II.
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Item 5.NameMarket for Registrant’s Common Equity, Related Shareholder MattersAgePosition(s)
Michael Ensing53President and Issuer Purchases of Equity SecuritiesChief Operating Officer
Christine Chambers44Senior Vice President, Chief Financial Officer and Treasurer
Michael Parham57Senior Vice President, General Counsel and Corporate Secretary
Our common stockMichael Ensing has served as our President and Chief Operating Officer since August 2020. Earlier in 2020, Mr. Ensing served as our interim Chief Financial Officer, from February to April, and as a strategic advisor for four weeks before and two weeks after his interim service. He was not a contractor or an employee of RealNetworks from May 6, 2020 until his appointment as Chief Operating Officer in August. Prior to joining RealNetworks, Mr. Ensing served, from October 2014 to November 2019, as Chief Financial Officer of TVI, Inc., doing business as Savers, Value Village and Unique stores, a Washington-based company. Prior to that, Mr. Ensing served in Chief Operating Officer and Chief Financial Officer roles at Knowledge Universe, from 2012 to 2014, and in various financial leadership positions at Microsoft Corporation, from 2004 to 2012. Earlier in his career, Mr. Ensing served in various roles at consulting companies, including McKinsey & Co. and Deloitte Consulting. Mr. Ensing holds an M.B.A. from the Kellogg School of Management at Northwestern University and a Bachelor of Science degree from the University of Michigan.
Christine Chambers has served as our Senior Vice President, Chief Financial Officer and Treasurer since March 2021. Prior to that, she served as Vice President, Finance for Rosetta Stone Inc, from June 2018 to March 2021. From May 2016 to June 2018, Ms. Chambers served as RealNetworks’ Vice President, Finance. Previously, she served as an independent finance consultant, beginning 2015, and as Deputy Director Budget and Planning at the Bill & Melinda Gates Foundation, from 2013 to 2015. For eight years, from 2005 to 2013, she held several positions within the finance department of RealNetworks. Ms. Chambers holds a Bachelor’s degree in finance from Loughborough University (in the UK) and an M.B.A. from the University of Washington. She is traded on The NASDAQ Stock Market underan Associate member of the symbol RNWK.Chartered Global Management Accountants (CGMA)
AsMichael Parham has served as our Senior Vice President, General Counsel and Corporate Secretary since August 2012, and previously had served as Associate General Counsel since January 2004. Prior to joining our legal department in March 2000, Mr. Parham was an attorney with IBM, serving as Regional Counsel for IBM's Midwest region in Chicago. Mr. Parham began his legal career with the law firm of January 29, 2021, there were approximately 162 holdersChapman and Cutler in Chicago. Mr. Parham holds a J.D. from the University of recordMichigan Law School.
Arrangements Regarding Director Selection
Pursuant to the terms of an agreement entered into in September 1997 between RealNetworks and Mr. Glaser, RealNetworks has agreed to use its best efforts to nominate, elect and not remove Mr. Glaser from the Board of Directors so long as Mr. Glaser owns a specified number of shares of our common stock. Most shares
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires RealNetworks’ executive officers, directors, and persons who own more than ten percent of a registered class of RealNetworks’ equity securities to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Executive officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish us with copies of all such reports they file. Specific due dates have been established by the SEC, and we are required to disclose any failure to file by those dates.
Based solely on our review of the copies of such reports received by us, and on written representations by our executive officers and directors, we believe that during fiscal 2019, all of our executive officers and directors and all of the persons known to us to own more than ten percent of our common stock, are heldcomplied with all Section 16(a) filing requirements applicable to them.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all of RealNetworks’ employees, officers and directors. RealNetworks’ Code of Business Conduct and Ethics is publicly available on our website (http://investor.realnetworks.com under the caption “Corporate Governance”), or can be obtained without charge by brokerswritten request to RealNetworks’ Corporate Secretary at the address of RealNetworks’ principal executive office. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to or waiver from application of the Code of Business Conduct and other institutions on behalf of shareholders.
The declaration and payment of any future dividends, as well as the amount thereof, are subjectEthics that applies to the discretion ofChief Executive Officer or the Chief Financial Officer, and any other applicable accounting and financial employee, by posting such information on our website at http://investor.realnetworks.com under the caption “Corporate Governance.”
Shareholder Nominations and Recommendations for Director Candidates
We have not made any material changes to the procedures by which our shareholders may recommend nominees to our board of directors since we last disclosed the procedures by which shareholders may nominate director candidates under the caption “Shareholder Nominations and will depend uponRecommendations for Director Candidates” in our resultsproxy statement for the 2020 annual meeting of operations,RealNetworks shareholders filed with the SEC on October 30, 2020.
Audit Committee of the Board
We have a standing Audit Committee of the Board of Directors comprised of Messrs. Prusch, Slade, and Wan. For the period from January 1, 2020 through March 6, 2020, the Audit Committee was composed of Mr. Jaffe as Chair and Messrs. Jones and Slade as members; on March, 7, 2020, Messrs. Prusch and Wan were appointed to the Audit Committee; from April 17, 2020 through December 31, 2020, the Audit Committee was composed of Mr. Prusch as Chair and Messrs. Jones, Slade, and Wan as members. The Audit Committee provides oversight of our accounting and financial condition, capital levels, cash requirements, future prospectsreporting, processes and other factors deemed relevantfinancial statement audits, reviews RealNetworks’ internal accounting procedures and consults with and reviews the services provided by its independent auditors. All of the members of our boardAudit Committee are financially literate pursuant to Nasdaq rules, and our Board has designated Mr. Prusch as the Audit Committee Financial Expert, as defined by the SEC and applicable listing standards. Applying the rules of directors. Accordingly, there can be no assurancethe Nasdaq Stock Market and the SEC, the Board has determined that Mr. Prusch is independent.

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Item 11.     Executive Compensation
COMPENSATION DISCUSSION AND ANALYSIS
This compensation discussion and analysis describes the principles underlying our executive compensation program and discusses how those principles affected our policies and decisions regarding the compensation of our named executive officers. This compensation discussion and analysis includes disclosures on a voluntary basis given our status as a smaller reporting company.
EXECUTIVE SUMMARY FOR 2020    
Overview. 2020 was a year of strong achievements for RealNetworks in spite of the unprecedented and widespread challenges associated with the global pandemic. The COVID-19 pandemic and resulting economic downturn added complexity, uncertainty and risk to the general business environment and to our different businesses in varying ways and to varying degrees. In response, during 2020, we will declarechanged certain strategy and pay any dividendsproduct plans in order to address implications of the pandemic to our businesses. We laid off some employees and furloughed some additional employees in the future. No cash dividendsearly days of the pandemic; happily, we were paidable to bring those furloughed employees back to work during the second quarter of 2020. We also reduced some other expenditures. Due in large part to our quick response to the pandemic environment and related strategic pivot, our 2020 or 2019.

Item 6.Selected Financial Data
Not applicable.


Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
RealNetworks invented the streaming media category in 1995 and continues to build on its foundation of digital media expertise and innovation, creating a new generation of products and services to enhance and secure our daily lives. We manage our business and reportfinancial results were positive, with higher revenue and operating income (loss) in three segments: (1) Consumer Media (2) Mobile Services, and (3) Games.
Within our Consumer Media segment, revenue is derived from the software licensingtwo of our video compressionkey growth initiatives - SAFR and enhancement, or codec, technologies, including primarily fromfree-to-play mobile games - and expenses were lower due to our prior-generation codec RealMedia Variable Bitrate, or RMVB, as well as our newer codec technology, RealMedia High Definition, or RMHD. cost reduction efforts and the reallocation of resources.
We also generate revenue from the sale of our PC-based RealPlayer products, including RealPlayer Plus and related products. These products and services are delivered directly to consumers and through partners, such as OEMs and mobile device manufacturers.
Our Mobile Services business generates revenue primarily from the sale of subscription services, which include our intercarrier messaging service and ringback tones, as well as through software licenses for the integration of our RealTimes platform and certain system implementations. We generateended 2020 with a significant portion of our revenue from sales within our Mobile Services business to a few mobile carriers. Our Mobile Services segment also includes our computer vision platform, SAFR, which includes facial recognition technology that leverages artificial intelligence-based machine learning.
Our Games business generates revenue primarily through the development, publishing, and distribution of casual games under the GameHouse and Zylom brands. Games are offered via mobile devices, digital downloads, and subscription play. We derive revenue from player purchases of in-game virtual goods within our free-to-play games and from advertising on games sites. In addition, we derive revenue from the sale of individual games and subscription offerings.
much stronger balance sheet. On December 30, 2020, RealNetworks allocates tosold its Consumer Media, Mobile Services, and Games reportable segments certain corporate expenses which are directly attributable to supporting these businesses, including, but not limited to, a portion of finance, IT, legal, human resources and headquarters facilities. Remaining expenses, which are not directly attributable to supporting these businesses, are reported as corporate items. These corporate items also can include restructuring charges and stock compensation expense.
As described in Note 4, Acquisitions and Dispositions, RealNetworks acquired an additional 42%84% interest in Rhapsody International, Inc. (doing business as Napster) on January 18, 2019 bringing our ownership of Napster's outstanding stock, operating under the Napster brand, to 84%, thus giving usMelodyVR Group, plc, a majority voting interest. For fiscal periods followingUK-based AIM-listed company. At the closing, of the acquisition, we consolidated Napster's financial results into our financial statements, where Napster was reported as a separate segment. RealNetworks entered into a Support Agreement dated August 25, 2020 by and among its 84%-owned subsidiary, Napster, and MelodyVR Group PLC, referred to as MelodyVR, an English public limited company. The Support Agreement was executed in connection with an Agreement and Plan of Merger, or Merger Agreement, by and among Napster, MelodyVR, and a wholly owned subsidiary of MelodyVR that effectuated the merger. The Merger Agreement called for the merger of MelodyVR's merger sub
19

with and into Napster, with Napster surviving and becoming a wholly owned subsidiary of MelodyVR. Other than as Securityholder Representative, RealNetworks is not a party to the Merger Agreement.
The transaction closed on December 30, 2020 at which time MelodyVR assumed approximately $44 million of Napster's assets and liabilities, primarily relating to music licensing. RealNetworks received $10.6 million in MelodyVR paid consideration of approximately $26 million to certain holders of debtstock and equity of Napster, comprised of $12$6.7 million in cash sharesas debt repayment and liquidation preference plus $3.0 million of MelodyVR, and a $3 millioncash to be held in an 18-month indemnity escrow. Approximately $4.8 million of these proceeds are payable to a third party in satisfaction of a contingent consideration obligation associated with our purchase of their stake in Rhapsody.
During 2020 Rob Glaser consistently led all company efforts as our Chairman and Chief Executive Officer. This consistent leadership helped attenuate the impact of changes to the senior leadership team. Specifically, during the first quarter of 2020 Judd Lee was hired as Chief Financial Officer following the departure of Cary Baker, and during the third quarter Michael Ensing was hired as President and Chief Operating Officer following the departure of Max Pellegrini. Michael Parham continued to serve as General Counsel throughout the year. Mr. Lee recently left RealNetworks and Christine Chambers was named Chief Financial Officer in March 2021.
Our compensation program is substantially performance-based and aims to encourage the performance necessary to drive growth and profitability for RealNetworks. Our compensation philosophy and program for 2020 were consistent with prior years.
Financial Results. Overall, our 2020 financial results reflect efforts to advance key growth initiatives, enhance profitability, and improve cost structure. Consolidated revenue from continuing operations increased by 3% from 2019 when calculated in accordance with U.S. generally accepted accounting principles, or GAAP. Note that, for accounting purposes, Napster’s financial results were reported as discontinued operations, thus not included in our consolidated results from continuing operations for 2020 or 2019. The increase in revenue reflected a $3.1 million increase in revenue from our Games segment, but slight decreases in our Consumer Media and Mobile Services segments. Operating expenses decreased 25% year over year, although, after normalizing for certain one-time and non-cash items including a reduction in the contingent
12




consideration liability, the decrease was 14%. Net loss from continuing operations attributable to RealNetworks improved significantly from a loss of $15.1 million in 2019 to a loss of $4.8 million in 2020; the 2020 loss included a one-time gain of $8.6 million and the 2019 loss included a one-time gain of $12.3 million, both recognized in connection with transactions involving our interest in Napster. Adjusted EBITDA also significantly improved from a loss of $19.9 million in 2019 to a loss of $8.6 million in 2020, as we invested in our key growth initiatives and improved overall efficiencies. Adjusted EBITDA for 2020 consisted of GAAP net income (loss) from continuing operations including noncontrolling interests, excluding interest income (expense); income tax expense; (gain) loss on equity and other investments, net; foreign currency (gain) loss; acquisitions-related intangible asset amortization; depreciation and amortization; fair value adjustments to contingent consideration liability; restructuring and other charges; and stock-based compensation.
Our incentive bonus program for 2020 was based on achievement against financial goals related to contribution margin, with a revenue achievement requirement, as well as achievement of strategic objectives largely focused on driving our key growth initiatives. The program paid out to Mr. Glaser at a higher level than 2019 due to successful execution of strategic goals and financial achievement, but also due to the fact that Mr. Glaser decided to forgo a 2019 bonus payout due to uncertainty surrounding the pandemic. Mr. Ensing’s bonus payout was guaranteed based on negotiations surrounding his recruitment to join the company in August 2020, and Mr. Parham’s 2020 bonus payout was the same as his 2019 bonus payout based on achievement of strategic goals and falling short of financial goals (which, unlike Mr. Glaser’s did not include the performance of the Napster business).
Management Team. The executive compensation program is designed to aggressively drive company performance by encouraging successful execution of our growth and strategic initiatives.
Our named executive officers for 2020 include the following executive officers:
Robert Glaser    Founder, Chairman and Chief Executive Officer
Michael Ensing    President & Chief Operating Officer (joined RealNetworks on August 17, 2020)
Michael Parham    Senior Vice President, General Counsel and Corporate Secretary
As a smaller reporting company, we have three named executive officers for fiscal year 2020.
Pay for Performance. Our Compensation Committee supports a pay-for-performance philosophy, with the goal of having a substantial part of our executive compensation program consisting of performance-based compensation. This is reflected in our annual performance-based incentive bonus plan, which we also refer to as our Executive Bonus Plan, which provides eligible executives the opportunity to earn a bonus upon achieving pre-established performance objectives, all of which are weighted toward financial and strategic objectives of our businesses. In 2020, all of our named executive officers participated in the Executive Bonus Plan.
Due to the company's pay-for-performance philosophy, actual compensation paid to our named executive officers varies with the company’s performance in achieving financial and strategic objectives and the executive’s individual performance. We believe that our emphasis on pay for performance provides appropriate incentive to our executives to achieve important business objectives of the company and better aligns the interests of our executives with that of our shareholders.
Please note that for 2020 we defined “contribution margin by reportable segment” as operating income (loss) including other income (expense) net, but excluding the impact of the following: depreciation and amortization; acquisitions-related intangible asset amortization; fair value adjustments to contingent consideration liability; stock-based compensation; restructuring and other charges; and foreign currency (gain) loss.
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2020 Compensation Highlights.
Highlights relating to our named executive officers, generally:
•Two of our three 2020 named executive officers were also named executive officers in 2019; the third 2020 named executive officer is new to RealNetworks.
•Neither of our continuing executive officers received any increase to annual base salary during 2020.
•2020 incentive bonus payout for Mr. Glaser was at target and not comparable to the prior year as he chose to forgo any 2019 incentive bonus payout due to the onset of the pandemic, for Mr. Ensing was a guaranteed amount that had been competitively negotiated at the time of his hiring, and for Mr. Parham was below target and equal to his 2019 payout. Mr. Glaser’s financial objectives included Napster results, whereas Mr. Parham’s did not.
•Having forgone a long-term equity award in 2019 due to his then-pending purchase of shares of MelodyVRour preferred stock, Mr. Glaser was granted a long-term equity award in December 2020 as provided for in his 2014 offer letter, as well as a salary replacement option as discussed below; and Mr. Ensing was granted new-hire equity as an inducement to join RealNetworks. Mr. Parham did not receive an equity award in 2020.
Highlights relating to our CEO:
•2020 CEO total compensation as reported in the Summary Compensation Table was below the median of the peer data made available to the Compensation Committee and was also below the 25th percentile.
•Our CEO's total compensation for 2020 was higher than 2019 because Mr. Glaser did not take his 2019 bonus payment in March 2020 to reflect uncertainty at the start of the COVID-19 pandemic, the consideration of capital-raising transactions in the fourth quarter of 2019, the lack of a 2019 long-term equity award, and cost reduction measures meant to improve the company's liquidity and profitability. Mr. Glaser’s 2020 total compensation was on par with years prior to 2019.
•Mr. Glaser's base salary, which is subject to annual review by the Compensation Committee, remained the same as the prior year and was below the median of our peer group. In the second half of 2019 as the company implemented significant operating expense reductions and in an effort to conserve cash, Mr. Glaser reduced his cash salary by 50% for the remainder of the year; his salary returned to 100% as of January 1, 2020.
•Pursuant to the 2020 Executive Bonus Plan, Mr. Glaser was awarded an at-target payout due to achievement of pre-established financial and strategic objectives, 75% of the payout was in the form of fully vested RSUs and 25% was paid out in cash.
•Although in December 2019 Mr. Glaser and the Board agreed that RealNetworks received mayno long-term equity award would be granted as the company analyzed various capital-raising alternatives, Mr. Glaser was granted a long-term equity award in December 2020. Of the total value from equity awards granted to our CEO in 2020, 80% was a long-term equity award granted as a stock option scheduled to vest over four years; 20% was in the form of a stock option, scheduled to vest over 12 months, granted in lieu of cash salary for 2020, thus making a portion of his annual salary more performance-based and less guaranteed than if his salary had been paid solely in cash. We view both of these options as naturally performance-based as they only provide value to the CEO if our stock price increases above the closing price on the grant date. There was no premium added to the option value when replacing the cash salary (i.e., $75,000 of salary for 2020 was granted as options in
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2020). The company does not be sold or transferred,view the CEO's salary replacement option as long-term incentive compensation.
•Our CEO's total direct compensation for 2020 was significantly higher than in 2019 due primarily to voluntary compensation reductions in 2019, but was also far below the median for peer group CEOs.
EXECUTIVE COMPENSATION PROGRAM PHILOSOPHY AND ELEMENTS    
The overall objectives of our executive compensation program are to provide compensation at competitive levels in order to recruit and retain talented executives, motivate our executives to achieve our strategic and financial objectives, and provide incentives to help align the interests of our executives with the interests of our shareholders.
Ourexecutive compensation program provides the following three primary elements of compensation:
•Base salary. Our named executive officers receive base salary so that we can recognize them for their day-to-day contributions and provide competitive pay that encourages retention and recruitment. Base salaries are subject to annual review by our Compensation Committee.
•Annual performance-based incentive bonus. We establish a performance-based incentive bonus plan on an annual basis, under which our named executive officers each have an opportunity to earn a bonus, typically paid in cash (although 75% of Mr. Glaser’s 2020 bonus payout was made in the form of fully vested restricted stock units granted in the first quarter of 2021), upon achievement of certain performance objectives derived from the internal strategic plan we establish for the company each year. The bonuses are intended to motivate our executives to achieve our financial and strategic objectives. These bonuses are typically not guaranteed, except sometimes in limited circumstances,the case of newly hired executives.
•Long-term equity compensation. We provide equity-based compensation to our named executive officers to better align their interests with the interests of our shareholders as well as to motivate our officers to enhance the long-term performance of RealNetworks. Equity awards also are an important retention tool for us because the awards typically vest over a multi-year period.
These elements provide incentives to encourage our executives to appropriately balance their focus between our short-term and long-term strategic goals.
We believe that there are multiple, dynamic factors that contribute to the success of our businesses and the individuals that lead those businesses. Moreover, we recognize that our business and the industry in which we operate are constantly evolving and highly competitive in nature. Our approach to executive compensation, therefore, has been to avoid adopting a strict, formulaic structure and to instead allow for a periodmore nuanced and customized system. Under our executive compensation program, we consider the needs of one year. Certain proceeds fromour businesses and our company as a whole; design various elements of compensation to drive our executives and their teams to meet or exceed company goals and objectives; and take into account competitive practices in order to achieve our recruiting and retention needs. Consistent with our desire to maintain competitive practices and achieve our recruiting and retention goals, in addition to our three primary elements of compensation, our executive compensation packages also contain certain severance and change in control arrangements; some targeted, one-time bonuses; and retirement and other generally available, broad-based benefits. In general, we provide very limited executive perquisites, and we do not provide our executives with tax gross ups or supplemental retirement plans.
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EXECUTIVE COMPENSATION DECISION-MAKING PROCESS
The Roles of our Board, Compensation Committee and Chief Executive Officer. Our Compensation Committee’s purpose is to discharge the transaction were usedBoard of Director’s responsibilities relating to fully repay the advancecompensation of our executive officers and the adoption of policies that govern our compensation and benefits programs, other than with respect to Napster onour chief executive officer’s compensation. Our Compensation Committee reviews and recommends the revolving line of credit, as discussed in Note 9. Debt, pay Napster's transaction expenses, and pay amounts to certain of Napster's common stockholders. The final value to RealNetworks from the transactionchief executive officer’s compensation, which is subject to the eventual payoutapproval of the indemnity escrow.Board. The Board is able to make any adjustments that it may determine are appropriate with respect to our chief executive officer’s compensation. The Compensation Committee determines all compensation for our other named executive officers. At the invitation of our Compensation Committee, our chief executive officer provides input regarding the performance and appropriate compensation of the other named executive officers. The Compensation Committee gives considerable weight to the chief executive officer’s assessment of the other named executive officers because of his direct knowledge of each executive’s role, performance and contributions. During 2020, our chief executive officer attended all Compensation Committee meetings at the request of the Committee. However, no executive officer was present for the portion of a Compensation Committee meeting during which his own compensation was discussed or determined.
EffectiveThe Role of the Compensation Consultant. Our Compensation Committee retains the services of Frederic W. Cook & Co., Inc., an independent executive compensation consulting firm. F.W. Cook does not provide any other services to RealNetworks and works with our management only on matters for which the Compensation Committee is responsible. The Compensation Committee has assessed the independence of F.W. Cook pursuant to SEC rules and concluded that no conflict of interest exists that would prevent F.W. Cook from serving as an independent consultant to the Compensation Committee. The Compensation Committee periodically seeks input from F.W. Cook on a range of external market factors, including evolving compensation trends, appropriate peer companies and market survey data. F.W. Cook also provides general observations on our compensation programs, but it does not determine or recommend the amount or form of compensation for our named executive officers. A representative of F.W. Cook attends Compensation Committee meetings from time to time, when requested by the Compensation Committee. In 2020, F.W. Cook was primarily utilized to review CEO compensation for the Committee.
The Role of Peer Groups and Surveys. In early 2016, with the oversight of our Compensation Committee, F.W. Cook performed an executive compensation review that included identifying a peer group of companies (the “2016 Peer Group”) to be used by us for the purpose of comparing our executive compensation to the market. This 2016 market analysis was used by the Compensation Committee to evaluate 2016, 2017, 2018, and 2019. The peer data were updated in 2020 to review CEO compensation, including long-term equity incentive compensation.
The 15 companies in the 2020 Peer Group are publicly traded, U.S.-based software and media content companies. The companies comprising the 2020 Peer Group are:
AutoWeb, Inc.    eGain    Marchex, Inc.
Avid Technology, Inc.    Glu Mobile, Inc.    QuinStreet, Inc.
Blucora, Inc.    Harmonic Inc.    SeaChange International, Inc.
Brightcove Inc.    Leaf Group (fka Demand Media)    TechTarget, Inc.
DHI Group    Limelight Networks, Inc.    Travelzoo Inc.
We consider competitive market data regarding compensation in order to achieve our goals to recruit and retain our executives, but we do not attempt to maintain a certain target percentile within a peer group, nor do we rely solely on such
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market data. Our management and the Compensation Committee strive to incorporate flexibility into our compensation programs and the assessment process so that we are able to respond to and adjust for the evolving business environment and the value delivered by our named executive officers. In addition to competitive data, we may take into account a variety of other factors, for example, general market conditions, internal equity, an individual’s level of responsibilities, as well as an individual’s recent or future expected contributions.
Consideration of Say-on-Pay Vote Results. We provide our shareholders with the opportunity to cast an annual advisory vote on executive compensation. At our 2020 annual meeting of shareholders, which took place last November, our shareholders approved the compensation of our named executive officers as disclosed in our 2020 proxy statement by a vote of approximately 99% of the votes cast on the executionproposal. By the time that this vote was conducted, some of the Agreementdecisions relating to the 2020 compensation of our executive officers had been made, so the 87% support of shareholders at the 2019 annual meeting was also considered. We highly value the input of our shareholders, and, Planthe Compensation Committee, with input from F.W. Cook, has carefully considered the results of Mergerthe 2020 say-on-pay vote. The Compensation Committee will continue to consider the results of the annual say-on-pay vote and specific shareholder input in determining 2021 and future compensation programs for our executive officers.
2020 COMPENSATION
Chief Executive Officer Compensation
Upon recommendation of the Compensation Committee as advised by F.W. Cook and after considering the company's compensation strategy, internal factors, performance, competitive factors and applicable regulatory requirements, Mr. Glaser's compensation for 2020 was substantially consistent with the compensation package structure that he has had since returning to the CEO role in July 2014. For 2020, Mr. Glaser's compensation package included (i) an annualized base salary of $525,000, which was supplemented with stock options having grant date fair value of $75,000; (ii) an annual incentive bonus opportunity equal to 100% of his annual cash base salary, payable upon the achievement of certain performance objectives set by the Board; (iii) a long-term equity award; (iv) severance arrangements as more fully described below; (v) certain perquisites, which for 2020 included facilities-related costs attributable to his personal assistant; and (vi) generally available employee benefits.
The annualized total compensation value targeted by the Compensation Committee for Mr. Glaser, assuming all bonus goals were achieved, was below the median for peer chief executives in F.W. Cook’s 2020 CEO compensation review, and Mr. Glaser’s actual 2020 compensation was also below the median of the total compensation for chief executive officers in the 2020 Peer Group companies. Mr. Glaser's 2020 equity compensation is viewed as performance based because it is in stock options, which require the stock price to increase after grant in order to deliver value, with an option award to acquire 138,869 shares that was issued in lieu of $75,000 of cash salary. In March 2021, Mr. Glaser was granted a fully vested RSU award that was paid in lieu of cash pursuant to the 2020 incentive bonus plan and, therefore, which we consider to be part of his total 2020 compensation package.
Cash Salary and Salary Option. Mr. Glaser's annual base salary was intended to remain consistent with prior years at $600,000, with $525,000 to be paid in cash and $75,000 to be paid in the form of an option.
With regard to the salary replacement option that comprised a portion of his annual base salary, again consistent with prior years, the Compensation Committee determined that part of Mr. Glaser’s base salary would be provided as a stock option because the Compensation Committee believed that a higher proportion of his compensation should be related to the company’s performance. The stock option in lieu of salary for 2020, granted on August 25,February 10, 2020, Napstercovered 138,869 shares of our common stock with an exercise price equal to $1.33 per share, which was treated as discontinued operations for accounting the closing price of our common stock on the date of grant,
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and disclosure purposes. As such, Napster's operating results forbecause these were in lieu of a portion of annual salary, the years ended December 31, 2020 and 2019 and financial conditionsalary replacement option vested ratably each month over the year until fully vested as of December 31, 2019 have been recast2020, subject to conformMr. Glaser's continued employment with us through each such vesting date. This salary replacement option was granted pursuant to this presentation. Upon the close2005 Stock Incentive Plan, or 2005 Plan.
Annual Performance-Based Incentive Bonus. The Board determined that Mr. Glaser would be eligible to participate in the 2020 Executive Bonus Plan, which is discussed in further detail below. His target bonus opportunity was equal to 100% of his cash base salary, based upon achievement of pre-established company revenue and contribution margin goals, and strategic goals, all of which are set forth in the discussion below. At the time of adoption of the transaction, a gain on sale of approximately $1.9 million was recognized in discontinued operations.
COVID-19
In March 2020 Executive Bonus Plan, the World Health Organization declared the outbreak of the novel coronavirusCompensation Committee determined that causes COVID-19 to be a global pandemic. As the virus spread throughout the U.S. and the world, authorities implemented numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, business limitations, and shutdowns. In additionany bonuses approved pursuant to the pandemic's widespread impact on public health and global society, reactionsplan would be paid to executives in cash or in the form of fully vested RSUs, or some combination thereof. During the first quarter of 2021, the Board approved a bonus for Mr. Glaser, pursuant to the pandemic as well as measures taken2020 Executive Bonus Plan, equal to contain the virus have caused significant turmoil to the global economy and financial markets. Moreover, similar to other companies, we have taken steps to support the health and well-being$525,000 or 100% of our employees, customers, partners and communities,his cash base salary, 25% of which include working remotely and learning to operate our business in a fundamentally different way.
As the pandemic and containment measures generally evolved throughout 2020, we have had to reevaluate our operating plans, resulting in some significant pivots for our growth initiatives. Moreover, as we continue to operate our business as efficiently as possible, we have taken steps to more aggressively reduce costs and reallocate resources. We are unable to predict the impacts that the COVID-19 pandemic will have on our results from operations, financial condition, liquidity and cash flows for fiscal 2021, due to the numerous uncertainties, including the duration and severity of the pandemic and containment measures. We will continue to monitor and evaluate the effects to our businesses and adjust our plans as needed.
Financial Results
As of December 31, 2020, we had $23.9 million in unrestricted cash and cash equivalents compared to $8.5 million as of December 31, 2019. The 2020 increasewas paid in cash and cash equivalents from December 31, 201975% of which was primarily due to $10.0 millionpaid in cash proceeds froma number of fully vested RSUs calculated using the first quarter 2020 issuance of Series B Preferred Stock and proceeds from a promissory note issued in the second quarter of 2020 pursuant to the Payment Protection Program (PPP)closing price of the CARES Act, with RealNetworks receiving $2.9 million. A subsidiary of RealNetworks, Scener, also received $2.1 millioncompany’s common stock on The Nasdaq Stock Market on March 15, 2021. The incentive bonus payout was higher than in the third quarter of 2020, in return for issuing SAFE Notes, as described in Note 5. Fair Value Measurements. During the fourth quarter of 2020, we received cash proceeds from the sale of Napster as described in Note 4. Acquisitions and Dispositions. The increase was partially offset by funds used in our operations, which totaled $8.1 million.
The following discussion reflects RealNetworks' results from continuing operations. Consolidated results of operations were as follows (dollars in thousands):
202020192020-2019
Change
%
Change
Total revenue$68,062 $65,802 $2,260 3 %
Cost of revenue16,465 17,226 (761)(4)%
Gross profit51,597 48,576 3,021 6 %
Gross margin76 %74 %2 %
Total operating expenses56,621 75,640 (19,019)(25)%
Operating loss$(5,024)$(27,064)$22,040 81 %

2020 compared with 2019
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In 2020, our consolidated revenue increased by $2.3 million, or 3%. The increase in revenue was primarily due to increases in our Games segment of $3.1 million, which was partially offset by decreases of $0.6 million in Consumer Media revenue and $0.3 million in Mobile Services revenue. See below for further information regarding fluctuations by segment. Gross margin increased to 76% from 74% due to the combination of higher revenues and cost reduction efforts.
Operating expenses decreased by $19.0 million in 2020 compared with 2019 primarily due to reductions to the contingent consideration liability of $9.6 million, lower salaries and other people related expenses of $7.2 million, decreased professional fees of $1.1 million, and lower facility costs of $0.9 million. See Note 5. Fair Value Measurements for additional information on the change in the contingent consideration liability.


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Segment Operating Results
Consumer Media
Consumer Media segment results of operations were as follows (dollars in thousands):
202020192020-2019
Change
%
Change
Total revenue$12,581 $13,170 $(589)(4)%
Cost of revenue2,273 3,031 (758)(25)%
Gross profit10,308 10,139 169 2 %
Gross margin82 %77 %5 %
Total operating expenses8,889 11,186 (2,297)(21)%
Operating income (loss)$1,419 $(1,047)$2,466 NM
Total Consumer Media revenue decreased by $0.6 million, or 4% as compared to the prior year duebecause, as discussed in more detail below, the financial goals and strategic objectives were achieved, and Mr. Glaser chose to decreased software license revenues of $0.6 million and decreased subscription services of $0.6 million, partially offset by increased product sales of $0.5 million from RealPlayer Plus. Advertising and other revenue increased $0.1 million when compared toforgo a bonus payout in the prior year due to the non-recurring recognitioneconomic uncertainty created by the onset of previously deferred third-party software product distribution revenuethe COVID-19 pandemic at the time his bonus would have been paid.
Long-Term Equity Award. On December 28, 2020, the Board, upon recommendation of the Compensation Committee, granted to Mr. Glaser a long-term option to purchase 500,000 shares of our common stock at an exercise price per share equal to $1.45, the closing price of our common stock on the grant date. The Compensation Committee viewed this as the “annual” portion of the equity award, with (i) the 2020 salary replacement option and (ii) the fully vested RSUs awarded in lieu of cash as payment of 75% of his 2020 incentive bonus, comprising the amountrest of $0.6 million, whichhis total 2020 equity awards. The 2020 long-term option is scheduled to vest over four years, with 25% vesting on the one-year anniversary of the grant date and 12.5% vesting every six months thereafter, subject to Mr. Glaser’s continued employment with us through each such vesting date. The option is exercisable for up to seven years from the grant date, unless earlier terminated, and was largely offset by lower advertising revenue.
Software License
For our software license revenues, the $0.6 million decrease was primarily duegranted pursuant to the recognition2005 Plan. In December of revenue on a contract2019, as various capital-raising alternatives were being considered, it was determined that was effectuated and fully recognizedno equity award would be granted to Mr. Glaser for $1.0 million in 2019. Also contributing
Stock Ownership Guidelines. While he serves as our chief executive officer, Mr. Glaser is expected to the decrease was the timinghold shares of shipments and paymentsour common stock equal to at least ten times his annual base salary. Mr. Glaser continued to meet this stock ownership threshold for approximately $0.9 million in 2019. These decreases were partially offset by renewals from existing customers infiscal year 2020. The bulk of these licenses
Base Salaries
Base salaries for our codec technologynamed executive officers are with companiesdetermined for each executive based in Chinaon position, responsibility, experience and incompetitive market data. Base salaries are adjusted from time to time to recognize various levels of responsibility, promotions, individual performance, market conditions and internal equity issues. Rather than applying a formulaic approach, the near term, it is possible we may see continued pressure on pricingCompensation Committee awards base salaries for our named executive officers within the context of our overall merit increase system considering level of responsibility, individual performance, market competitive factors, and renewals, and potential further declines in sales.
Subscription Services
For our subscription services revenues, the decreasecritical role of $0.6 million was primarily due to further declinesthe executive in our legacy subscription products, which we expect to continue.
Costfuture growth and strategy. The base salaries for our named executive officers were evaluated against data generated by F.W. Cook in its 2016 review. As a result of revenue decreased by $0.8 million, or 25%. This was primarily due to reductions in salariesthat assessment and other people related expensesfactors, base salaries for each of $0.7 million.
Operating expenses decreased by $2.3 million, or 21%, compared toour two continuing named executive officers remained unchanged from the prior year, primarily duewith Mr. Glaser’s total annual base salary remaining at $600,000 and Mr. Parham’s annual base salary remaining at $375,000. Mr. Ensing’s annual base salary, pursuant to lower salarieshis employment agreement, in his role during 2020 as President and benefits, from headcount reductions, of $1.9 million as well as lower infrastructure costs of $0.5 million.

Mobile Services
Mobile Services segment results of operations were as follows (dollars in thousands):
202020192020-2019
Change
%
Change
Total revenue$26,889 $27,143 $(254)(1)%
Cost of revenue6,725 7,500 (775)(10)%
Gross profit20,164 19,643 521 3 %
Gross margin75 %72 %3 %
Total operating expenses24,787 29,340 (4,553)(16)%
Operating loss$(4,623)$(9,697)$5,074 52 %
Mobile Services revenue declined by $0.3 million, or 1%, andChief Operating Officer was primarily driven by a decrease of $2.2 million in subscription services revenue, offset by an increase of $2.0 million in software license revenue.
Software license
For our software license revenues, the $2.0 million increase was primarily the result of revenue from sales of our SAFR product, with a $1.9 million increase over the prior year.
Subscription service
For our subscription services, the $2.2 million decrease was driven by fewer subscribers to our ringback tones resulting in a decrease in revenue of $2.7 million. These decreases were offset by an increase in revenue from our intercarrier messaging platform business of $0.4 million.$475,000.
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Cost of revenue decreased by $0.8 million or 10% as comparedAnnual Performance-Based Incentive Bonuses
In June 2020, the Compensation Committee established our 2020 Executive Bonus Plan, which is our performance-based incentive bonus program, in order to motivate and reward an individual's annual contribution to company performance. The Executive Bonus Plan is administered pursuant to the prior year, due primarily2005 Plan. The Executive Bonus Plan pays an annual bonus, historically in the form of cash, to reductionsexecutives based on the achievement of pre-established financial and strategic objectives consistent with our internal strategic plan previously established by the Board in salariesconsultation with management.
Payouts approved under the 2020 Executive Bonus Plan were paid 100% in cash to our employees and benefitssenior executives, except for Mr. Glaser, who received 75% of $0.6 million related to headcount reductions.
Operating expenses decreased by $4.6 million or 16% primarily due to decreased salaries, benefitshis bonus payout in the form of fully vested RSUs and other people related costs25% in cash. Bonus payouts in each of $2.8 million, lower marketing costs of $1.4 million, and lower infrastructure costs of $0.7 million.

Games
Games segment results of operations werethe past several years have had independent determinations as follows (dollars in thousands):
202020192020-2019
Change
%
Change
Total revenue$28,592 $25,489 $3,103 12 %
Cost of revenue7,451 6,975 476 7 %
Gross profit21,141 18,514 2,627 14 %
Gross margin74 %73 %1 %
Total operating expenses19,936 20,220 (284)(1)%
Operating income (loss)$1,205 $(1,706)$2,911 NM
Games revenue increased by $3.1 million, or 12% as compared to the priorform of payment in cash or stock based on liquidity needs. In 2018, the Compensation Committee determined that the payouts approved under the 2018 Executive Bonus Plan would be paid 100% in the form of fully vested RSUs. In 2017 and 2016, bonuses were paid 50% in cash and 50% in equity, and in 2015 100% of the bonus was paid in equity. Because incentive bonuses have, for the predominant part of the company's history, been paid only in cash and the primary purpose for payment in equity is cash preservation, the Compensation Committee considers payouts under the incentive bonus program to be part of the cash compensation package for executives. There has been no determination by the Compensation Committee as to what form future payouts under the incentive bonus program will take. Accordingly, for purposes of this Compensation Discussion and Analysis and the compensation tables that follow, we report bonus payouts, whether in cash or in the form of fully vested equity, in the year primarily duein which the bonus is earned rather than the year in which it is paid, and we do not consider these bonus equity grants to increasesbe part of $4.4 millionan executive's equity compensation.
Each of our named executive officers was eligible to participate in product sales revenuesthe 2020 Executive Bonus Plan. Mr. Glaser had a target bonus opportunity equal to 100% of his annual cash base salary, and other revenues, partially offsetMr. Parham had a target bonus opportunity equal to 75% of his annual base salary. The Compensation Committee reviewed the targets and deemed them appropriate based on internal equity considerations and the desire to emphasize teamwork to achieve the company’s performance objectives. Pursuant to his employment agreement and in order to provide the necessary incentive to join RealNetworks, Mr. Ensing’s 2020 bonus was guaranteed as to 50% of his target bonus opportunity, prorated to reflect the portion of the year beginning in August 2020 during which he was employed with us. Mr. Ensing’s target bonus opportunity was 100% of his annual base salary, prorated for the portion of the year beginning August 2020 during which he was employed with us. Although he was paid the guaranteed bonus, Mr. Ensing’s financial and strategic goals were consistent with Mr. Glaser’s and Mr. Parham’s.
The following elements were applicable to our 2020 Executive Bonus Plan:
•Performance Criteria - The financial performance criterion used to determine the annual bonuses for the participating named executive officers was contribution margin by reportable segment, with a decreaserequirement that a threshold revenue target be achieved. The Compensation Committee’s philosophy is to establish performance goals for executives that reflect our strategy of $1.3 millionproducing financial results that (a) are in subscription services revenues, described more fully below. Our Games segment has shifted its focus toward free-to-play gamesthe interests of our company and shareholders, (b) have a degree of difficulty that offer in-game purchases of virtual goods, the revenue from which is included within product sales,Compensation Committee considers to be challenging but achievable with significant effort and away from premium mobile games thatskill, and (c) require a one-time purchase or subscription.high level of financial performance in the context of the present state of our business and the annual budget.
Subscription Services
Our subscription sales decreased $1.3 millionConsistent with this strategy, the Compensation Committee established revenue as a result of lower subscribers in 2020 as compared to 2019.
Product sales
Our product sales increased $4.1 million as a result of higher in-game purchases of $6.5 million compared to the prior-year period, offset by lower sales of games of $2.4 million as we have shifted toward free-to-play games that offer in-game purchases of virtual goods and away from premium mobile games that require a one-time purchase.
Advertising and other
Our advertising and other revenues increased $0.4 million as compared to the prior-year period primarily as a result of offering more in-game advertising within our free-to-play games, partially offset by decreases in advertising revenue from premium mobile games.
Cost of revenue increased by $0.5 million, or 7%, due to higher app store fees of $1.0 million, partially offset by lower publisher license and service royalties.
Operating expenses decreased by $0.3 million, primarily due to lower salaries and other people related costs of $1.0 million, professional services fees and development costs of $1.0 million and infrastructure expenses of $0.2 million, partially offset by higher marketing fees of $1.9 million.
Corporate
Corporate segment results of operations were as follows (dollars in thousands):
202020192020-2019
Change
%
Change
Cost of revenue$16 $(280)$296 NM
Total operating expenses3,009 14,894 (11,885)(80)%
Operating income (loss)$(3,025)$(14,614)$11,589 79 %
Operating expenses decreased by $11.9 million, or 80%. The decrease was primarily due to lower salaries and other people related costs of $1.6 million and lower professional service fees of $0.6 million. The overall decrease was also impacted by $9.6 million related to the change in fair valuerequirement for achievement of the contingent consideration liability. See Note 5. Fair Value Measurements for additional information.



financial goal under the 2020 Executive Bonus Plan, requiring that actual revenue be at least 95% of target before any amounts could be paid under the plan, because it was a key element of our 2020 business plan and we consider revenue
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Consolidated Operating Expenses
Our operating expenses consist primarilyto be a key driver of salariesour growth and related personnel costs including stock-based compensation, consulting fees associated with product development, sales commissions, amortization of certain intangible assets capitalized in our acquisitions, professional service fees, advertising costs, restructuring charges, and lease exit costs. Operating expenses were as follows (dollars in thousands):
202020192020-2019
Change
%
Change
Research and development$24,319 $27,850 $(3,531)(13)%
Sales and marketing21,042 23,016 (1,974)(9)%
General and administrative17,331 21,820 (4,489)(21)%
Fair value adjustments to contingent consideration liability(8,600)1,000 (9,600)NM
Restructuring and other charges2,529 1,954 575 29 %
Total consolidated operating expenses$56,621 $75,640 $(19,019)(25)%
Research and development expenses decreased by $3.5 million, or 13%, insuccess. For Mr. Glaser, the year ended 2020 as compared to 2019 primarily due to a decrease in salaries and other people related costs of $2.0 million, lower professional service fees and development costs of $1.2 million and lower infrastructure costs of $0.4 million.
Sales and marketing expenses decreased by $2.0 million, or 9%, inrevenue goal was based on total company revenue; for Mr. Parham, the year ended 2020, compared with 2019. The decreaserevenue goal was primarily due to a decrease in salaries and other people related costs of $2.9 million. The decrease was partially offset by higher marketing and professional fees of $0.8 million.
General and administrative expenses decreased by $4.5 million, or 21%, in the year ended 2020, compared with 2019. The decrease was primarily due to lower salaries and other people related costs of $2.4 million, lower professional fees of $1.1 million and lower facility expenses of $0.8 million.based on total company revenue, excluding Napster.
The Compensation Committee also established contribution margin as a performance metric under the 2020 Executive Bonus Plan, representing 75% of the potential bonus, in order to reward our executives for maintaining fiscal responsibility, continuing our efforts to reduce operating costs, and achieving profitability and therefore, like revenue, aligning the interests of plan participants with those of the company and its shareholders. The 2020 Executive Bonus Plan was structured to be self-funding for the financial goal such that every $1.00 of actual contribution margin over budget was deemed to fund the financial goal of the plan at $0.50. Thus, individual payouts for the contribution margin goal were calculated as the percent funded multiplied by the executive’s bonus target multiplied by the 75% weighting of the financial portion of the plan. Please note that contribution margin by reportable segment is a non-GAAP financial measure used by management, beginning in 2016, in reporting financial results and, for 2020, was defined by the company as operating income (loss) plus other income (expense) net, but excluding depreciation and amortization, acquisitions-related intangible asset amortization, fair value adjustments to the contingent consideration liability, changed by $9.6 million in the year ended 2020, compared with 2019. See Note 5. Fair Value Measurements for additional information.
Restructuringstock-based compensation, restructuring and other charges, consistand foreign currency (gain) loss.
Performance criteria for our named executive officers also included non-financial strategic goals intended to motivate each executive and the executive team as a whole to accomplish specific goals that would drive our growth and strong financial performance. These strategic goals, representing 25% of costs associatedthe potential bonus, included goals that were shared by the full executive team and goals that were specific to individual executives. The shared goals encompassed, in part, driving revenue growth, implementing successful commercial product launches, and achieving budget goals, and the individual goals generally related to leadership, collaboration and teamwork, and contribution to strategic outcome, with the ongoing reorganizationsome goals tied directly to achievement of our business operationscertain key performance indicators.
•Performance Targets and our ongoing expense re-alignment efforts. For additional details on these charges, see Note 10. Restructuring and Other Charges.
Other Income (Expenses)
Other income (expenses), net was as follows (dollars in thousands):
202020192020-2019
Change		%
Change
Interest expense$(20)$— $(20)NM
Interest income38 98 (60)(61)%
Gain on equity and other investments, net111 12,338 (12,227)(99)%
Other income (expense), net(164)102 (266)NM
Total other income (expense), net$(35)$12,538 $(12,573)NM
Interest expense relates to RealNetworks long-term debt, as described in detail in Note 9. Debt.
Gain on equity and other investments, netActual Performance - Target performance goals for the year ended December 31, 2020 includes unrealized gainsfinancial criterion were set based on equity securities of $0.7 million, partially offset by net lossesobjectives in equity investments of $0.6 million. Gain on equity and other investments, netour internal strategic plan for the year ended December 31, 2019 includes $12.3 million related to RealNetworks' gain on consolidation of Napster, as described in more detail in Note 4. Acquisitions and Dispositions.
The fluctuation in Other income (expense), net primarily relates to foreign exchange gains and losses.
Income Taxes
During the years ended December 31, 2020 and 2019, we recognized income tax expense from continuing operations of $0.1 million and $0.7 million, respectively, related to U.S. and foreign income taxes.
In general, the amount of tax expense or benefit allocated to continuing operations is determined without regard to the tax effects of other categories of income or loss, such as discontinued operations. However, an exception to the general rule is provided in Topic 740 when there is a pre-tax loss from continuing operations and there are items charged or credited to other
24

categories, including discontinued operations, in the current year. Pursuant to Topic 740, the gain from discontinued operations was considered in determining the $0.1 million tax expense allocated to the loss from continuing operations.
The income tax expense from continuing operations for the year ended December 31, 2020 and 2019 was largely the result of foreign withholding taxes and income taxes in foreign jurisdictions.
We assess the likelihood that our deferred tax assets will be recovered based upon our consideration of many factors, including the current economic climate, our expectations of future taxable income, our ability to project such income, and the appreciation of our investments and other assets. We maintain a partial valuation allowance of $128.3 million for our deferred tax assets due to uncertainty regarding their realization as of December 31, 2020. The net decrease in the valuation allowance since December 31, 2019 of $32.5 million was the result of a decrease in current year deferred tax assets, mainly related to the disposition of Napster,strategic plan for which the Company maintained a valuation allowance.
We generate income in a number of foreign jurisdictions, some of which have higher tax rates and some of which have lower tax rates relative to the U.S. federal statutory rate. Changes to the blend of income between jurisdictions with higher or lower effective tax rates than the U.S. federal statutory rate could affect our effective tax rate. For the year ended December 31, 2020 decreases in tax expense from income generated in foreign jurisdictions with lower tax rates in comparison to the U.S. federal statutory rate were offset by increases in tax expense from income generated in foreign jurisdictions having comparable, or higher tax rates in comparison to the U.S. federal statutory rate.
As of December 31, 2020 and 2019, RealNetworks had $0.7 million and $5.0 million in uncertain tax positions, respectively. The decrease in uncertain tax positions is primarily the result of the Napster Disposition, for which unrecognized tax positions were removed relating to federal research and development tax credit carryforward risks, as well as transfer pricing risks in certain foreign jurisdictions. The remaining unrecognized tax benefits are due to federal research and development tax credit carryforward risks. As of December 31, 2020, there are no unrecognized tax benefits remaining that would affect our effective tax rate if recognized,served as the offset would increasebasis for contribution margin targets, and revenue gates, under the valuation allowance. We do not anticipate that the total amount of unrecognized tax benefits will significantly change within the next twelve months.
We file numerous consolidated and separate income tax returns in the U.S. including federal, state and local, as well as foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal income tax examinations for tax years before 2013 or state, local, or foreign income tax examinations for years before 1993. We are currently under audit by various states and foreign jurisdictions for certain tax years subsequent to 1993.
Liquidity and Capital Resources
Executive Bonus Plan. The following summarizes working capital, cashtable shows the target and cash equivalents, and restricted cash (in thousands):
 December 31,
 20202019
Working capital, excluding cash and cash equivalents$1,148 $(5,808)
Cash and cash equivalents23,940 8,472 
Restricted cash equivalents1,630 4,880 
The 2020 improvement in working capital from December 31, 2019 was primary due to the investment in MelodyVR received as proceeds on the sale of Napster, partially offset by the reclassification of the contingent consideration liability from other long-term liabilities to current liabilities.
Cash and cash equivalents increased $15.5 million from December 31, 2019 due to $10.0 million in cash proceeds from the first quarter 2020 issuance of Series B Preferred Stock, cash proceeds received from the sale of Napster during the fourth quarter of 2020, as described in Note 4. Acquisitions and Dispositions, proceeds of $2.9 million from the PPP promissory note, and issuance of SAFE Notes of $2.1 million. These increases were partially offset by cash used in operations.
The decrease in restricted cash equivalents is due to a reduction in the restricted amounts required by our amended Loan Agreement of $2.0 million and the release of restricted funds held for the corporate headquarters lease, which have been satisfied with a letter of credit. See Note 9. Debt for additional information on amendments to our revolving line of credit.
The following summarizes cash flow activity from continuing operations (in thousands):
 Years Ended December 31,
 20202019
Cash used in operating activities$(8,083)$(21,315)
Cash provided by (used in) investing activities(408)11,324 
Cash provided by financing activities11,034 4,068 
Cash used in operating activities consisted of net loss from continuing operations adjusted for certain non-cash items such as depreciation and amortization, stock-based compensation, gain on equity and other investments, fair value adjustments to the
25

contingent consideration liability, loss on impairment of operating lease assets and the effect of changes in certain operating assets and liabilities.
Cash used in operating activities was $13.2 million lower in the year ended December 31, 2020 as compared to 2019. Cash used in operations was lower primarily due to our lower operating loss recorded for year 2020 compared to the prior year.
For the year ended December 31, 2020, cash used in investing activities of $0.4 million was primarily due to fixed asset purchases.
For the year ended December 31, 2019, cash provided by investing activities of $11.3 million was due primarily to the net cash received from the Napster acquisition in January 2019. Our initial cash consideration paid at closing of $0.2 million was offset by the cash, cash equivalents and restricted cash on Napster's balance sheet at the acquisition date. The increase was offset in part by fixed asset purchases of $0.9 million.
Financing activities for the year ended December 31, 2020 provided cash totaling $11.0 million. This cash inflow was primarily due to the issuance of Series B preferred stock of $10.0 million and proceeds of $2.9 million from the PPP promissory note, and the receipt by Scener, a subsidiary of RealNetworks, of $2.1 million from the issuance of SAFE Notes. These inflows were partially offset by repayment on our revolving credit facility of $3.9 million. See Note 9. Debt and Note 19. Related Party Transactions for additional details.
Financing activities for the year ended December 31, 2019 provided cash totaling $4.1 million, which was primarily from borrowings on our revolving credit facility of $3.9 million. See Note 9. Debt for additional details.
While we currently have no planned significant capital expenditures for 2021 other than those in the ordinary course of business, we do have contractual commitments for future payments related to office leases. See Note 15. Leases for additional details.
RealNetworks is a party to a Loan Agreement with a third-party financial institution, as discussed in Note 9. Debt. Under the Agreement, as amended, borrowings may not exceed $6.5 million and are reduced by a $1.0 million standby letter of credit entered into with the bank in connection with certain lease agreements. At December 31, 2020, we had no outstanding draws on the revolving line of credit.
In February 2020, we entered into a Series B Preferred Stock Purchase Agreement with Mr. Glaser, Chairman of the Board and Chief Executive Officer of RealNetworks, pursuant to which Mr. Glaser invested approximately $10.0 million in RealNetworks in exchange for the issuance to him of 8,064,516 shares of Series B Preferred Stock. The Series B Preferred Stock is non-voting and is convertible into common stock on a one-to-one basis, provided, however, that no conversion is permitted in the event that such conversion would cause Mr. Glaser’s beneficial ownership of our common stock to exceed the 38.5% threshold set forth in our Second Amended and Restated Shareholder Rights Plan dated November 30, 2018. The Series B Preferred Stock has no liquidation preference and no preferred dividend.
In 2019, Mr. Glaser directly invested $0.8 million in one of our subsidiaries, Scener, in exchange for shares of preferred stock of that entity. The subsidiary is developing a platform that transforms the experience of viewing video entertainment into a social, connected playground. As of December 31, 2020, RealNetworks owned approximately 82% of the subsidiary's outstanding equity, and we consolidate its financial results into our financial statements. The financial results of the subsidiary are reported in our Consumer Media segment.
In the near term, we expect to see continued net negative cash flow from operating activities. We believe that our unrestricted current cash and cash equivalents and unused capacity on our revolving line of credit will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. Notwithstanding this availability of cash and access to additional funding, management has considered and will continue to evaluate implementation of a variety of cash conservation measures.
In the future, we may seek to raise additional funds through public or private equity financing, or through other sources. Such sources of funding may or may not be available to us at commercially reasonable terms. The sale of additional equity securities could result in dilution to our shareholders. In addition, in the future, we may enter into cash or stock acquisition transactions or other strategic transactions that could reduce cash available to fund our operations or result in dilution to shareholders.
Contractual Obligations
We have contractual obligations for Long-term debt and for Long-term lease liabilities, both of which are recorded on our balance sheet. For details on the maturity of Long-term debt, please refer to Note 9. Debt and for future minimum lease payments please refer to Note 15. Leases. Please also refer to Note 16. Commitments and Contingencies. For income tax liabilities for uncertain tax positions, we cannot make a reasonably reliable estimate of the amount and period of any related future payments. As of December 31, 2020, we had $0.7 million of gross unrecognized tax benefits for uncertain tax positions.

26

Off-Balance Sheet Arrangements
We do not maintain accruals associated with certain guarantees, as discussed in Note 17. Guarantees; those guarantee obligations constitute off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofactual revenue and expenses during the reported period. Our critical accounting policies and estimates are as follows:contribution margin goals that applied for 2020:
•Revenue recognition;
•Valuation of definite-lived assets, right-of-use operating lease assets, and goodwill; and
•Accounting for income taxes.
Revenue Recognition. We recognize revenue from contracts with customers as control of the promised good or service is transferred. Please refer to Note 3. Revenue Recognition for further details regarding our recognition policies.
Valuation of Definite-Lived Assets, Right-of-Use Operating Lease Assets, and Goodwill. Assets acquired and liabilities assumed in a business acquisition are measured at fair value under the purchase accounting method and any goodwill is recognized as the excess of the total purchase price over the fair value of assets acquired and liabilities assumed. The fair value estimates are based upon estimates and assumptions relating to future revenues, cash flows, operating expenses and costs of capital. These estimates and assumptions are complex and subject to a significant degree of judgment with respect to certain factors including, but not limited to, the cash flows of long-term operating plans and risk-commensurate discount rates and cost of capital.
Our definite-lived assets consist primarily of property, plant and equipment. Definite-lived assets are amortized on a straight line basis over their estimated useful lives. We review definite-lived assets and right-of-use operating lease assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amount to future undiscounted cash flows the assets are expected to generate. If definite-lived assets or right-of-use operating lease assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds their fair market value.
We test goodwill for impairment on an annual basis, in our fourth quarter, or more frequently if circumstances indicate reporting unit carrying values may exceed their fair values. As part of this test, we first perform a qualitative assessment to determine if the fair value of a reporting unit is more likely than not less than the reporting unit's carrying amount including goodwill. If this assessment indicates impairment is more likely than not, we then compare the carrying value of the reporting unit to the estimated fair value of the reporting unit. If the carrying value of the reporting unit exceeds the estimated fair value, we then calculate the implied estimated fair value of goodwill for the reporting unit and compare it to the carrying amount of goodwill for the reporting unit. If the carrying amount of goodwill exceeds the implied estimated fair value, an impairment charge to current operations is recorded to reduce the carrying value to implied estimated value.
The impairment analysis of definite-lived assets, right-of-use operating lease assets, and goodwill may be based upon estimates and assumptions relating to our future revenue, cash flows, operating expenses, costs of capital and capital purchases. These estimates and assumptions are complex and subject to a significant degree of judgment with respect to certain factors including, but not limited to, the cash flows of our long-term operating plans, market and interest rate risk, and risk-commensurate discount rates and cost of capital. Significant or sustained declines in future revenue or cash flows, or adverse changes in our business climate, among other factors, and their resulting impact on the estimates and assumptions relating to the value of our definite-lived, right-of-use lease, and goodwill assets could result in the need to perform an impairment analysis in future periods which could result in a significant impairment. While we believe our estimates and assumptions are reasonable, due to their complexity and subjectivity, these estimates and assumptions could vary from period to period. Changes in these estimates and assumptions could materially affect the estimate of future cash flows and related fair values of these assets and result in significant impairments, which could have a material adverse effect on our financial condition or results of operations. For further discussion, please see the risk factor entitled, "Any impairment to our goodwill, definite-lived, and right-of-use operating lease assets could result in a material charge to our earnings" under Item 1A Risk Factors.
Accounting for Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred income tax expense and deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities and operating loss and tax credit carryforwards are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and operating loss and tax credit
27

carryforwards are expected to be recovered or settled. We must make assumptions, judgments and estimates to determine the current and deferred provision for income taxes, deferred tax assets and liabilities and any valuation allowance to be recorded against deferred tax assets. Our judgments, assumptions, and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws and possible outcomes of future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and future tax audits could materially impact the amounts provided for income taxes in our consolidated financial statements.
Each reporting period we must periodically assess the likelihood that our deferred tax assets will be recovered from future sources of taxable income, and to the extent that recovery is not more likely than not, a valuation allowance must be established. The establishment of a valuation allowance and increases to such an allowance result in either increases to income tax expense or reduction of income tax benefit in the statement of operations and comprehensive income. In certain instances, changes in the valuation allowance may be allocated directly to the related components of shareholders' equity on the consolidated balance sheet. Factors we consider in making such an assessment include, but are not limited to, past performance and our expectation of future taxable income, macroeconomic conditions and issues facing our industry, existing contracts, our ability to project future results and any appreciation of our investments and other assets.
As of December 31, 2020, approximately $8.4 million of the $23.9 million of cash and cash equivalents are held by our foreign subsidiaries outside the U.S. We have reevaluated our historical assertion that undistributed foreign earnings were indefinitely reinvested and for which deferred taxes were not provided. As a result of the enactment of the Tax Act and as of December 31, 2020, we are no longer indefinitely reinvesting substantially all of the Company's foreign earnings outside of the U.S. As a result of this change, we have recorded deferred taxes of $0.9 million as of December 31, 2020 to reflect local country and foreign withholding taxes associated with a future repatriation of such foreign earnings.
Recently Issued Accounting Standards
See Note 2. Recent Accounting Pronouncements.


Item 7A.Quantitative and Qualitative Disclosures About Market Risk
The following discussion about our market risk involves forward-looking statements. All statements that do not relate to matters of historical fact should be considered forward-looking statements. Actual results could differ materially from those projected in any forward-looking statements.
Interest Rate Risk. Our exposure to interest rate risk from changes in market interest rates relates primarily to RealNetworks' revolving line of credit. RealNetworks' borrowing arrangement has a floating rate interest payments and thus has a degree of interest rate risk, if interest rates increase. Based on the available total balance of the revolving line of credit, a hypothetical 10% increase/decrease in interest rates would not increase/decrease our annual interest expense or cash flows by more than a nominal amount.
Investment Risk. As of December 31, 2020, we had an equity investment in common shares of a foreign publicly traded technology company. These common shares were acquired as a portion of the proceeds received in the sale of Napster. The equity investment is subject to fluctuation in the market price as well as being exposed to changes in foreign currency exchange rates. A hypothetical 10% increase/decrease in the common share price or foreign currency exchange rate would result in an increase/decrease of the value of the equity investment of approximately $1.0 million.
Foreign Currency Risk. We conduct business internationally in several currencies and thus are exposed to adverse movements in foreign currency exchange rates.
Our exposure to foreign exchange rate fluctuations arise in part from: (1) translation of the financial results of foreign subsidiaries into U.S. dollars in consolidation; (2) the remeasurement of non-functional currency assets, liabilities and intercompany balances into U.S. dollars for financial reporting purposes; and (3) non-U.S. dollar denominated sales to foreign customers.
Our foreign currency risk management program reduces, but does not entirely eliminate, the impact of currency exchange rate movements. For our foreign operations, the majority of our revenues and expenses are denominated in other currencies, such as the euro. We currently do not actively hedge our foreign currency exposures and are therefore subject to the risk of exchange rate fluctuations. We are exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation. Our exposure to foreign exchange rate fluctuations also arises from intercompany payables and receivables to and from our foreign subsidiaries.
A hypothetical 10% increase or decrease in those currencies relative to the U.S. dollar as of December 31, 2020 would not result in a material impact on our financial position, results of operations or cash flows.

28


Item 8.Revenue Goals:Financial Statements and Supplementary DataTarget2020 Actual

29

REALNETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31,
2020		December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$23,940 $8,472 
Trade accounts receivable, net of allowances10,229 12,767 
Deferred costs, current portion196 537 
Investments9,965 0 
Prepaid expenses and other current assets3,480 4,428 
Current assets of discontinued operations0 28,376 
Total current assets47,810 54,580 
Equipment, software, and leasehold improvements, at cost:
Equipment and software30,726 31,699 
Leasehold improvements2,776 3,071 
Total equipment, software, and leasehold improvements33,502 34,770 
Less accumulated depreciation and amortization31,631 32,350 
Net equipment, software, and leasehold improvements1,871 2,420 
Operating lease assets7,937 10,198 
Restricted cash equivalents1,630 4,880 
Other assets4,150 1,808 
Deferred costs, non-current portion74 388 
Deferred tax assets, net909 761 
Goodwill17,375 16,908 
Non-current assets of discontinued operations0 67,811 
Total assets$81,756 $159,754 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$2,750 $4,042 
Accrued and other current liabilities17,850 17,495 
Deferred revenue, current portion2,122 2,003 
Current liabilities of discontinued operations0 72,641 
Total current liabilities22,722 96,181 
Deferred revenue, non-current portion45 96 
Deferred tax liabilities, net1,129 1,076 
Long-term lease liabilities6,837 8,234 
Long-term debt2,895 3,900 
Other long-term liabilities2,241 10,151 
Non-current liabilities of discontinued operations0 1,843 
Total liabilities35,869 121,481 
Commitments and contingencies (Note 16.)00
Shareholders’ equity:
Preferred stock, $0.001 par value:
Series A: authorized 200 shares, no shares issued or outstanding0 0 
Series B: authorized 8,100 shares, issued and outstanding 8,065 shares in 2020 and no shares authorized in 20198 0 
Undesignated series: authorized 51,700 shares0 0 
Common stock, $0.001 par value authorized 250,000 shares; issued and outstanding 38,424 shares in 2020 and 38,227 shares in 201938 38 
Additional paid-in capital655,606 644,070 
Accumulated other comprehensive loss(60,641)(61,323)
Accumulated deficit(548,862)(544,010)
Total shareholders’ equity46,149 38,775 
Noncontrolling interests(262)(502)
Total equity45,887 38,273 
Total liabilities and equity$81,756 $159,754 
See accompanying notes to consolidated financial statements.
30

REALNETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 Years Ended December 31,
 20202019
Net revenue$68,062 $65,802 
Cost of revenue16,465 17,226 
Gross profit51,597 48,576 
Operating expenses:
Research and development24,319 27,850 
Sales and marketing21,042 23,016 
General and administrative17,331 21,820 
Fair value adjustments to contingent consideration liability(8,600)1,000 
Restructuring and other charges2,529 1,954 
Total operating expenses56,621 75,640 
Operating loss(5,024)(27,064)
Other income (expenses):
Interest expense(20)0 
Interest income38 98 
Gain on equity and other investments, net111 12,338 
Other income (expense), net(164)102 
Total other income (expenses), net(35)12,538 
Loss from continuing operations before income taxes(5,059)(14,526)
Income tax expense55 702 
Net loss from continuing operations(5,114)(15,228)
Net loss from discontinued operations, net of tax(206)(6,030)
Net loss(5,320)(21,258)
Net loss attributable to noncontrolling interest of continuing operations(284)(163)
Net loss attributable to noncontrolling interest of discontinued operations(184)(1,094)
Net loss attributable to RealNetworks$(4,852)$(20,001)
Net loss from continuing operations attributable to RealNetworks$(4,830)$(15,065)
Net income (loss) from discontinued operations attributable to RealNetworks(22)(4,936)
Net loss attributable to RealNetworks$(4,852)$(20,001)
Net income (loss) per share attributable to RealNetworks - Basic:
Continuing operations$(0.13)$(0.40)
Discontinued operations0 (0.13)
Total net loss per share - Basic$(0.13)$(0.53)
Net income (loss) per share attributable to RealNetworks- Diluted:
Continuing operations$(0.13)$(0.40)
Discontinued operations0 (0.13)
Total net loss per share - Diluted$(0.13)$(0.53)
Shares used to compute basic net loss per share38,272 37,994 
Shares used to compute diluted net loss per share38,272 37,994 
See accompanying notes to consolidated financial statements.
31

REALNETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)


Year Ended December 31,
20202019
Net loss$(5,320)$(21,258)
Comprehensive income (loss):
Foreign currency translation adjustments909 (205)
Total other comprehensive income (loss)909 (205)
Comprehensive loss including noncontrolling interests(4,411)(21,463)
Comprehensive loss attributable to noncontrolling interests(468)(1,257)
Comprehensive loss attributable to RealNetworks$(3,943)$(20,206)
See accompanying notes to consolidated financial statements.
32


REALNETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Years Ended December 31,
 20202019
Cash flows from operating activities:
Net loss from continuing operations$(5,114)$(15,228)
Adjustment to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization944 1,195 
Stock-based compensation1,420 2,881 
Gain on equity and other investments, net(111)(12,338)
Loss on impairment of operating lease asset1,055 0 
Deferred income taxes, net(191)(29)
Foreign currency (gain) loss330 7 
Fair value adjustments to contingent consideration liability(8,600)1,000 
Net change in certain operating assets and liabilities:
Trade accounts receivable2,587 (1,077)
Prepaid expenses, operating lease and other assets3,716 5,603 
Accounts payable(1,342)145 
Accrued, lease and other liabilities(2,777)(3,474)
Net cash used in operating activities - continuing operations(8,083)(21,315)
Net cash used in operating activities - discontinued operations(2,555)(4,055)
Net cash used in operating activities(10,638)(25,370)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements(408)(949)
Proceeds from sales and maturities of short-term investments0 24 
Acquisitions, net of cash acquired0 12,249 
Net cash provided by (used in) investing activities - continuing operations(408)11,324 
Net cash used in investing activities - discontinued operations(2,160)(243)
Net cash provided by (used in) investing activities(2,568)11,081 
Cash flows from financing activities:
Proceeds from issuance of common stock0 199 
Proceeds from issuance of preferred stock10,000 0 
Tax payments from shares withheld upon vesting of restricted stock(26)(309)
Proceeds from notes payable and long-term debt2,876 3,900 
Repayments of notes payable and long-term debt(3,922)0 
Payment of financing fees0 (622)
Other financing activities2,106 900 
Net cash provided by financing activities - continuing operations11,034 4,068 
Net cash provided by (used in) financing activities - discontinued operations4,945 (4,691)
Net cash provided by (used in) financing activities15,979 (623)
Effect of exchange rate changes on cash, cash equivalents and restricted cash618 (100)
Net increase (decrease) in cash, cash equivalents and restricted cash3,391 (15,012)
Cash, cash equivalents, and restricted cash, beginning of year22,179 37,191 
Cash, cash equivalents, and restricted cash, end of year25,570 22,179 
Less: Cash, cash equivalent and restricted cash from discontinued operations0 8,827 
Cash, cash equivalents and restricted cash from continuing operations, end of year$25,570 $13,352 
33

REALNETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(In thousands)
Supplemental disclosure of cash flow information:
Continuing operations:
Cash received from income tax refunds$2,169 $2,225 
Cash paid for income taxes$1,063 $868 
Non-cash investing activities:
Increase (decrease) in accrued purchases of equipment, software, and leasehold improvements$(44)$(83)
Acquisition of investments from sale of Napster$9,268 $0 
Discontinued operations:
Cash received from income tax refunds$33 $31 
Cash paid for income taxes$331 $327 
Cash paid for interest expense$317 $412 
Non-cash investing activities:
Acquisition of intangible assets$0 $23,700 
See accompanying notes to consolidated financial statements.
34

REALNETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)

 Preferred StockCommon StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Accumulated
Deficit		Total
Shareholders’
Equity		Non-controlling InterestsTotal Equity
SharesAmountSharesAmount
 
Balances, December 31, 20180 $0 37,728 $37 $641,930 $(61,118)$(524,009)$56,840 $0 $56,840 
Common stock issued for exercise of stock options and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock— — 499 1 (110)— — (109)— (109)
Napster acquisition— — — — (1,346)— — (1,346)570 (776)
Stock-based compensation— — — — 2,881 — — 2,881 — 2,881 
Other comprehensive loss— — — — — (205)— (205)— (205)
Net loss— — — — — — (20,001)(20,001)(1,257)(21,258)
Other equity transactions (1)
— — — — 715 — — 715 185 900 
Balances, December 31, 20190 $0 38,227 $38 $644,070 $(61,323)$(544,010)$38,775 $(502)$38,273 
Common stock issued for exercise of stock options and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock— — 197 — (26)— — (26)— (26)
Issuance of Preferred B Stock8,065 8 — — 9,992 — — 10,000 — 10,000 
Stock-based compensation— — — — 1,420 — — 1,420 — 1,420 
Other comprehensive income— — — — — 909 — 909 — 909 
Net loss— — — — — — (4,852)(4,852)(468)(5,320)
Other equity transactions (2)
— — — — 150 (227)— (77)708 631 
Balances, December 31, 20208,065 $8 38,424 $38 $655,606 $(60,641)$(548,862)$46,149 $(262)$45,887 
(1) In 2019, Mr. Glaser directly invested $0.8 million in one of our subsidiaries in exchange for shares of preferred stock of that entity. See Note 19. Related Party Transactions for additional details.
(2) In 2020, Other equity transactions pertains to the sale of Napster to MelodyVR. See Note 4. Acquisitions and Dispositions for additional details.
See accompanying notes to consolidated financial statements.
35
REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2020 and 2019

Company Revenue$164.24M$164.27M
Note 1.Company Revenue, excluding NapsterDescription of Business and Summary of Significant Accounting Policies$70.84M$68.06M
Contribution Margin Goals:
Company Contribution Margin($5.93M)($4.77M)
Company Contribution Margin, excluding Napster($5.70M)($5.69M)
DescriptionActual performance against the strategic goals set for 2020 was assessed for each executive during the first quarter of Business.    RealNetworks provides digital media software2021. The Compensation Committee determined that for each of Mr. Glaser and services to consumers, mobile carriers, device manufacturers, system integrators,Mr. Parham the revenue gate was met and other businesses. Consumers use our digital media productscontribution margin achievement funded a full payout for Mr. Glaser on the financial goals and services to store, organize, play, manage and enjoy their digital media content, either directly from us or through our distribution partners. Our computer vision SAFR (Secure Accurate Facial Recognition) platform, a key investment initiativepartial payout for us, enables new applications for security, convenience, and analytics, and is optimized for live video.
Rhapsody International, Inc. (doing business as Napster) offers a comprehensive set of digital music products and services designed to provide consumers with broad access to digital music. Napster was held-for-sale and treated as discontinued operations for accounting and disclosure purposes asMr. Parham of the third quarterfinancial goals. In addition, the Compensation Committee determined that strategic goals, which
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comprised 25% of 2020.total bonus opportunity, were fully achieved for Mr. Glaser and Mr. Parham. The salebonus payouts for these named executive officers was based upon the achievement level. In connection with Mr. Ensing’s recruitment by the company, his bonus payout was guaranteed as to a minimum of Napster50% of his target bonus opportunity, prorated to reflect the portion of the year beginning in August 2020 during which he was completed duringemployed with us..
•Payout Structure - The overall payout structure ensured that there was no ability for participants in the fourth quarter2020 Executive Bonus Plan to earn an award for contribution margin unless revenue was at least 95% of 2020. The resultstarget, the rationale for which was to emphasize the need for both growth and operational discipline. Additionally, the payout for contribution margin was capped at target.
Notwithstanding the performance and payout targets established under the 2020 Executive Bonus Plan, the Compensation Committee reserved the right to adjust performance and payout targets based on acquisitions or dispositions of operationsassets and cash flows for our discontinued operations have been segregated from the results of continuing operations and segment results, and Napster’s operating results and financial condition have been recastalso decrease or eliminate an executive officer’s award before it was paid. Executive officers were required to conform to this presentation. The notes to the consolidated financial statements, unless otherwise indicated, are on a continuing operations basis. See Note 4. Acquisitions and Dispositions for additional details regarding the acquisition and sale of Napster.
Inherent in our business are various risks and uncertainties, including a limited history of certain of our product and service offerings. RealNetworks' success will dependbe employed on the acceptancedate award payments were made in order to be eligible to receive payment under the 2020 Executive Bonus Plan, except in the case of our technology, productsdeath or disability.
The dollar-equivalent payouts earned for performance under the 2020 Executive Bonus Plan were as follows:

Name
Target % Payout under
2020 Executive Bonus Plan
(as a percentage of base salary)
Actual % Payout under
2020 Executive Bonus Plan
(as a percentage of base salary)
Actual $ Payout under
2020 Executive Bonus Plan (1)
Rob Glaser (1)100%100%$525,000
Mike Ensing (2)100%n/a$88,900
Michael Parham75%37.5%$121,875

(1) 25% of Mr. Glaser’s payout was paid in cash and services and75% was paid in the abilityform of fully vested RSUs.
(2) In connection with his recruitment to generate related revenue and cash flow.
In this Annual Report on Form 10-KRealNetworks, it was agreed that for 2020 Mr. Ensing would receive a guaranteed bonus payout as to a minimum of 50% of his target bonus opportunity, prorated to reflect the portion of the year ended December 31,beginning in August 2020 (10-K), RealNetworks, Inc.during which he was employed with us. Mr. Ensing’s 2020 bonus was paid out at the guaranteed amount.
Special Bonus Awards
From time to time, we utilize discretionary signing, promotion, retention or other bonus awards as compensation tools that provide incentives for executives to accept employment offers, to reward outstanding performance by executives and subsidiaries is referred to as “RealNetworks”, the “Company”, “we”, “us”, or “our”.
Basis of Presentation.    The consolidated financial statements include the accounts of the Companyretain key executives. We believe that these bonus awards are consistent with our overall executive compensation philosophy to achieve our recruiting and its subsidiaries in which it has a more than 50% voting interest. Noncontrolling interests primarily represent third-party ownership in the equity of Napster and Scener Inc. ("Scener") and are reflected separately in the Company's financial statements. Intercompany balances and transactions have been eliminated in consolidation.
Liquidity and Capital Resources. The Company continues to incur operating losses from continuing operations, including net operating losses of $5.0 million, and $27.1 million for the years ended December 31, 2020 and 2019, respectively. The Company had an accumulated deficit of $548.9 million and $544.0 million as of December 31, 2020 and 2019, respectively. The Company believes that its cash and cash equivalents of $23.9 million as of December 31, 2020,retention objectives as well as to allow discretion to address the unused capacityneeds of its revolving lineour businesses, which operate in a constantly evolving and highly competitive environment.
Signing Bonus. Pursuant to his employment agreement, Mr. Ensing was granted RSUs as a signing bonus. The number of credit, are adequateshares subject to fund the Company's operations for at least one year fromRSU award was determined as $200,000 divided by the 30-day average of the closing prices of a share of our common stock ending with the date these financial statements were issued.
Risksthat Mr. Ensing and Uncertainties.    In March 2020,we entered into his employment agreement. The RSUs vest in full on the World Health Organization declared the outbreakone-year anniversary of the novel coronavirus that causes COVID-19commencement of his employment with the company, subject to be a global pandemic. As the virus spread throughout the U.S. and the world, authorities implemented numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, business limitations, and shutdowns. In addition to the pandemic's widespread impact on public health and global society, reactions to the pandemic as well as measures taken to contain the virus have caused significant turmoil to the global economy and financial markets. Moreover, similar to other companies, we have taken steps to support the health and well-being of our employees, customers, partners and communities, which include working remotely and learning to operate our businesses in a fundamentally different way.
The COVID-19 pandemic and the resultant economic instability and financial market turmoil has added complexity, uncertainty and risk to nearly all aspects of our business. It is difficult to predict the near-term and long-term impacts that the pandemic will have on our results from operations, financial condition, liquidity and cash flows. In the preparation of our financial statements, certain estimates and assumptions regarding these impacts have been made, which could change in future periods and which could differ from actual outcomes.
Use of Estimates.    The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. Cash and cash equivalents include cash on hand and highly-liquid investments with original maturities of three months or less.
Trade Accounts Receivable.    Trade accounts receivable consist of amounts due from customers and do not bear interest. The allowance for doubtful accounts and sales returns is our estimate of the amount of probable credit losses and returns in our existing accounts receivable. We determine the allowances based on analysis of historical bad debts, customer concentrations, changes in customer credit-worthiness, return history and current economic trends. We review the allowances for doubtful accounts and sales returns quarterly. Past due balances over 90 days and specified other balances are reviewed individually for collectability. All other balances are reviewed on an aggregate basis. Account balances are written off against the allowancehis continued full-time
3621





after all reasonable meansemployment with us through such date. The Compensation Committee believed that this signing bonus was necessary to recruit Mr. Ensing to the company.
The Role of collection have been exhausted andLong-Term Equity Awards
Because the potential for recovery is considered remote. We do not have any off-balance sheet credit exposure related to our customers.
Investments.  Investments are equity securities for which there is a determinable fair market value. We hold equity securities with a contractual lock-up period that require us to discount the fair market value until this restriction is removed. See Note 5. Fair Value Measurements for additional information.
Unrealized gains and losses from the change in fair market value, as well as realized gains and losses from sales, are recorded to Gain on equity and other investments, net on the consolidated statements of operations. Realized and unrealized gains and losses on investments are determined using the specific identification method.
Concentration of Credit Risk.    Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We maintain cash and cash equivalents that may exceed the insured limits by the Federal Deposit Insurance Corporation. However, we reduce this credit risk by placing cash and cash equivalents with major financial institutions that the Company assesses to be of high-credit quality.
We derive a portion of our revenue from a large number of individual consumers spread globally. We also derive revenue from several large customers. If the financial condition or results of operations of any one of the large customers deteriorates substantially, our operating results could be adversely affected. To reduce credit risk, management performs ongoing credit evaluations of the financial condition of significant customers. We do not generally require collateral and we maintain an allowance for estimated credit losses on customer accounts when considered necessary.
Depreciation and Amortization.    Depreciation of equipment and software, as well as amortization of leasehold improvements is computed using the straight-line method over the lesser of the estimated useful lives of the assets or the related lease term. The useful life of equipment and software is generally three to five years.
Depreciation and amortization expense of these assets during the years ended December 31, 2020 and 2019 was $0.9 million and $1.2 million, respectively.
Equity Method Investment.    We use the equity method in circumstances where we have the ability to exert significant influence, but not control, over an investee or joint venture. We initially record our investment based on a fair value analysis of the investment. We record our percentage interest in the investee's recorded income or loss and changes in the investee's capital under this method, which will increase or decrease the reported value of our investment.
We evaluate impairment of an investment accounted for under the equity method if events and circumstances warrant. An impairment charge would be recorded if a decline in the fair value of an equity investment below its carrying amount were determinedaward is dependent on our stock price, our equity compensation program is designed to align executive compensation with the interests of our shareholders and also with the long-term performance of RealNetworks. Equity compensation awards are also an important employee retention tool as they generally vest over a multi-year period, subject to continued service by the award recipient.
Consistent with the past several years, awards of stock options served as our primary equity vehicle for the 2020 executive compensation program. The rationale for this is to motivate executives to focus on increasing shareholder value.
2020 Option Awards. On August 21, 2020 the Compensation Committee granted a time-based stock option to Mr. Ensing, in connection with the commencement of his employment with us, to acquire 1,000,000 shares of common stock with a per share exercise price equal to $1.28, the closing price of a share of our common stock on the grant date. The option is scheduled to vest over four years, with 25% vesting on the one-year anniversary of the grant date, subject to continued employment, then as to an additional 12.5% at the expiration of each successive six months of continued employment. This award is larger than a typical annual award for the role and includes an inducement portion to attract and align, which is not expected to be continued at the same level in the future. The Compensation Committee believed that the award was appropriate as part of the compensation package necessary to recruit Mr. Ensing to the company.
No option awards were granted to Mr. Parham in 2020.
See the section entitled, “Chief Executive Officer Compensation” for a discussion of Mr. Glaser’s 2020 option awards. As discussed, Mr. Glaser was granted an option valued at $75,000 in 2020 as a supplement to his cash salary, which was scheduled to vest over the twelve months of fiscal 2020, plus a long-term option that is scheduled to vest over four years. The option granted in December 2020 reflected the “annual” long-term incentive portion of Mr. Glaser’s 2020 compensation.
2020 Restricted Stock Units Awards. On December 28, 2020 the Compensation Committee granted an award of RSUs to Mr. Ensing, pursuant to his employment agreement as an inducement for him to join RealNetworks, covering 1,000,000 shares of common stock. These RSUs have a performance-based component that allows for earlier vesting in the event that pre-established performance criteria are achieved within the specified period. These RSUs are scheduled to vest, based on Mr. Ensing’s continued full-time employment with us through the applicable vesting date, as to 40% on August 17, 2022, an additional 40% on August 17, 2024, and the final 20% on August 17, 2025. However, 50% of the shares originally scheduled to vest on August 17, 2022 instead will vest earlier on August 17, 2021 if both: (i) the Average Price (as defined in the Employment Agreement and subject to adjustments set forth therein) exceeds $2.50 for the 30-calendar-day period ending with August 17, 2021, and (ii) the Average Daily Trading Volume (as defined in the Employment Agreement) for such 30-day period is at least 200,000 shares. 50% of the shares originally scheduled to vest on August 17, 2024 instead will vest earlier on August 17, 2023 if both: (1) the Average Price exceeds $4.00 for the 30-calendar-day period ending with August 17, 2023, and (2) the Average Daily Trading Volume for such 30-day period is at least 200,000 shares. This award is larger than a typical annual award for the role and includes an inducement portion to attract and align, which is not expected to be continued at the same level in the future. Average Price generally refers to the 30-day average of the closing prices of a share of our common stock ending with the applicable vesting date. Average Daily Trading Volume generally refers to the average of the number of
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shares of our common stock traded each trading day on Nasdaq during the applicable period. The Compensation Committee believed that the award was appropriate as part of the compensation package necessary to recruit Mr. Ensing to the company.
Mr. Ensing was granted another RSU on December 28, 2020 representing a $200,000 signing bonus as described further above under “Special Bonus Awards.”
Benefits, Perquisites, Severance and Certain Benefits in Connection with a Change in Control
Benefits.     Benefits are part of a competitive compensation package to attract and retain employees, including executives. Our executive officers are eligible to participate in all of the benefit programs offered to employees in the geographic region in which their customary employment is based. These programs include medical, dental, vision, group life and disability insurance, and a medical reimbursement plan.
Our employees, including our named executive officers, are also eligible to participate in our 401(k) savings plan, a tax-qualified retirement savings plan pursuant to which all U.S.-based employees are able to contribute the lesser of up to 50% of their cash compensation (including base salary, bonuses, commissions and overtime pay) or the limit prescribed by the Internal Revenue Service to the plan on a before-tax basis. RealNetworks will match 50% of the first 3% of pay that is contributed to the 401(k) savings plan. All employee contributions to the 401(k) savings plan are fully vested upon contribution. Matching contributions by RealNetworks become fully vested after three years, or earlier upon attainment of retirement age (as defined by the plan) or death or disability while still employed by RealNetworks. Our executive officers are eligible to participate in the benefit programs described above on the same basis as our other employees.
Perquisites.  We may offer other benefits to our employees and executive officers from time to time, including relocation packages, which benefits are typically offered to help us compete more effectively to attract or retain an executive officer. When hiring new executives, we may offer relocation benefits that are typically subject to prorated repayment if the executive voluntarily leaves his employment with RealNetworks other than temporary.for good reason (as defined in the offer letter) within 12 months of his start date. In determining2020, for Mr. Glaser, we imputed $5,671 in costs associated with the occupancy of office space and parking in our headquarters building by Mr. Glaser’s personal assistant. Pursuant to his employment agreement, $5,779 in legal fees were paid by us on behalf of Mr. Ensing. All of these amounts have been reported as taxable income to the respective executive and reported in the "Summary Compensation Table" that follows this discussion. Relocation benefits are subject to prorated repayment if a decline isthe executive voluntarily leaves his employment with RealNetworks other than temporary,for good reason (as defined in the offer letter) within 12 months of his relocation. There were no other special benefits or perquisites provided to any other named executive officer in 2020.
Severance Benefits. We have entered into arrangements with each of our named executive officers pursuant to which the executive may become entitled to receive severance benefits upon a qualifying termination of employment. Additionally, Mr. Glaser's arrangements provide that if his employment terminates, but Mr. Glaser remains as Chairman of the Board, then he will remain eligible to participate in our group health plans or we consider factorsmay provide him with an annual cash payment equivalent to our premium cost for his participation in our group health plan. The terms of the severance benefits that each named executive officer is eligible to receive were negotiated with the executive at the time of his hire. The Compensation Committee believes that these severance benefits are appropriate in order to provide competitive compensation and enable the company to recruit and retain talented executives.
Severance and Change in Control Benefits. We entered into a severance agreement with Mr. Glaser pursuant to which he is eligible to receive certain severance benefits upon a qualifying termination in connection with a change in control. With all of our other named executive officers, we have agreed to “double-trigger” change in control and severance arrangements.
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These agreements were entered into in order to encourage the retention and commitment of these executives during times of leadership transition and restructuring activities. Each of our executives has entered into an agreement with change-in-control terms in connection with his hire, or promotion. The Compensation Committee may request F.W. Cook to review peer practices and market data with respect to change in control and severance practices. The Compensation Committee last reviewed our change in control severance practices as compared to our peers, including the results of a study of peer practices compiled by F.W. Cook in August 2012 and determined that our practices in this regard were in line with those of our peers.
Our change-in-control terms provide for severance benefits if the employment of the executive is terminated without "cause" or such executive resigns for "good reason" (as such terms are defined in the relevant agreements) during the period beginning three months prior to a change in control of the company and ending 12-18 months after the change in control. In addition, under our equity incentive plans, our executive officers may be eligible to receive certain benefits with respect to outstanding awards granted under our equity incentive plans in the event of a change in control of RealNetworks. A change in control of a corporation is often accompanied by changes in the corporate culture and job losses due to redundancy, especially at the executive levels. If a change in control of RealNetworks were under consideration, we expect that our executives could be faced with personal uncertainties and distractions about how the transaction may affect their continued employment with us. By granting awards under our equity incentive plans that include change in control benefits before any such transaction is contemplated, we hope to focus our executive’s full attention and dedication to our shareholders’ best interests in the event of a threatened or pending change in control, and to encourage the executive to remain employed by RealNetworks through the completion of any such transaction.
The severance and change in control arrangements are described in further detail in the section below entitled, "2020 Potential Payments Upon Termination of Employment of Change-in-Control."
Tax, Accounting, and Governance Considerations
Deductibility of Executive Compensation.    Section 162(m) of the Internal Revenue Code of 1986 generally limits the federal corporate income tax deduction for compensation paid by a public company to its chief executive officer and certain other executive officers to $1 million in the year the compensation becomes taxable to the executive, unless the compensation is “performance-based compensation” or qualifies under certain other exceptions.
The Tax Cuts and Jobs Act (the "Act"), which was enacted on December 22, 2017, includes a number of significant changes to Section 162(m), such as the lengthrepeal of timethe qualified performance-based compensation exemption and the Act broadens the application of the deduction limit to additional executive officers who previously were exempt from such limit. As a result of these changes, except as otherwise provided in the transition relief provisions of the Act, compensation paid to any of our covered executives generally will not be deductible in 2020 or future years, to the extent that it exceeds $1 million.
Our Compensation Committee seeks to whichbalance its objective of ensuring an effective compensation package with the need to maximize the deductibility of executive compensation, and intends to seek to qualify executive compensation for deductibility under Section 162(m) to the extent consistent with the best interests of RealNetworks. However, due to the scope and application of 162(m) under the Act, we cannot guarantee that any compensation in excess of $1 million paid to our covered executives after 2017 will be or will remain exempt from Section 162(m).
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Accounting for Stock-Based Compensation. We account for stock-based compensation in accordance with the requirements of Accounting Standards Codification Topic 718, Compensation - Stock Compensation. Under the fair value provisions of the investment has been less than the carrying amount of the investee or joint venture, the near-term and longer-term operating and financial prospects of the investee or joint venture and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery.
Deferred Costs. Included in deferred costs are financing fees associated with our revolving line of credit. These fees are amortized over the term of the credit agreement. Amortization of the financing fees are recorded in interest expense, within other income (expenses).
We also defer certain costs on projects for service revenues and system sales. Deferred costs consist primarily of direct and incremental costs to customize and install systems, as defined in individual customer contracts, including costs to acquire hardware and software from third parties and payroll and related costs for employees and other third parties. Deferred costs are capitalized during the implementation period. We recognize such costs as a component of cost of revenue, the timing of which is dependent upon the revenue recognition policy by contract. At each balance sheet date, we review deferred costs to ensure they are ultimately recoverable.
Definite-Lived Tangible and Right-of-Use Operating Lease Assets.    Definite-lived tangible assets include equipment, software, leasehold improvements. Definite-lived assets are amortized on a straight line basis over their estimated useful lives.
Operating leases are included in Operating lease assets, Other current liabilities, and Long-term lease liabilities on our consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
We review these assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. If the carrying amount of an asset group is not recoverable, an impairment loss is recognized if the carrying amount of the asset group exceeds its estimated fair value, which is generally determined as the present value of estimated future cash flows to a market participant. Our impairment analysis is based on significant assumptions of future results, including operating and cash flow projections. Significant or sustained declines in future revenue or cash flows, or adverse changes in our business climate, among other factors, could result in the need to record an impairment charge in future periods.
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Goodwill.    We test goodwill for impairment on an annual basis, in our fourth quarter, or more frequently if circumstances indicate reporting unit carrying values may exceed their fair values. Circumstances that may indicate a reporting unit's carrying value exceeds its fair value include, but are not limited to: poor economic performance relative to historical or projected future operating results; significant negative industry, economic or company specific trends; changes in the manner of our use of the assets or the plans for our business; and loss of key personnel.
When evaluating goodwill for impairment, based upon our annual test or due to changes in circumstances described above, we first perform a qualitative assessment to determine if the fair value of a reporting unit is more likely than not less than the reporting unit's carrying amount including goodwill. If this assessment indicates impairment is more likely than not, we then compare the carrying value of the reporting unit to the estimated fair value of the reporting unit. If the carrying value of the reporting unit exceeds the estimated fair value, we then calculate the implied estimated fair value of goodwill for the reporting unit and compare it to the carrying amount of goodwill for the reporting unit. If the carrying amount of goodwill exceeds the implied estimated fair value, an impairment charge to current operations is recorded to reduce the carrying value to implied estimated value. Significant judgment is required in determining the reporting units and assessing fair value of the reporting units.
Fair Value.     Fair value is the price that would be received from selling an asset or paid in transferring a liability in an orderly transaction between market participants at the measurement date. Our fair value measurements consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.
Fair values are determined based on three levels of inputs:
•Level 1: Quoted prices in active markets for identical assets or liabilities
•Level 2: Directly or indirectly observed inputs for the asset or liability, including quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active
•Level 3: Significant unobservable inputs that reflect our own estimates of assumptions that market participants would use
Research and Development.    Costs incurred in research and development are expensed as incurred. Software development costs are capitalized when a product’s technological feasibility has been established through the date the product is available for general release to customers. Other than internal use software, we have not capitalized any software development costs, as technological feasibility is generally not established until a working model is completed, at which time substantially all development is complete.
Revenue Recognition.    We recognize revenue from contracts with customers as control of the promised good or service is transferred. Please refer to Note 3. Revenue Recognition for further details regarding our recognition policies.
Advertising Expenses.   We expense the cost of advertising and promoting our products as incurred. These costs are included in sales and marketing expense and totaled $5.9 million in 2020 and $5.5 million in 2019.
Foreign Currency.    The functional currency of the Company’s foreign subsidiaries is generally the currency of the country in which the subsidiary operates. Assets and liabilities of foreign operations are translated into U.S. dollars using rates of exchange in effect at the end of the reporting period. The net gain or loss resulting from translation is shown as translation adjustment and included in Accumulated Other Comprehensive Income (AOCI) in shareholders’ equity. Income and expense accounts are translated into U.S. dollars using average rates of exchange. Gains and losses from foreign currency transactions are included in other income (expense), net on the consolidated statements of operations.
Accounting for Taxes Collected from Customers.    Our revenues are reported net of sales and other transaction taxes that are collected from customers and remitted to taxing authorities.
Income Taxes.    We compute income taxes using the asset and liability method, under which deferred income taxes are provided for temporary differences between financial reporting basis and tax basis of our assets and liabilities and operating loss and tax credit carryforwards. We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the appropriate taxing jurisdictions. Adjustments to the valuation allowance could be required in the future if we estimate that the amount of deferred tax assets to be realized is more or less than the net amount we have recorded. Any increase or decrease in the valuation allowance could have the effect of increasing or decreasing the income tax provision in the statement, of operations.
Deferred tax assets and liabilities and operating loss and tax credit carryforwards are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and operating loss and tax credit carryforwards are expected to be recovered or settled.
We file numerous consolidated and separate income tax returns in the U.S. including federal, state and local, as well as foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal income tax examinations for tax years
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before 2013 or state, local, or foreign income tax examinations for years before 1993. We are currently under audit by various states and foreign jurisdictions for certain tax years subsequent to 1993.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We recognize accrued interest and penalties related to uncertain tax positions as a component of income tax expense.
Stock-Based Compensation.    Stock-basedstock-based compensation cost is measured at the grant date based on the fair value of the award.
Compensation Risk Assessment. Our Compensation Committee has reviewed our compensation policies and believes that our policies do not encourage excessive or inappropriate risk taking and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect on the company. As part of its assessment, the Compensation Committee considered, among other factors, the allocation of compensation among base salary and short- and long-term compensation, our approach to establishing company-wide and individual financial, divisional and other performance targets, our bonus structure of payouts and the nature of our key performance metrics. We believe these practices encourage our employees to focus on sustained long-term growth, which we believe will ultimately contribute to the creation of shareholder value.

COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis for fiscal year 2020 with RealNetworks’ management. Based on this review and discussion, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in RealNetworks’ annual report on Form 10-K and proxy statement relating to the 2021 annual meeting of shareholders.

The Compensation Committee of the Board of Directors
Bruce A. Jaffe, Chair
Dawn G. Lepore

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EXECUTIVE COMPENSATION

Summary Compensation Table for Fiscal Years 2020 and 2019
The table below sets forth compensation information for the individuals who served as our chief executive officer during 2020 and our two most highly compensated executive officers, other than our chief executive officer. We refer to these three individuals throughout this report as our “named executive officers” for 2020.

Name and Principal PositionYear
Salary
($)(1)
Bonus
($)
Stock
Awards
($)(2)(3)
Option
Awards
($)(3)
Non-Equity
Incentive Plan
Compensation
($)(4)
All Other
Compensation
($)(5)
Total ($)
Robert Glaser2020525,000——377,403525,0006,7701,434,173
Founder, Chairman and Chief Executive Officer2019415,625——75,000—8,470499,095
Michael Ensing2020431,143—1,691,157448,00088,90010,3762,669,576
President and Chief Operating Officer
Michael Parham2020325,000———121,8756,694453,569
Senior Vice President, General Counsel and Corporate Secretary2019325,00050,000——121,8755,619502,494
 image_41.jpg
(1) For Mr. Glaser, as discussed in further detail in the Compensation Discussion and Analysis in the section entitled “2020 Compensation — Chief Executive Officer Compensation,” beginning in 2018, the Compensation Committee approved a change in allocation of cash salary versus salary replacement option from $450,000 in cash with a salary replacement option valued at $150,000, to $525,000 in cash with a salary replacement option valued at $75,000, but remaining consistent with prior years with total base salary value of $600,000. For Mr. Ensing, the amount includes the salary he received as interim Chief Financial Officer from February to April 2020 in addition to salary as our President and Chief Operating Officer since August 2020, which was $475,000 on an annualized basis.
(2) The 2020 stock awards reported for Mr. Ensing includes a signing bonus paid in the form of restricted stock units with a grant date fair value of $201,157 and negotiated in connection with his recruitment to the company in August 2020. The number of shares subject to the RSU award was determined as $200,000 divided by the 30-day average of the closing prices of a share of our common stock ending with the date that Mr. Ensing and we entered into his employment agreement.The restricted stock units vest in full on the one-year anniversary of the commencement of his employment, with such vesting subject to his continued full-time employment with RealNetworks through such date. As these awards were a significant inducement to Mr. Ensing to join the company, the restricted stock units were granted pursuant to the company’s 2020 Inducement Equity Incentive Plan.
(3) The amounts reported reflect the aggregate grant date fair value, excluding the effect of estimated forfeitures, of awards granted or modified in the year shown pursuant to our 2005 Plan or 2020 Inducement Plan, determined in accordance with financial accounting rules (FASB ASC Topic 718), rather than an amount paid to or realized by the executive officer. For a
26




discussion of valuation assumptions for these awards, see Note 1 and Note 12 to our Notes to Consolidated Financial Statements included in our annual report on Form 10-K for the most recently completed fiscal year.
(4) The amounts reported represent incentive bonus compensation that is recognizedbased on performance in the year shown. This performance-based incentive bonus compensation for 2020 is discussed in further detail in the Compensation Discussion and Analysis in the section entitled “2020 Compensation — Annual Performance-Based Incentive Bonuses.” The bonuses determined to be payable pursuant to the 2020 Executive Bonus Plan were paid in cash in the first quarter of 2021, except that $393,750, or 75%, of Mr. Glaser’s bonus was paid in the form of fully vested restricted stock units covering 66,399 shares.
(5) All other compensation generally consists of RealNetworks’ 401(k) company match of up to $4,275 and life insurance premiums paid by RealNetworks for the benefit of the named executive officer. For Mr. Glaser, however, in addition to life insurance premiums, all other compensation includes $5,671 for office space and parking for Mr. Glaser’s personal assistant as expense overdescribed in the requisite service period, whichCompensation Discussion and Analysis in the section entitled "2020 Compensation - Perquisites." For Mr. Ensing, all other compensation also includes $5,779 in legal fees paid by RealNetworks on Mr. Ensing’s behalf, pursuant to the terms of his employment agreement.

CEO Pay Ratio
For 2020:
1.The annual total compensation of the employee identified at the median of our company (other than our CEO), was $77,417; and
2.The annual total compensation of our CEO was $1,434,173.
Based on this information, for 2020, the ratio of the annual total compensation of Mr. Glaser, our CEO, to the median of the annual total compensation of all employees was estimated to be 18.5 to 1.
Given our status as a smaller reporting company, this pay ratio disclosure is provided on a voluntary basis. This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the vesting period. We usemethodology described below. The SEC rules for identifying the Black-Scholes option-pricing model ormedian compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other appropriate valuation models suchcompanies may not be comparable to the pay ratio reported above, as Monte Carlo simulationother companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
For 2020, consistent with our approach in 2017, to identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of the “median employee,” the methodology and the material assumptions, adjustments, and estimates that we used were as follows:
1.We determined that, as of November 30, 2020, our employee population consisted of approximately 336 individuals globally. We selected November 30, which was within the last three months of 2020, as the date upon which we would identify the “median employee,” because it allowed us to make such identification in a reasonably efficient and economical manner given the global scope of our operations.
2.We included all of our full-time, part-time, and temporary employees globally. The compensation of all newly hired permanent employees was annualized based on the compensation received during this period.
3.Earnings of our employees outside the U.S. were converted to U.S. dollars using the currency exchange rates applicable on November 30, 2020. We did not make any cost of living adjustments.
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4.To identify the “median employee” from our employee population, we collected total cash compensation for each employee, including annual base salary and bonus paid during the period, as applicable, for 2020.


2020 Grants of Plan-Based Awards
The following table sets forth certain information with respect to grants of plan-based awards to our named executive officers for the year ended December 31, 2020. Due to our status as a smaller reporting company, this table is provided on a voluntary basis.

Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards(1)

Estimated Future Payouts
Under Equity Incentive Plan
Awards

All
Other
Stock
Awards
#
of
Shares
of Stock
or Units
(#)(2)

All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(2)(4)

Exercise
or Base
Price of
Option
Awards
($/Sh)

Grant
Date Fair
Value of
Stock and
Option
Awards
($)(3)

Name

Grant
Date

Threshold
($)

Target
($)

Maximum
($)

Threshold
(#)

Target
(#)

Maximum
(#)

Rob Glaser—$ 525,000
02/10/2020138,863$ 1.33$ 75,000
12/28/2020500,000$ 1.45$ 302,400
Michael Ensing—$88,900
8/21/20201,000,000$ 1.28$ 448,000
12/23/2020135,005$ 201,157
12/23/20201,000,000$ 1,490,000
Michael Parham—$ 243,750

image_41.jpg
(1) The amounts reported in these columns represent the threshold, target and maximum amounts of annual performance-based incentive bonus compensation that might have been paid to each named executive officer for performance during the most recently completed fiscal year. The actual payouts approved for such performance are shown in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table.” These awards are described in further detail in the Compensation Discussion and Analysis in the section entitled “2020 Compensation — Annual Performance-Based Incentive Bonuses.” The bonus payouts approved pursuant to the 2020 Executive Bonus Plan were paid, in cash, during the first quarter of 2021, except that $393,750, or 75%, of Mr. Glaser’s bonus was paid in the form of fully vested restricted stock units.
(2) The number of securities reported in this column represent restricted stock units or nonqualified stock options granted under the 2005 Plan or the 2020 Inducement Plan and are described in further detail above in the “Compensation Discussion and Analysis” and below in the “Outstanding Equity Awards at December 31, 2020” table. The per share exercise price of the stock options is equal to the closing price of a share of RealNetworks’ common stock on the date of grant.
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(3) The dollar amounts reported in this column reflect the aggregate grant date fair value, excluding the effect of estimated forfeitures, of the awards granted in the most recently completed fiscal year pursuant to the 2005 Plan or the 2020 Inducement Plan, determined in accordance with financial accounting rules (FASB ASC Topic 718) rather than an amount paid to or realized by the executive officer. For a discussion of valuation assumptions, see Note 1 and Note 12 to our Notes to Consolidated Financial Statements included in our annual report on Form 10-K for the most recently completed fiscal year. The option exercise price has not been deducted from the amounts indicated above. Regardless of the value placed on a stock option on the grant date, the actual value of the option will depend on the market value of RealNetworks’ common stock at such date in the future when the option is exercised. The proceeds to be paid to the individual following the exercise of the option do not include the option exercise price.
(4) The option grantedto Mr. Glaser on February 10, 2020, having a grant date fair value of stock-based$75,000, represents his annual salary replacement option, awards. which vests monthly over the fiscal year and which is described in more detail in the section of the Compensation Discussion and Analysis entitled “2020 Compensation — Chief Executive Officer Compensation — Salary Options.”

Outstanding Equity Awards at Fiscal Year Ended December 31, 2020
The fairfollowing table provides information regarding the holdings of stock options and RSUs by the named executive officers as of December 31, 2020. The market value of restricted stock awardsthe RSUs is based on the closing market price of ourRealNetworks common stock on The Nasdaq Stock Market on December 31, 2020, which was $1.56.
Option Awards

Stock Awards

Name

Vesting
Commence-ment
Date(1)

Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable

Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable

Equity
Incentive
Plan
Awards:
# of
Securities
Underlying
Unexercised
Unearned
Options
(#)

Option
Exercise
Price
($)

Option
Expiration
Date

Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)

Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)

Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units
or  Other
Rights That
Have Not
Vested (#)

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units
or Other
Rights That
Have Not
Vested ($)

Robert Glaser01/17/201437,025 (2)—7.7301/17/2021
07/28/201439,173 (3)—7.7907/28/2021
01/22/201545,398 (3)—6.7801/22/2022
01/26/201687,714 (3)—3.6801/26/2023
01/26/201763,675 (3)—5.4001/26/2024
12/15/2017300,000 (6)100,000 (6)3.9412/15/2024
01/31/201854,466 (3)—3.1001/31/2025
01/31/201854,466 (3)—3.1001/31/2025
12/27/2018175,000 (6)175,000 (6)2.1412/27/2025
01/24/201958,443 (3)—2.9801/24/2026
02/10/2020138,863 (3)—1.3302/10/2027
12/28/2020—500,000 (6)1.4512/28/2027
Mike Ensing08/21/2020—1,000,000 (6)1.2808/21/2027
12/23/20201.4912/23/20271,000,000(7)
12/23/20201.4912/23/2027135,005 (8)
Michael Parham12/06/2016121,098 (5)—4.7312/06/2023
12/06/2016120,000 (5)—4.7312/06/2023
07/26/201893,750 (4)56,250 (4)3.5407/26/2025

image_41.jpg
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(1)     For better understanding of this table, we have included an additional column showing the date on which the stock option grant datecommenced vesting, subject to (a) continuation of employment (or service) with the award. Generally, we recognize the compensation cost for awards on a straight-line basis for the entire award, overcompany through the applicable vesting period. For performance-based awards, expensedates and (b) applicable performance conditions, if any, as indicated in footnotes (2) through (8) below.
(2)     The award was vested in full on the grant date.
(3)     Options vested monthly over the fiscal year in which the option is recognized when itgranted, subject to continued employment with the company through the applicable vesting dates, and were fully vested on December 31 of such year.
(4)     Options vest at the rate of 12.5% on the six-month anniversary of the vesting commencement date and 12.5% every six months thereafter, such that the award becomes fully vested on the four-year anniversary of the vesting commencement date subject to continued employment with the company through the applicable vesting dates.
(5)     Pursuant to the terms of the 2016 shareholder-approved option exchange program, the option is probablenow fully vested.
(6)     Options vest at the performance goalrate of 25% on the one-year anniversary of the vesting commencement date and 12.5% every six months thereafter, subject to the recipient's continued service to the company through the applicable vesting dates, such that the award becomes fully vested on the four-year anniversary of the vesting commencement date.
(7)     40% of the shares subject to the award shall vest on August 3, 2022; an additional 40% of the shares shall vest on August 3, 2024; and the final 20% of the award shall vest on August 3, 2025, subject in all cases to continued full-time employment with the Company on each vesting date. In the event that certain pre-established trading prices and trading volumes are achieved, then the vesting of 50% of shares scheduled to vest on the two-year anniversary and 50% of the shares scheduled to vest on the four-year anniversary of August 3, 2020, respectively, will be achieved, however if the likelihood becomes improbable, that expense is reversed. For market-based stock options, fair value is measured at the grant date using the Monte Carlo simulation model, and we recognize compensation cost for these awards on a straight-line basis over the requisite service period for each separately vesting portion of the awards.
The valuation models for stock-based option awards require various judgmental assumptions including volatility in our common stock price and expected option life. If any of the assumptions used in the valuation models change significantly, stock-based compensation expense for new awards may differ materially in the future from the amounts recorded in the consolidated statements of operations. For all awards, we also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.
Net Income (Loss) Per Share.    Basic net income (loss) per share (EPS) is computedaccelerated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the weighted average number of common and dilutive potential common shares outstanding during the period.

Note 2.Recent Accounting Pronouncements
Recently adopted accounting pronouncements
In August 2018, the Financial Accounting Standards Board ("FASB") issued new guidance which modifies the disclosure requirements of fair value measurements in Topic 820, Fair Value Measurement. For public companies, the new guidance removes disclosure requirements for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation process for Level 3 fair value measurements. The guidance modifies the disclosure requirements for investments in certain entities that calculate net asset value and clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The new guidance adds the disclosure requirement for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019 including interim periods within that fiscal year. The adoption of the new guidance did not have a material impact to the Company's consolidated financial statements.
Recently issued accounting pronouncements not yet adopted
In August 2020, FASB issued new guidance that simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. The guidance enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. It is effective for annual reporting periods beginning after December 15, 2023, with early adoption permitted. This update permits the use of either the modified retrospective or fully retrospective method of transition. We are in the process of evaluating the effect that this new guidance will have on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued new guidance simplifying the test for goodwill impairment. The new guidance eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the reporting unit's carrying amount exceeds the reporting unit's fair value. This guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2022, with early adoption permitted. We are in the process of evaluating the effect that this new guidance will have on our consolidated financial statements and related disclosures.
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In June 2016, the FASB issued new guidance amending existing guidance for the accounting of credit losses on financial instruments. Under the new guidance, the valuation allowance for credit losses is expected to be incurred over the financial asset’s contractual term. We reviewed the new credit loss standard and determined that it applies to our accounts receivable, which are typically of short duration and for which we have not historically experienced significant credit losses. This guidance is effective for us in fiscal years beginning after December 15, 2022 with any cumulative effect of adoption recorded as an adjustment to retained earnings. We are in the process of evaluating the effect that this new guidance will have on our consolidated financial statements and related disclosures.

Note 3.Revenue Recognition
Performance Obligations
We generate all of our revenue through contracts with customers. Revenue is either recognized over time as the service is provided, or at a point in time when the product is transferred to the customer, depending on the contract type. Our performance obligations typically have an original duration of one year or less.
Our software licensing revenue stream generates revenue through the on-premises licensing of our codec technologies and integrated RealTimes platform. We recognize revenue upfront at the point in time when the software is made available to the customer. In cases where a sale or usage-based royalty is promised in exchange for a license of our codec technologies, revenue is recognized as the subsequent usage occurs for the contractual amount owed by the customer for that usage, as is allowed under the licensing of intellectual property section of Topic 606. Software licensing in our Mobile Services segment is invoiced on a monthly basis either based on usage of the respective product, or on a fixed fee basis. Our Consumer Media licensing is invoiced either quarterly or annually based on the usage of the respective product, or on a fixed fee basis. For each of these, the timing of payment generally does not vary significantly from the timing of invoice, however, certain of our long-term Consumer Media licensing contracts have extended payment schedules which may exceed one year.
Our subscription services revenue stream allows customers(8)     Award vests in full on August 17, 2021, subject to use hosted software over the respective contract period without taking possession of the technology. The stream is primarily comprised of our intercarrier messaging service, ringback tones, PC-basedcontinued employment through such vesting date.

2020 Option Exercises and mobile games subscriptions, and our RealPlayer and SuperPass services. Revenues related to subscription service products are recognized ratably over the contract period, or as we have the right to invoice as a practical expedient when that amount corresponds directly with the value to the customer of our performance completed to date. Consumer subscription products are paid in advance, typically on a monthly or quarterly basis. Subscription services offered to businesses are invoiced on a monthly basis, generally based upon the amount of usage for the previous month, and the timing of payment generally does not vary significantly from the timing of invoice.
Our product sales revenue stream includes purchases of in-game virtual goods, mobile and wholesale games, as well as our RealPlayer product. Proceeds from sales of in-game virtual goods are initially recorded in deferred revenue and are recognized as revenues over 30 days, our estimate of the time period that end users benefit from these purchases and our related performance obligation is satisfied. Retail purchases are recognized and paid for at the point in time the product is made available to the end user. For games which are sold through third-party application storefronts, we evaluate the transaction for gross or net revenue recognition. As we typically are the primary obligor in our third-party transactions, we recognize revenues gross of any app store fees. We then receive monthly payments from the respective app store for all purchases within the respective month.
Other revenues consist primarily of advertising and the distribution of third-party products, which are recognized and paid on a cost per impression or cost per download basis.
Disaggregation of RevenueStock Vested
The following table presentsprovides information regarding restricted stock unit awards vested for our disaggregated revenue by source and segment (in thousands):
Year ended December 31, 2020
Consumer MediaMobile ServicesGames
Business Line
Software License$5,957 $5,110 $0 
Subscription Services3,586 21,779 10,794 
Product Sales1,301 0 13,879 
Advertising and Other1,737 0 3,919 
Total$12,581 $26,889 $28,592 

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Year ended December 31, 2019
Consumer MediaMobile ServicesGames
Business Line
Software License$6,522 $3,101 $0 
Subscription Services4,148 24,042 12,121 
Product Sales825 0 9,823 
Advertising and Other1,675 0 3,545 
Total$13,170 $27,143 $25,489 

The following table presents our disaggregated revenue by sales channel (in thousands):
Year ended December 31, 2020
Consumer MediaMobile ServicesGames
Sales Channel
Business to Business$7,693 $26,495 $4,664 
Direct to Consumer4,888 394 23,928 
Total$12,581 $26,889 $28,592 

Year ended December 31, 2019
Consumer MediaMobile ServicesGames
Sales Channel
Business to Business$8,199 $26,691 $4,710 
Direct to Consumer4,971 452 20,779 
Total$13,170 $27,143 $25,489 

Contract Balances
The timing of revenue recognition may differ fromnamed executive officers during the timing of invoicing to our customers. We record accounts receivable when the right to consideration becomes unconditional, except for the passage of time. For certain contracts, payment schedules may exceed one year; for those contracts we recognize a long-term receivable. As of December 31, 2020 and 2019 our balance of long-term accounts receivable was $0.6 million and $0.3 million, respectively, and is included in other long-term assets on our consolidated balance sheets. The increase in this balance from December 31, 2019 to December 31, 2020 is primarily due to a contract renewal in 2020. During thefiscal year ended December 31, 2020, we recorded no impairments2020. None of our named executive officers exercised any option awards or vested in any stock awards during fiscal year 2020. Due to our contract assets.
We record deferred revenue when cash payments are received in advance of our completion of the underlying performance obligation. As of December 31, 2020 and 2019, we had deferred revenue balances of $2.2 million and $2.1 million, respectively, primarily due to deferred revenue associated with monthly subscriptions.
Judgments and Estimates
Our contracts with customers can include obligations to provide multiple services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together can require significant judgment. For example, certain contracts include the sale of software licenses or subscriptions as well as services to be delivered over time. Judgment is also required to determine the standalone selling price ("SSP") for each distinct performance obligation in these arrangements. We allocate revenue to each performance obligation based on the relative SSP. We determine SSP for performance obligations based on overall pricing objectives, which take into consideration observable prices and market conditions.
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For certain of our contracts, we recognize revenues using the sales- and usage-based exception as defined in the licensing guidance of Topic 606. For these contracts, we typically receive reporting of actual usage a quarter in arrears, and as such, we are required to estimate the current quarter's usage. To make these estimates, we utilize historical reporting information, as well as industry trends and interim reporting to quantify total quarterly usage. As actual usage information is received, we record a true-up in the following quarter to reflect any variance from our estimate. In the years ended December 31, 2020 and 2019, we did not record any material true-ups to our consolidated financial statements.
Practical Expedients
For those contracts for which we recognize revenue at the amount to which we have the right to invoice for service performed, we do not disclose the value of any unsatisfied performance obligations. We also do not disclose the remaining unsatisfied performance obligations which have an original duration of one year or less. Additionally, we immediately expense sales commissions when incurred as the amortization period would have been less than one year. These costs are recorded within sales and marketing expense.


Note 4.Acquisitions and Dispositions
Napster Acquisition
On January 18, 2019, RealNetworks acquired an additional 42% interest in Rhapsody International, Inc. (doing business as Napster) which brought our aggregate ownership to 84% of Napster's outstanding equity, thus giving RealNetworks a majority voting interest. Napster's music streaming service provides users with broad access to digital music, offering on-demand streaming and conditional downloads through unlimited access to a catalog of millions of music tracks. Napster offers music services worldwide and generates revenue primarily through subscriptions to its music services either directly to consumers or through distribution partners. On August 24, 2020, RealNetworks announced that Napster had signed an agreement to be sold to MelodyVR Group PLC in a transaction that closed in the fourth quarter of 2020. See Napster Disposition below for additional details.
Initially formed in 2007 and branded then as Rhapsody, Napster beganstatus as a joint venture between RealNetworks and MTV Networks,smaller reporting company, this table is provided on a division of Viacom International, Inc. Prior to the acquisition of the additional 42% interest in Napster, we accounted for our investment using the equity method of accounting.voluntary basis.
Subsequent to RealNetworks’ January 18, 2019 acquisition, Napster operated as an independent business with its own board of directors, strategy and leadership team. Napster's separate legal existence was further supported by each company's ongoing compliance with corporate formalities, the independent direction of Napster's activities, and the consistent treatment of each of RealNetworks and Napster as distinct organizations. During the periods of the acquisition date until the announcement of the sale, we consolidated Napster's financial results into our financial statements and reported Napster as a separate segment in our consolidated financial statements.
We recorded 100% of the estimated fair value of the assets acquired and liabilities assumed as of January 18, 2019 based on the results of an independent valuation. The 16% of Napster that RealNetworks did not own between the acquisition and disposition was accounted for as a noncontrolling interest in our consolidated financial statements. As part of this consolidation, the carrying value of our previous 42% equity method investment was remeasured to fair value on the acquisition date. The remeasurement to fair value of the historical 42% ownership interest resulted in the recognition of a $2.7 million gain at the time of acquisition, which is a component of the overall gain recognized as a part of this transaction. Our consolidated balance sheet reflected Napster's working capital deficit, which resulted in a consolidated working capital deficit. RealNetworks did not have any contractual or implied obligation to provide funding or other financial support to Napster, or to guarantee or provide other such support related to Napster's third party borrowing or Napster's other obligations on our consolidated balance sheet.
See Note 5. Fair Value Measurements for detail on terms of the transaction.

42

The following table summarizes the final allocation of the total consideration to the estimated fair values of the assets acquired and liabilities assumed as of January 18, 2019 (in thousands):

Consideration, at estimated fair value:
Cash$1,000 
Contingent consideration11,600 
RealNetworks' preexisting 42% equity interest in Napster2,700 
Effective settlement of Napster debt and warrants, held by RealNetworks6,408 
Total consideration$21,708 
Assets acquired and liabilities assumed, at estimated fair value:
Cash and cash equivalents$10,127 
Accounts receivable20,915 
Prepaid expenses and other current assets2,421 
Restricted cash2,322 
Equipment, software and leasehold improvements474 
Operating lease assets2,400 
Other long-term assets77 
Deferred tax assets, net5,932 
Intangible assets23,700 
Goodwill45,520 
Total assets acquired113,888 
Accounts payable786 
Accrued royalties and fulfillment59,036 
Accrued and other current liabilities7,032 
Deferred revenue, current portion3,526 
Notes payable12,211 
Deferred tax liabilities, net6,208 
Long-term lease liabilities1,190 
Other long-term liabilities1,621 
Total liabilities assumed91,610 
Total net assets acquired22,278 
Noncontrolling interests570 
Net assets acquired$21,708 
Under the acquisition method of accounting, the purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated fair values. In the fourth quarter of 2019, we recorded purchase price allocation adjustments that reflect new information obtained during the measurement period about facts and circumstances that existed at the date of the acquisition. These adjustments did not have a material effect on 2019 consolidated financial statements and were primarily associated with the estimated fair values of acquired prepaid royalties, accrued royalties, and accrued taxes, with a corresponding net reduction of $3.0 million to goodwill. Adjustments to acquired prepaid royalties and accrued royalties also include the matching and invoicing of music royalties owed as of the opening balance sheet.
Prior to discontinued operations and held-for-sale accounting treatment, acquired intangible assets had a total weighted average useful life of approximately 8 years, were being amortized using the straight line method, and were comprised of the following (in thousands):

43


Intangible categoryEstimated fair valueMethod used to calculate fair valueEstimated remaining useful life
Trade name and trademarks$6,800 Relief-from-royalty15 years
Developed technology5,900 Excess earnings4 years
Customer relationships5,900 Cost-to-replace3 years
Partner relationships5,100 Distributor method8 years
Total$23,700 
The estimated fair value amounts for each of these intangibles was determined using a fair value measurement categorized within Level 3 of the fair value hierarchy.
The fair value of the trade name and trademarks intangible asset was estimated using the income approach, utilizing the relief from royalty method, which values the assets by estimating the savings achieved by ownership of trade name and trademarks when compared with the cost of licensing them from an independent owner.
The fair value of developed technology was estimated using the income approach, utilizing the excess earnings method. Under this method, cash flows attributable to the asset are estimated by deducting economic costs, including operating expenses and contributory asset charges, from revenue expected to be generated by the asset.
The fair value of customer relationships was estimated using a cost-to-replace approach, whereby the number of subscribers and the cost to acquire subscribers are key estimates utilized in the valuation.
The fair value of partner relationships was estimated using the income approach, which uses market-based distributor data to value underlying distributor relationships. Revenue, earnings, and cash flow estimates associated with these underlying distributor relationships are key estimates in determining the fair value of the partner relationships intangibles.
The fair value of deferred revenue was estimated using the income approach, utilizing a cost to fulfill analysis by estimating the direct and indirect costs related to supporting remaining obligations plus an assumed operating margin.
The fair value of our preexisting 42% equity method investment was remeasured to an estimated fair value of $2.7 million, which resulted in a pretax gain of $2.7 million, as our existing carrying value was zero. This gain, as well as the settlement of preexisting relationships and other purchase accounting adjustments discussed below, comprise the total gain of $12.3 million recognized in other income (expenses), net in the consolidated statement of operations in 2019.
The fair value of our preexisting equity method investment was calculated using an average of the income and market approach to arrive at estimated total enterprise value. The income approach fair value measurement was based on significant inputs that are not observable in the market and thus represents a fair value measurement categorized within Level 3 of the fair value hierarchy. Key assumptions used in estimating future cash flows included projected revenue growth and operating expenses, as well as the selection of an appropriate discount rate. Estimates of revenue growth and operating expenses were based on internal projections and considered the historical performance of Napster's business. The discount rate applied was based on Napster's weighted-average cost of capital and included a small-company risk premium. The market approach fair value measurement was based on a market comparable methodology. At the time of acquisition, we used a group of comparable companies and selected an appropriate EBITDA multiple to apply to Napster's projected 2020 and 2021 EBITDA. Assumptions in both the income and market approaches were significant to the overall valuation of Napster and changes to these assumptions could have materially impacted the fair values of assets acquired and liabilities assumed, noncontrolling interests, total consideration, and gain on consolidation.
The fair value of the contingent consideration was estimated using multiple scenarios for each tranche of contingent consideration and then probability weighting each scenario and discounting them to estimated fair value of $11.6 million at the time of acquisition. This fair value calculation was directly impacted by the estimated total enterprise value described above. See Note 5. Fair Value Measurements for additional discussion.
The effective settlement of Napster's debt and warrants totaling $6.4 million represented the estimated fair value of debt and warrants held between RealNetworks and Napster as of the acquisition date. The estimated fair value was derived from the estimated total enterprise value described above. The resulting net gain of $5.5 million was included in other income (expenses), net in the consolidated statement of operations in 2019.
The preexisting $2.8 million guarantee related to Napster's outstanding indebtedness on their revolving credit facility was eliminated upon the consolidation of Napster. This resulted in RealNetworks recording a gain of $2.8 million at the time of acquisition, which was included in other income (expenses), net in the consolidated statement of operations in 2019. RealNetworks has not been required to pay any portion of this commitment, and Napster fully repaid this loan balance on April 30, 2019, thus releasing RealNetworks' previous guaranty.
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Prior to our acquisition of Napster, we accounted for our investment under the equity method of accounting and recorded Napster 's foreign currency translation adjustments in our equity. As part of the acquisition method of accounting, we released these amounts and recorded a gain of $1.3 million at the time of acquisition, which is included in other income (expenses), net in the consolidated statement of operations in 2019.
We recorded the fair value of noncontrolling interests on the acquisition date, estimated at $0.6 million, using the estimated total enterprise value described above.
We also recorded goodwill of $45.5 million, representing the intangible assets that do not qualify for separate recognition for accounting purposes, including the expected growth in Napster's business to business model and the assembled workforce. The goodwill was reported in the Napster segment and was not deductible for income tax purposes.
For the year ended December 31, 2019, Napster's revenue and net loss including noncontrolling interests in our consolidated statements of operations is included as discontinued operations, as discussed below.
For the year ended December 31, 2019, we incurred approximately $1.5 million in acquisition-related costs, including regulatory, legal, and other advisory fees, which we recorded within general and administrative expenses on the consolidated statements of operations.
Napster Disposition
RealNetworks, Inc. entered into a Support Agreement dated August 25, 2020 by and among its 84%-owned subsidiary, Napster, and MelodyVR Group PLC, referred to as MelodyVR, an English public limited company. The Support Agreement was executed in connection with an Agreement and Plan of Merger, or Merger Agreement, by and among Napster, MelodyVR, and a wholly owned subsidiary of MelodyVR. The transaction was completed on December 30, 2020. Pursuant to the Merger Agreement, on the closing date, MelodyVR's subsidiary merged with and into Napster, with Napster surviving as a wholly owned subsidiary of MelodyVR. Other than as Securityholder Representative, RealNetworks was not a party to the Merger Agreement.
MelodyVR paid consideration of approximately $26 million to certain holders of debt and equity of Napster, comprised of $12 million in cash, shares of MelodyVR, and a $3 million 18-month indemnity escrow. The shares of MelodyVR that RealNetworks received may not be sold or transferred, except in limited circumstances, for a period of approximately one year from the close of the transaction. Certain proceeds from the transaction were used to fully repay the advance to Napster on the revolving line of credit, as discussed in Note 9. Debt, pay Napster's transaction expenses, and pay amounts to certain of Napster's common stockholders. Additionally, a portion of the proceeds paid to RealNetworks is subject to contingent consideration obligations associated with its January 2019 acquisition from a third party of a 42% stake in Napster and a $5.0 million loan that the third party had made to Napster. See Note 5. Fair Value Measurements for additional discussion.
Effective on the execution of the Agreement and Plan of Merger on August 25, 2020, Napster was treated as discontinued operations and held-for-sale for accounting and disclosure purposes and subsequently sold in December 2020. As such, Napster’s operating results and financial condition were recast to conform to this presentation.
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The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations at December 31, 2019:
Option Awards

Stock Awards

Name

Number of Shares
Acquired on Exercise
(#)

Value Realized
on Exercise
($)

Number of Shares
Acquired on Vesting
(#)

Value Realized
on  Vesting
($)

Rob Glaser————
Michael Ensing————
Michael Parham————
December 31, 2019
Cash and cash equivalents$8,333 
Trade accounts receivable, net of allowance16,740 
Other current assets3,303 
Total current assets of discontinued operations28,376 
Net equipment, software, and leasehold improvements401 
Other intangible assets19,286 
Goodwill45,520 
Other non-current assets2,604 
Total assets of discontinued operations$96,187 
Accrued royalties, fulfillment and other current liabilities$65,310 
Notes payable7,331 
Total current liabilities of discontinued operations72,641 
Other non-current liabilities1,843 
Total liabilities of discontinued operations$74,484 



image_41.jpg
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2020 Potential Payments Upon Termination of Employment or Change-in-Control
The following table summarizesreflects the net loss from discontinued operations foramount of compensation that would have been payable to each of our named executive officers in the years endedevent of the termination of such executive’s employment under certain circumstances, assuming that (1) the triggering event took place on December 31, 2020, (2) the price per share of our common stock was $1.56, which was the closing market price on December 31, 2020, and 2019:(3) that all cash payments are made in a lump sum. Due to our status as a smaller reporting company, the information in the table below qualifying these payments and benefits is provided on a voluntary basis.
20202019
Revenue$96,185 $106,311 
Cost of revenue73,318 85,901 
Gross profit22,867 20,410 
Operating expenses24,734 25,789 
Operating loss(1,867)(5,379)
Other income (expenses)2,175 (285)
Income (loss) from discontinued operations before income taxes308 (5,664)
Income tax expense514 366 
Net loss from discontinued operations(206)(6,030)
Noncontrolling interests in net income (loss) from discontinued operations(184)(1,094)
Net loss from discontinued operations attributable to RealNetworks$(22)$(4,936)

We recorded
Not in Connection with a Change in ControlIn Connection with a Change in Control
Name

Benefit

Termination
Without Cause($)

Termination
Without Cause or
For Good Reason($)

Voluntary
Termination($)

Death($)

Disability($)

Rob GlaserSeverance2,100,0002,100,000———
Bonus525,000525,000———
Equity award vesting acceleration—55,000———
Michael EnsingSeverance475,000712,500———
Bonus88,90088,900———
Equity award vesting acceleration84,00093,450———
Michael ParhamSeverance325,000406,250———
Bonus—304,688—121,875121,875
Equity award vesting acceleration—————

image_41.jpg

Benefits Not In Connection With A Change in Control
Pursuant to his CEO severance agreement, in the event that, other than during the period beginning three months prior to a gain onchange in control of the salecompany and ending 12 months after the change in control, either his employment is terminated without cause or he resigns for good reason, Mr. Glaser is eligible to receive (i) a lump sum payment equal to 200% of Napster inthe sum of his then-current annual cash base salary and his then-current target annual bonus, (ii) a payment equal to the amount of $1.9 million,bonus that he otherwise would have received pursuant to the bonus plan in which was recordedhe participated at the time of his termination
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based on actual performance, had he remained employed through the end of the performance period, and (iii) up to Net loss from discontinued operations18 months of COBRA coverage. These severance benefits are subject to Mr. Glaser entering into a separation agreement and release of claims in favor of the company and his compliance with non-disparagement, no-hire, non-solicitation and non-competition covenants for a period of 24 months following the termination of his employment.
Pursuant to his employment agreement, in the event that his employment is terminated without cause (and not due to his death or disability) or he resigns for Good Reason in each case other than in connection with a change in control event, Mr. Ensing is eligible to receive (i) 12 months of salary (payable in accordance with the company’s then-standard payroll practices, and with salary determined based on the Consolidated Statementshigher of Operationssalary immediately prior to termination or immediately prior to any reduction pursuant to the “Good Reason” clause); (ii) a lump-sum severance payment equal to the sum of his prorated bonus for any partial incentive period based on actual performance through termination and included in Other income (expense)any unpaid bonus for the last completed bonus period prior to termination; (iii) acceleration of vesting by 12 months of any outstanding unvested non-performance-based stock options and acceleration of vesting of the 1,000,000 RSUs granted on December 23, 2020 by 12 months or, if no time-based vesting date occurs within the next 12 months, then 50% of the next vesting tranche will accelerate vesting; (iv) up to 12 months of company-paid or company-reimbursed COBRA coverage.
Pursuant to his offer letter, Mr. Parham is eligible to receive 12 months of salary plus 12 months of COBRA coverage in the above table.event that his employment is terminated without cause other than in connection with a change in control event.
The above severance benefits are subject to the individual entering into a customary separation agreement and release of claims in favor of the company.
Mr. Glaser’s severance agreement provides that, if his employment terminates but Mr. Glaser remains as Chairman of the Board, then he will remain eligible to participate in our group health plans or we may provide him with an annual cash payment equivalent to our premium cost for his participation in our group health plan.
Benefits In Connection With A Change in Control
The CEO severance agreement provides that if, during the period beginning three months prior to a change in control of the company and ending 12 months after the change in control, Mr. Glaser's employment is terminated without cause or he resigns for good reason, then he will receive (i) a lump sum payment equal to 200% of the sum of his then-current annual cash base salary and his then-current target annual bonus, (ii) a lump sum payment equal to his then-current target bonus, prorated to reflect his period of employment during the applicable performance period, (iii) full acceleration of the vesting of any unvested, non-performance-based equity awards, and (iv) up to 18 months of COBRA coverage. These severance benefits are subject to Mr. Glaser entering into a release of claims in favor of the company and his compliance with non-disparagement, no-hire, non-solicitation and non-competition covenants for a period of 24 months following table summarizes the gain recognizedtermination of his employment.
Pursuant to Mr. Ensing’s employment agreement, if his employment is terminated without cause (and not due to his death or disability) or he resigns for good reason and the termination in either case occurs during the period beginning three months prior to a change in control of the company and ending 18 months after the change in control (the “CIC Period”), then he is entitled to receive (i) a lump-sum severance payment equal to 150% of his base salary (with salary determined based on the highest of salary immediately prior to termination, salary immediately prior to any reduction pursuant to the “Good Reason” clause, or salary immediately prior to the change in control); (ii) a lump-sum severance payment equal to the sum of his
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prorated target bonus for any partial incentive period through termination and any unpaid bonus for the year endedlast completed bonus period prior to termination; (iii) acceleration of vesting by 12 months of any outstanding unvested time-based equity compensation awards (including performance-based awards with performance deemed achieved at target) and acceleration of vesting of the 1,000,000 RSUs granted on December 23, 2020 by 12 months or, if no time-based vesting date occurs within the next 12 months, then 50% of the next vesting tranche will accelerate vesting; (iv) Mr. Ensing will have 18 months to exercise outstanding vested equity awards, unless they are incentive stock options granted to Mr. Ensing prior to his start date as our President and Chief Operating Officer; and (v) up to 18 months of reimbursement of COBRA coverage.
In the case of Mr. Parham, if his employment is terminated without cause or he resigns for good reason and the termination occurs during the period beginning three months prior to a change in control of the company and ending 12 months after the change in control, then he is entitled to receive 125% of his base salary, 125% of his target bonus or his prorated target bonus for any partial bonus period, full acceleration of equity awards granted after February 1, 2010, extension of post-termination exercisability period of outstanding vested options for up to 12 months, and up to 18 months of reimbursement of COBRA coverage. In the case of performance-based RSUs, the termination without cause or resignation for good reason of a named executive officer would result in full acceleration of such award.
In addition, pursuant to Mr. Ensing’s employment agreement, in the event of a transaction pursuant to which we remain a standalone entity but cease to be required to file annual and other periodic reports under the Securities and Exchange Act, Mr. Ensing will receive acceleration of vesting of any outstanding unvested non-performance-based equity awards (including his 1,000,000 RSUs granted on December 23, 2020) by 12 months, except if the transaction occurs within the first 6 months of his commencement of employment as Chief Operating Officer, the number of months would be equal to twice the number of months of consecutive full months of employment he completed as Chief Operating Officer through the transaction date, not to exceed 12 months. If Mr. Ensing is eligible for such vesting acceleration but his 1,000,000 RSUs granted on December 23, 2020, would not vest because the next vesting tranche under the RSUs is more than 12 months after his employment termination, then 50% of the next vesting tranche of such RSUs will accelerate vesting.
These severance benefits are subject to (1) the individual entering into a customary separation agreement and release of claims in favor of the company, (2) a non-disparagement obligation, and (3) non-solicitation and no-hire obligations for a period of 12 months following employment termination for Mr. Parham, 12 months (or 18 months, if employment termination occurs during the CIC Period) following employment termination for Mr. Ensing,] and 24 months following employment termination for Mr. Glaser.
Benefits Upon Death and Disability
In the case of Mr. Parham, if his employment had terminated on December 31, 2020 from the sale of Napster:
Net proceeds received(1)
$22,849 
Net assets disposed(20,935)
Gain on sale of Napster$1,914 
(1) Proceeds received are net of transaction costs, funds to minority shareholders and fair value adjustments to MelodyVR stock.
The final gain on the sale of Napster could be reduced primarily by claims against the $3.0 million indemnity escrow which is included in Other assets on the consolidated balance sheets. We are not aware of any claims against the escrow at December 31, 2020.

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Note 5.Fair Value Measurements
Items Measured at Fair Value on a Recurring Basis
The following tables present information about our financial assets thatdue to death or disability, he or his beneficiary would have been measured at fair value on a recurring basisentitled to receive the portion of the performance-based cash incentive or discretionary bonus compensation earned in 2020 but not paid as of December 31, 2020 and 2019, and indicates the fair value hierarchy2020. If his employment terminates due to his death, any stock options or RSUs that are unvested as of the valuation inputs utilizeddate of his death will fully vest on such date and any options may be exercised by his estate or legal representative for a period of one year following such date, but not later than the expiration date of such stock options. If his employment terminates due to determinedisability, and any of his outstanding stock options or RSUs are not fully vested, the next vesting installment of such stock options or RSUs will vest on a pro rata basis for the portion of the year elapsed since the date on which the vesting of the options or RSUs commenced or the last anniversary thereof, expressed in full months. In
33




the case of performance-based RSUs, the death or disability of a named executive officer would result in full acceleration of such award.
Certain Defined Terms
For purposes of Mr. Glaser’s severance agreement, the term “Cause” generally means conduct by the executive involving one or more of the following: (1) conviction of or plea of no contest to a felony involving moral turpitude resulting in material harm to the company; (2) willful, substantial and continuing failure for a period of 30 days after written notice to perform the reasonable duties of his position (other than due to illness or incapacity); (3) willful misconduct, gross negligence, fraud, embezzlement, theft, misrepresentation or dishonesty by the executive involving the company or any of its subsidiaries, intended to result in substantial personal enrichment and that results in material harm to the company; or (4) violation of any confidentiality or non-competition agreements with the company or its subsidiaries, resulting in substantial, material harm to the company.
For purposes of Mr. Ensing’s employment agreement, the term “Cause” generally means conduct by the executive involving one or more the following: (1) conviction of or plea of no contest to a felony involving moral turpitude; (2) the willful, substantial and continuing failure after written notice to perform the reasonable duties of his position for at least 30 days (other than due to serious illness or incapacity); (3) willful misconduct, gross negligence, fraud, embezzlement, theft, misrepresentation or dishonesty by the executive involving the company or any of its affiliates, in each case that is intended to result in the substantial personal enrichment of the executive; (4) violation of any confidentiality or non-competition agreements or other written agreement or policy with the company or its affiliates, resulting in material harm to the company; (5) a material breach of executive’s fiduciary duty to the company; (vi) executive’s failure to reasonably cooperate in any audit or investigation of the business of financial practices of the company that continues after written notice and at least a 15-day cure period; (vii) executive’s substantially abusing alcohol, drugs, or similar substances, and such abuse in the Board’s judgment has materially affected executive’s ability to conduct the business of the company in a proper and prudent manner.
For purposes of Mr. Parham’s offer letter, the term “Cause” generally means conduct by the executive involving one or more the following: (1) conviction of or plea of no contest to a felony involving moral turpitude resulting in material harm to the company; (2) substantial and continuing failure after written notice to render services to the company in accordance with the terms and requirements of his employment (other than due to illness or incapacity); (3) willful misconduct, gross negligence, fraud, embezzlement, theft, misrepresentation or dishonesty by the executive involving the company or any of its subsidiaries, resulting in material harm to the company; or (4) violation of any confidentiality or non-competition agreements with the company or its subsidiaries, resulting in material harm to the company.
For purposes of the equity award agreements, the term “Cause” generally means conduct by the executive involving one or more of the following: (1) conviction or plea of no contest to a felony or misdemeanor involving moral turpitude; (2) indictment for a felony or misdemeanor involving moral turpitude under the federal securities laws; (3) substantial and continuing failure after written notice to render services to the company in accordance with the terms or requirements of the executive’s employment for reasons other than illness or incapacity; (4) willful misconduct or gross negligence; (5) fraud, embezzlement, theft, misrepresentation or dishonesty involving the company or any subsidiary, or willful violation of a policy or procedure of the company, resulting in any case in significant harm to the company; or (6) violation of any confidentiality or non-competition agreements with the company or its subsidiaries.
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For purposes of Mr. Glaser’s severance agreement and Mr. Ensing’s employment agreement, the term “Change in Control” generally means the occurrence of any of the following: (1) during any 24-month period for Mr. Glaser or 12-month period for Mr. Ensing, individuals who, at the beginning of the period constitute the Board (the “Incumbent Directors”) cease to constitute at least a majority of the Board, provided that any directors whose election or nomination for election was approved by a majority vote of the Incumbent Directors will be considered an Incumbent Director (but not any director who was initially elected or nominated as a result of an actual or threatened election contest or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board); or (2) any person (other than Mr. Glaser) is or becomes a beneficial owner of securities of the company representing 50% or more of the combined voting power of the company’s then outstanding securities eligible to vote for the election of the Board, excluding any of the following acquisitions: (A) by the Company or any subsidiary, (B) by any employee benefit plan sponsored or maintained by the company or any subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, or (D) pursuant to a Non-Qualifying Transaction (as defined in clause (3) below); or (3) a merger, consolidation, statutory share exchange, reorganization or similar form of corporate transaction involving the company or its subsidiaries that requires the approval of the company’s shareholders, unless immediately following such corporate transaction: (A) more than 50% of the total voting power of (x) the surviving corporation resulting from such transaction, or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the surviving corporation, is represented by company voting securities that were outstanding immediately prior to such the corporate transaction (or, if applicable, is represented by shares into which such company voting securities were converted pursuant to such corporate transaction), and the voting power among the holders thereof is in substantially the same proportion as the voting power of such company voting securities among the holders thereof immediately prior to the corporate transaction, (B) no person is or becomes the beneficial owner of 50% or more of the total voting power of the outstanding voting securities eligible to elect directors of the parent corporation or surviving corporation and (C) at least half of the members of the board of directors of the parent corporation or surviving corporation following the corporate transaction were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such corporate transaction (any corporate transaction which satisfies all of the criteria specified in (A), (B) and (C) above will be deemed to be a “Non-Qualifying Transaction”); or (4) a change in the ownership of a substantial portion of the company’s assets which occurs on the date that any person, or group of persons (other than Mr. Glaser) acquires or has acquired during a 12-month period assets from the company with a total gross fair market value (in thousands).equal to or more than 50% of the total gross fair market value of all of the assets of the company. Under Mr. Glaser’s severance agreement and Mr. Ensing’s employment agreement, the transaction also must constitute a change in control within the meaning of Internal Revenue Code Section 409A in order to be considered a "Change in Control." Further under Mr. Ensing’s employment agreement, a change in control will not occur as a result of a sale, spin-off, or other divestiture of our Games, RealPlayer, ICM and/or Rhapsody businesses or any other business that constitutes less than 20% of our revenue, and our ceasing to be a publicly held corporation also will not per se trigger any of the termination provisions under his employment agreement.
Fair Value Measurements as ofAmortized Cost as of
 December 31, 2020December 31, 2020
 Level 1Level 2Level 3Total
Cash and cash equivalents$23,940 $0 $0 $23,940 $23,940 
Investments0 0 9,965 9,965 N/A
Restricted cash equivalents1,630 0 0 1,630 1,630 
Total assets$25,570 $0 $9,965 $35,535 N/A
Accrued and other current liabilities:
Napster acquisition contingent consideration$0 $0 $4,800 $4,800 N/A
Other long-term liabilities
Simple Agreements for Future Equity0 0 2,106 2,106 N/A
Total liabilities$0 $0 $6,906 $6,906 N/A
For purposes of the equity award agreements, the term “Disability” generally means a permanent and total disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.

For purposes of Mr. Glaser's severance agreement and Mr. Ensing’s employment agreement, the term “Good Reason” generally means the executive’s resignation within 30 days (or 60 days, for Mr. Glaser) after the expiration of any company cure period following the occurrence of one or more of the following, without his written consent: (1) a material reduction in

35
Fair Value Measurements as ofAmortized Cost as of
 December 31, 2019December 31, 2019
 Level 1Level 2Level 3Total
Cash and cash equivalents$8,472 $0 $0 $8,472 $8,472 
Restricted cash equivalents3,500 1,380 0 4,880 4,880 
Total assets$11,972 $1,380 $0 $13,352 $13,352 
Accrued and other current liabilities:
Napster acquisition contingent consideration$0 $0 $2,800 $2,800 N/A
Other long-term liabilities
Napster acquisition contingent consideration0 0 9,800 9,800 N/A
Total liabilities$0 $0 $12,600 $12,600 N/A

Restricted cash equivalents


the executive’s duties, authorities or responsibilities relative to the executive’s duties, authorities or responsibilities as in effect immediately prior to the Change in Control; (2) a material reduction in the executive’s annual base compensation; (3) a material reduction in the executive’s annual target bonus opportunity; and (4) a material change in the geographic location at which the executive must perform services. The executive must first provide the company with written notice within 90 days of the event that the executive believes constitutes “Good Reason” specifically identifying the acts or omissions constituting the grounds for Good Reason and a reasonable cure period of not less than 30 days following the date of such notice.
Compensation Committee Interlocks and Insider Participation
In 2020, the Compensation Committee was composed of Bruce Jaffe and Dawn Lepore from April 17 through December 31, and composed of Janice Roberts and Dawn Lepore from January 1 through April 16. In 2020, no executive officer of RealNetworks served as a member of the board of directors or compensation committee of any entity that had one or more executive officers serving as a member of RealNetworks’ Board of Directors or Compensation Committee. In addition, no interlocking relationship existed between any member of our Compensation Committee and 2019 relateany member of the compensation committee of any other company.
Compensation of Non-Employee Directors
In 2020, each director who was not an employee of RealNetworks was paid $8,750 per quarter for his or her services as a director. Non-employee directors were also paid (i) $1,000 for participation in each meeting of the Board, (ii) $1,000 for participation in each meeting of a Board committee, including our standing committees and certain special committees, and (iii) $5,000 per quarter for serving as chairperson of the Audit Committee, $3,125 per quarter for serving as chairperson of the Compensation Committee and $2,500 per quarter for serving as chairperson of the Nominating and Corporate Governance Committee. In addition, the lead independent director was paid an additional retainer of $5,000 per quarter. Directors were also reimbursed for their reasonable expenses incurred in attending Board of Directors or committee meetings.
Pursuant to cash pledged as collateral against lettersthe RealNetworks, Inc. 2007 Director Compensation Stock Plan, a sub-plan administered under our 2005 Plan, a non-employee director may make an irrevocable election prior to the commencement of credit in connection with lease agreements and, as of December 31, 2020 and 2019, our Loan Agreement requires useach plan year to maintain a minimum balance of $1.5 million and $3.5 million,respectively, unrestricted cash at the bank. See Note 9. Debt for additional details.
Investments as of December 31, 2020 are comprised of MelodyVR ordinary shares received asreceive all or a portion of the considerationcash compensation payable to such director for the coming year in shares of our common stock. No director elected to receive shares in lieu of cash compensation for the most recently ended fiscal year. Our 2005 Plan provides that subject to any required adjustments under the terms of the 2005 Plan, during any twelve-month period, a non-employee director may be granted options or stock appreciation rights for up to a maximum of 650,000 shares of RealNetworks common stock, and up to a maximum of an additional 300,000 shares of RealNetworks common stock with respect to restricted stock, performance awards, restricted stock units, and other share-based awards denominated in shares under the 2005 Plan. In addition, a non-employee director may receive up to $1 million during any twelve-month period with respect to performance awards that are denominated in cash under the 2005 Plan.
Non-employee directors receive equity awards under the 2005 Plan on the third business day following each annual meeting of shareholders. The 2020 non-employee director equity awards consisted of (i) nonqualified stock options to purchase 15,000 shares of our common stock that, once vested, will remain exercisable for three years following the director’s separation from the Napster disposition. The fair valueBoard or until the option’s earlier expiration, and (ii) RSUs valued at $45,000 on the grant date. These options and RSUs vest monthly in equal increments over a 12-month period following the award’s grant date assuming continued service as a director, with the RSU share distribution date occurring on the first anniversary of the grant date. Non-employee directors
36




may make an annual irrevocable election to defer the RSU share distribution date to a date that is (i) five years following the RSU grant date, or (ii) concurrent with the Director’s separation from the Board. Our Board has adopted stock ownership guidelines applicable to non-employee directors designed to achieve closer long-term alignment between non-employee directors and our shareholders. Under these equity securities was calculated usingguidelines, each non-employee director is required to own a number of shares of our common stock equal to three times such director’s annual retainer fee within five years of service on the closingBoard.
On December 3, 2020, our non-employee directors at the time were each granted RSUs covering 28,481 shares and an option to purchase 15,000 shares of our common stock having an exercise price of $1.58 per share, which RSUs and options vest as described above.
In July 2016, our Board approved revisions to the sharescompany's Outside Director Compensation program to provide for compensation, in the form of RealNetworks options and restricted stock units awards, to any nonemployee director of RealNetworks who is appointed by the RealNetworks Board to serve, on behalf of RealNetworks and the Board, on the board of directors of an entity that is an affiliate or investee of RealNetworks. The annual equity awards to be granted as compensation for such RealNetworks-designated service, would be equal to the annual equity awards granted to nonemployee directors of December 31,RealNetworks as described above. Pursuant to these revisions, on July 20, 2020, the Board approved equity awards to compensate Mr. Jaffe for his service as a RealNetworks-designated director on the board of Rhapsody International, Inc., d/b/a Napster. As a result of an acquisition in January 2019, RealNetworks owned approximately 84% of the issued and outstanding stock of Rhapsody International and, accordingly, it was considered an affiliate of ours. The equity awards served as compensation to Mr. Jaffe for Rhapsody board service for the one-year period following July 20, 2020, and discounted for a lack of liquidity due toare reflected in the restriction of selling or transferring2020 Director Compensation Table below and more specifically described in the shares. Pursuant tofootnotes that accompany the transaction documents executedtable. On December 30, 2020, in connection with the Napster disposition, RealNetworks is restricted from selling or transferring the MelodyVR shares, except in limited circumstances, for a periodsale of approximately one year from the close of the transaction. The determination of the discount required the use of significant unobservable inputs, such as the lock-up period combined with an estimated equity volatility for the shares, that reflect our own estimates of assumptions that market participants would use. A 10% increase or decrease to the equity volatility rate could result in a $0.2 million decrease or $0.1 million increase, respectively, in the fair value of the stock. For the year ended December 31, 2020, we recognized unrealized gains of $0.7 million in Gain on equity and other investments, net on the consolidated statement of operations.

Accrued and other current liabilities as of December 31, 2020 and 2019 and other long-term liabilities as of December 31, 2019 include the estimated fair value of the contingent consideration for the Napster acquisition, which was determined using a fair value measurement categorized within Level 3 of the fair value hierarchy. As discussed in Note 4. Acquisitions and Dispositions, this liability is adjusted quarterly to fair value through earnings. The terms of the 2019 transaction whereby RealNetworks acquired a controlling interest in Napster included initial cash consideration of $1.0 million and additional contingent consideration. Initial cash consideration of $0.2 million was paid at closing. With regards to contingent
47

consideration, over the five years following the acquisition, RealNetworks committed to pay the lesser of the following: (a) an additional $14.0 million to seller, or (b) if RealNetworks were to sell the interestRhapsody to a third party, the vesting of these equity awards was fully accelerated.
In March 2019, our Board approved further revisions to the company's Outside Director Compensation program to provide for less than $15.0 million,cash compensation to the actual amount received by RealNetworks, minus the $1.0 million initial consideration. These contingent consideration amounts were partchair of the total consideration at estimated fair value.Board's Corporate Development Committee, comprised of Mr. Jaffe as chair, and our CEO and CFO. The role of the Corporate Development Committee is to assist the Board in its design and analysis of potential corporate development opportunities. For services rendered as chair of this committee, Mr. Jaffe was paid $7,500 per month cash compensation throughout 2020, which is reflected in the 2020 Director Compensation Table below and more specifically described in the footnotes that accompany the table.
DuringWhile Mr. Glaser serves as our Chief Executive Officer, he will not receive compensation as a director. See the year ended December 31, “Summary Compensation Table” for Mr. Glaser’s compensation for services provided as Chief Executive Officer in 2020.
37




2020 we recorded a changeDirector Compensation Table

Name
Fees Earned or
Paid in Cash
($)
Restricted Stock Unit Awards
($)(1)(2)
Option Awards
($)(1)		All Other Compensation ($)
Total
($)
Bruce A. Jaffe (3)176,66090,00048,150—314,810
Christopher R. Jones (4)47,36445,00023,700—116,064
Dawn G. Lepore (5)60,22745,00023,700—128,927
Erik E. Prusch (6)64,39145,00023,700—133,091
Janice Roberts (7)28,171———28,171
Michael B. Slade (8)51,00045,00023,700—119,700
Tim Wan (9)52,00045,00023,700—120,700
_______________

(1)The amounts reported in these columns reflect the aggregate grant date fair value, excluding the effect of the contingent considerationestimated forfeitures, of $8.6 million as a decrease to the total liability on the consolidated balance sheet and as a reduction in operating expense on the consolidated statement of operations. Duringawards granted during the fiscal year ended December 31, 2019, we recorded a change in fair value of the contingent consideration of $1.0 million as an increase to the total liability on the consolidated balance sheet and as an increase in operating expense on the consolidated statement of operations. Other than the adjustments to the estimated fair value, there were no changes in the balance of the contingent consideration during fiscal years 2020 and 2019.
The valuation methodology of contingent consideration at December 31, 2020 was based on RealNetworks' contractual obligation to pay the seller of the interests purchased by RealNetworks in the January 2019 Napster transaction discussed in Note 4. Acquisitions and Dispositions. For purposes of determining fair value of contingent consideration at December 31, 2020, this obligation was deemed to have a fair value of $4.8 million based on the terms of the Napster sale transaction. This amount represents the amount received for sale of the interest acquired in the Napster purchase transaction of $5.0 million less the $0.2 million paid at closing in January 2019. At December 31, 2019, the fair value of the contingent consideration was estimated using multiple scenarios for each tranche of contingent consideration and then probability weighting each scenario and discounting them to an estimated fair value.
In the third quarter of 2020, Scener, our 82%-owned subsidiary, received $2.1 million in cash in return for issuing rights to investors for certain shares of Scener's capital stock contingent upon the occurrence of specific future capital raising events by Scener. The rights were each issued as a Simple Agreement for Future Equity ("SAFE Notes"). The future contingent events also contemplate the possibility of Scener having to pay back the original cash investment to each investor. The SAFE Notes are recorded as a liability on our consolidated financial statements within Other long-term liabilities and are required to be recorded at fair value each quarter. The valuation analysis model for the fair value of the SAFE Notes as of December 31, 2020 used significant unobservable inputs that reflect our own estimates of assumptions that market participants would use. There has been no change in the estimated fair value since the issuance in the third quarter of 2020. Significant unobservable inputs to the valuation analysis model include the underlying conversion date for the SAFE Notes, Scener's capitalization prior to conversion of the SAFE Notes, an 80% discount rate as defined in the SAFE Note agreements, conversion price, conversion shares and an annual present value rate. All of the inputs are subject to significant judgment. See Note 19. Related Party Transactions for additional discussion of Scener.
Items Measured at Fair Value on a Non-recurring Basis
Certain of our assets and liabilities are measured at estimated fair value on a non-recurring basis, using Level 3 inputs. These instruments are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). We did not record any impairments on those assets required to be measured at fair value on a non-recurring basis in 2020 or 2019.

Note 6.Allowance for Doubtful Accounts Receivable and Sales Returns
Activity in the allowance for doubtful accounts receivable (in thousands):
 Years ended December 31,
 20202019
Balance, beginning of year$484 $475 
Addition to allowance117 24 
Amounts written off(30)0 
Effects of foreign currency translation27 (15)
Balance, end of year$598 $484 

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Activity in the allowance for sales returns (in thousands):
 Years ended December 31,
 20202019
Balance, beginning of year$32 $85 
Addition (reduction) to allowance(1)(32)
Amounts written off0 (21)
Balance, end of year$31 $32 
Total, Allowance for Doubtful Accounts Receivable and Sales Returns$629 $516 
NaN customers individually comprised more than 10% of trade accounts receivable at December 31, 2020, with the customers accounting for 19% and 10% each. NaN customers individually comprised more than 10% of trade accounts receivable at December 31, 2019, with the customers accounting for 26% and 11% each.
NaN customers accounted for 25%, or $17.3 million, of consolidated revenue during the year ended December 31, 2020, in the Mobile Services segment.
NaN customer accounted for 13%, or $8.8 million, of consolidated revenue during the year ended December 31, 2019, in our Mobile Services segment.


Note 7.Goodwill
Changes in goodwill (in thousands):

December 31,
20202019
Balance, beginning of year
Goodwill$327,561 $327,608 
Accumulated impairment losses(310,653)(310,653)
16,908 16,955 
Effects of foreign currency translation467 (47)
467 (47)
Balance, end of year
Goodwill328,028 327,561 
Accumulated impairment losses(310,653)(310,653)
$17,375 $16,908 
Goodwill by segment (in thousands):
 December 31,
 20202019
Consumer Media$580 $580 
Mobile Services2,188 2,074 
Games14,607 14,254 
Total goodwill$17,375 $16,908 
No impairments of goodwill were recorded in 2020 or 2019.
See Note 4. Acquisitions and Dispositions, for details on our acquisitions and disposals and the impact to goodwill.
49


Note 8.Accrued and Other Current Liabilities
Accrued and other current liabilities (in thousands):
December 31, 2020December 31, 2019
Royalties and other fulfillment costs$1,149 $1,535 
Employee compensation, commissions and benefits4,512 4,655 
Sales, VAT and other taxes payable1,231 801 
Operating lease liabilities - current3,373 3,643 
Napster acquisition contingent consideration4,800 2,800 
Other2,785 4,061 
Total accrued and other current liabilities$17,850 $17,495 


Note 9.Debt
The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law in March 2020, established the Paycheck Protection Program (PPP) to provide a direct incentive for small businesses to keep workers on their payroll. Through the PPP, participating banks write loans to eligible businesses and loan amounts are forgiven to the extent that employee retention criteria are met and proceeds are used to cover eligible costs over a 24-week measurement period following loan funding. In April 2020, following an assessment of eligibility and approval of its Board of Directors, RealNetworks issued a promissory note to a participating bank in the principal amount of $2.9 million pursuant to the PPP. The note has a maturity of 2 years, an interest rate of 1.0%, no pre-payment penalty, a ten-month deferment period starting after the 24-week measurement period, and is eligible for forgiveness pursuant to PPP guidelines. In April 2020, the Secretary of the Treasury and Small Business Administration (SBA) announced that the government will review all PPP loans of more than $2.0 million before there is forgiveness. We applied for forgiveness in January 2021. No assurance can be given that we will be granted forgiveness for the PPP loan. The PPP loan will be derecognized upon confirmation of forgiveness from the SBA and/or upon repayment of the loan2005 Plan, determined in accordance with its terms.
In August 2019, RealNetworksfinancial statement reporting rules rather than an amount paid to or realized by the director. For a discussion of valuation assumptions, see Note 1 and Napster entered into a Loan and Security Agreement (Loan Agreement) with a third-party financial institution. Under the terms of the August 2019 Loan Agreement, the bank extended a revolving line of credit (Revolver) not Note 12to exceed $10.0 millionour Notes to Consolidated Financial Statements included in the aggregate. Available advancesour annual report on the Revolver, which are used for working capital and general corporate purposes, are based on a borrowing base that comprises accounts receivable and direct to consumer deposits. Borrowings under the Loan Agreement are secured by a first priority security interest in the assets of RealNetworks and Napster. Advances bear interest at a rate equal to one-half of one percentage point (0.5%) above the greater of the prime rate or 5.5%, with monthly payments of interest only and principal due at the end of the two-year term. The Loan Agreement contains customary covenants, including financial covenants, minimum EBITDA levels to be updated annually, and maintaining a minimum balance of $3.5 million unrestricted cash at the bank. We are in the process of negotiating the customary covenants for 2021, and we do not expect the resulting revisions to have a material effect on the Loan Agreement.
In December 2020, at the time of closing the sale of Napster, as further described in Note 4. Acquisitions and Dispositions, borrowings of $3.9 million on the Revolver were repaid in full and certain terms were amended, including the removal of Napster as a party to the lending agreement and maintaining a minimum balance of $1.5 million unrestricted cash at the bank, a reduction from the prior requirement of a minimum balance of $3.5 million of unrestricted cash.
In February 2021, we entered into an amendment with the bank on our Revolver, whereby the borrowing baseForm 10-K for the Revolver is comprised of accounts receivable and direct to consumer deposits for RealNetworks only. Borrowings may not exceed $6.5 million and are reduced by a $1.0 million standby letter of credit entered into with the bank in connection with certain lease agreements. Advances bear interest at a rate equal to one-half of one percentage point (0.5%) above the greater of the prime rate or 3.25%. The Revolver matures August 1, 2022.
We paid and capitalized $0.6 million of financing fees to enter into the Revolver in August 2019, and the financing fees are being amortized over the term of the credit agreement. The unamortized fees were $0.2 million at December 31, 2020 and are included in Deferred costs, current on our consolidated balance sheets.

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Note 10.Restructuring and Other Charges
Restructuring and other charges in 2020 and 2019 consist of costs associated with the ongoing reorganization of our business operations and expense re-alignment efforts, which include severance costs due to workforce reductions. Asset related and other costs in 2020 primarily related to the impairment of an operating lease asset. Asset related and other costs in 2019 primarily related to the termination of certain contracts as we continued to shift focus onto free-to-play games that offer in-game purchases of virtual goods and away from the premium mobile games that require a one-time purchase.

Restructuring charges are as follows (in thousands):
Employee Separation CostsAsset Related and Other CostsTotal
Costs incurred and charged to expense for the year ended December 31, 2020$1,288 $1,241 $2,529 
Costs incurred and charged to expense for the year ended December 31, 2019$1,226 $728 $1,954 
Changes to the accrued restructuring liability (which is included in Accrued and other current liabilities) for 2020 and 2019 (in thousands):
Employee Separation CostsAsset Related and Other CostsTotal
Accrued liability as of December 31, 2018$755 $0 $755 
Costs incurred and charged to expense for the year ended December 31, 2019, excluding noncash charges1,226 174 1,400 
Cash payments(1,871)0 (1,871)
Accrued liability as of December 31, 2019110 174 284 
Costs incurred and charged to expense for the year ended December 31, 20201,288 0 1,288 
Cash payments(1,052)(174)(1,226)
Accrued liability as of December 31, 2020$346 $0 $346 


Note 11.Shareholders’ Equity
Accumulated Other Comprehensive Loss

Changes in components of accumulated other comprehensive loss (in thousands):
Years Ended December 31,
20202019
Foreign currency translation
Accumulated other comprehensive loss, beginning of period$(61,323)$(61,118)
Translation adjustments909 (205)
Napster disposition(227)0 
Net current period other comprehensive income (loss)682 (205)
Accumulated other comprehensive loss balance, end of period$(60,641)$(61,323)

Preferred Stock.    Each share of Series A preferred stock entitles the holder to 1 votes and dividends equal to 1000 times the aggregate per share amount of dividends declared on the common stock. There are no shares of Series A preferred stock outstanding.
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In February 2020, Mr. Glaser, Chairman of the Board and Chief Executive Officer of RealNetworks, invested approximately $10.0 million in RealNetworks in exchange for the issuance to him of 8,064,516 shares of Series B preferred stock. The Series B preferred stock is non-voting and is convertible into common stock on a one-to-one basis subject to the limitation described in Note 19. Related Party Transactions. The Series B preferred stock has no liquidation preference and no preferred dividends.
Undesignated preferred stock will have rights and preferences that are determinable by the Board of Directors if and when determination of a new series of preferred stock has been established.

Note 12.Employee Stock and Benefit Plans
Equity Compensation Plans.  Under our equity incentive plans, we may grant various types of equity awards to employees and Directors. We have granted time-vest and performance-vest stock options and time-vest and performance-vest restricted stock. Generally, options vest based on continuous employment, over a four-year period. The options generally expire seven years from the date of grant and are exercisable at the market value of the common stock at the grant date. Time-vest restricted stock awards generally vest based on continuous employment over a two or four-year period. Performance-based awards vest if the specified performance targets are met and the grantee remains employed over the required period. The performance targets for these awards are generally based on the achievement of company-specific financial results. For these performance-based awards, expense is recognized when it is probable the performance goal will be achieved. We have also issued market-based performance stock options to certain employees. These awards vest if the market condition is met and the grantee remains employed over the requisite service period.
We issue new shares of common stock upon exercise of stock options and the vesting of restricted stock. As of December 31, 2020, there were 3.7 million shares of common stock authorized for future equity awards. Each restricted stock unit granted reduces and each restricted stock unit forfeited or canceled increases the shares available for future grant by a factor of 1.6 shares. Each stock option granted reduces and each stock option forfeited or canceled increases the shares available for future grant by a factor of one share.
Stock-based compensation expense recognized in our consolidated statements of operations includes amounts related to stock options and restricted stock, and was as follows (in thousands):
 Years Ended December 31,
 20202019
Total stock-based compensation expense$1,420 $2,881 
The total stock-based compensation amounts disclosed above are recorded in the respective line items within operating expenses in the consolidated statements of operations. Included in the expense for 2019 was stock compensation recorded for 2018 incentive bonuses paid in fully vested restricted stock units, which were authorized and granted in the first quarter of 2019. No stock-based compensation was capitalized as part of the cost of an asset as of December 31, 2020 or 2019. As of December 31, 2020, we had $2.8 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock awards. The unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately three years.
As discussed in Note 1. Description of Business and Summary of Significant Accounting Policies, the valuation models for stock option awards require various highly judgmental assumptions. The assumption for the expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, including the contractual terms, vesting schedules, and expectations of future employee behavior. Expected stock price volatility is based on historical volatility of our common stock for the related expected term. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with a term equivalent to the expected term of the stock options. The dividend yield is estimated at zero because we do not currently anticipate paying dividends in the foreseeable future.
The fair value of options granted used the following weighted average assumptions:
 Years ended December 31,
 20202019
Expected dividend yield0 %0 %
Risk-free interest rate0.37 %2.12 %
Expected term (years)4.84.0
Volatility45 %41 %

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Restricted stock unit and award activity was as follows (shares are in thousands):
Number of SharesWeighted Average Grant Date Fair Value Per ShareTotal Grant Date Fair Value of Vested Awards (000's)
Nonvested shares, December 31, 2018698 $2.63 
Granted701 2.54 
Vested(499)3.10 $1,547 
Forfeited/Canceled(55)3.33 
Nonvested shares, December 31, 2019845 $2.24 
Granted1,446 1.49 
Vested(218)1.89 $412 
Forfeited/Canceled(270)2.38 
Nonvested shares, December 31, 20201,803 $1.65 

At December 31, 2020, the aggregate intrinsic value of restricted stock awards was $2.8 million and the weighted average remaining contractual term was approximately two years.
Stock option activity (shares are in thousands):
 Options OutstandingWeighted Average Grant Date Fair Value
Number
of Shares
Weighted
Average
Exercise Price
Outstanding, December 31, 20187,328 $4.56 
Options granted at common stock price988 2.33 $0.81 
Options exercised0 0 
Options cancelled(845)4.67 
Outstanding, December 31, 20197,471 $4.25 
Options granted at common stock price2,382 1.26 $0.47 
Options exercised0 0 
Options cancelled(3,354)4.59 
Outstanding, December 31, 20206,499 $2.97 
Exercisable, December 31, 20203,304 $4.06 
Vested and expected to vest, December 31, 20205,262 $3.21 

As of December 31, 2020, the weighted average remaining contractual life of the options was as follows: outstanding options 4.7 years; exercisable options 3.6 years; and vested and expected to vest options 4.5 years.most recently completed fiscal year. As of December 31, 2020, the aggregate intrinsic valuesnumber of shares of RealNetworks common stock underlying outstanding option awards for our outstanding, exercisable,each non-employee director was: 120,000 for Mr. Jaffe; 79,596 for Mr. Jones; 105,000 for Ms. Lepore; 28,750 for Mr. Prusch; 170,829 for Mr. Slade; and vested and expected to vest options were $0.7 million, insignificant, and $0.5 million, respectively.
The aggregate intrinsic value28,750 for Mr. Wan. Ms. Roberts was no longer a director as of stock options exercised in 2020 was 0, and for 2019 was insignificant.
Retirement Savings Plan. We have a salary deferral plan (401(k) Plan) that covers substantially all employees. Eligible employees may contribute a portion of their eligible compensation to the plan up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws. We match a percentage of employee contributions up to certain limits. During the years ended December 31, 2020 and 2019, we contributed $0.3 million and $0.3 million, respectively, in matching contributions. We can terminate the matching contributions at our discretion. We have no other post-employment or post-retirement benefit plans.2020.

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Note 13.Income Taxes
Components of income (loss) from continuing operations before income taxes (in thousands):
 Years ended December 31,
20202019
United States operations$(8,241)$(11,483)
Foreign operations3,182 (3,043)
Income (loss) before income taxes$(5,059)$(14,526)


Components of income tax expense (benefit) (in thousands):
 Years ended December 31,
 20202019
Current:
United States federal$202 $214 
State and local20 39 
Foreign530 451 
Total current752 704 
Deferred:
United States federal(495)(54)
Foreign(202)52 
Total deferred(697)(2)
Total income tax expense (benefit)$55 $702 
Income tax expense differs from “expected” income tax expense (computed by applying the U.S. federal income tax rate of 21% in 2020 and 2019) from continuing operations before income taxes due to the following (in thousands):
 Years ended December 31,
 20202019
United States federal tax expense (benefit) at statutory rate$(1,062)$(3,050)
State taxes, net of United States federal tax expense (benefit)(807)629 
Change in valuation allowance2,545 2,528 
Non-deductible stock compensation1,406 253 
Impact of non-U.S. jurisdictional tax rate difference(169)(116)
Research and development tax credit(183)(67)
Non-U.S. withholding tax229 170 
Change in indefinite reinvestment assertion(8)(72)
Contingent consideration(1,806)210 
Other(90)217 
Total income tax expense (benefit)$55 $702 

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Net deferred tax assets, which are recorded at December 31, 2020 and December 31, 2019 using a 21% tax rate, are comprised of the following (in thousands):
 December 31,
 20202019
Deferred tax assets:
United States federal net operating loss carryforwards$67,451 $85,270 
Deferred expenses314 3,226 
Research and development tax credit carryforwards13,350 19,694 
Right of use asset2,103 2,696 
Stock-based compensation1,498 2,697 
State net operating loss carryforwards8,516 13,880 
Foreign net operating loss carryforwards27,589 34,079 
Deferred revenue27 900 
Equipment, software, and leasehold improvements1,841 2,922 
Intangibles7,392 6,216 
Other1,370 455 
Gross deferred tax assets131,451 172,035 
Less valuation allowance(128,314)(160,783)
Gross deferred tax assets, net of valuation allowance$3,137 $11,252 
Deferred tax liabilities:
Other intangible assets$(158)$(4,667)
Lease liability(1,579)(2,333)
Undistributed foreign earnings(937)(909)
Other(683)(838)
Net unrealized gains and basis differences on investments0 (2,916)
Gross deferred tax liabilities(3,357)(11,663)
Net deferred tax liabilities(220)(411)
Less: net deferred tax liabilities - discontinued operations0 (96)
Net deferred tax liabilities - continuing operations$(220)$(315)

(2)As of December 31, 2020, we maintainedeach of our non-employee directors held an outstanding RSU award covering 28,481 shares of RealNetworks common stock.
(3)Mr. Jaffe served as a valuation allowanceChair of $128.3 million for our deferred tax assets that we believe are not more likely than notthe Audit Committee from January 1 to be realized. The net change in valuation allowance was a $32.5 million decrease and a $23.5 million increase duringApril 16, as Chair of the years endedCompensation Committee from April 17 to December 31, and as Lead Independent Director for all of 2020. Mr. Jaffe also served as Chair of the Corporate Development Committee and received cash compensation of $7,500 per month throughout 2020 for that role. Also, in connection with his appointment to the Rhapsody International board of directors, on July 20, 2020, Mr. Jaffe was granted an option to purchase 15,000 shares of RealNetworks common stock with a per share exercise price of $1.63 and 2019, respectively.scheduled to vest monthly in equal increments over a 12-month period following the award’s grant date assuming continued service as a RealNetworks-designated director of Rhapsody, and RSUs covering 27,607 shares of RealNetworks common stock scheduled to vest monthly in equal increments over a 12-month period following the award’s grant date assuming continued service as a RealNetworks-designated director of Rhapsody, with the RSU share distribution date occurring on the first anniversary of the grant date. The net decreasevesting of the option and RSUs awarded as compensation for his Rhapsody board service was fully accelerated on December 30, 2020 in connection with the valuation allowance sinceclosing of the sale of Rhapsody to a third party.
(4)Mr. Jones served as a member of the Audit Committee for the entire fiscal year.
(5)Ms. Lepore served as a member of the Compensation Committee and as Chair of the Nominating and Corporate Governance Committee for the entire fiscal year.
(6)Mr. Prusch served as a member of the Audit Committee from March 8 to December 31, 2019 of $32.5 million was primarily the resultand became Chair of the disposition of Napster for which the Company maintained a valuation allowance.Audit Committee effective April 17.
RealNetworks' U.S. federal net operating loss carryforwards totaled $321.2 million and $406.0 million at December 31, 2020 and 2019, respectively. The decrease is mainly due to net operating loss carryforwards(7)Ms. Roberts departed from the disposition of Napster, offset by the current year U.S. taxable loss. The remaining net operating loss carryforwardsBoard effective April 17, 2020.
(8)Mr. Slade served as of December 31, 2020 are from prior U.S. taxable losses and from acquired subsidiaries that are limited under Internal Revenue Code Section 382. These net operating loss carryforwards expire between 2024 and 2037.
Income tax receivables were $0.1 million and $1.8 million at December 31, 2020 and 2019.
RealNetworks' U.S. federal research and development tax credit carryforward totaled $13.4 million and $19.7 million at December 31, 2020 and 2019. The research and development credit carryforwards expire between 2021 and 2040.
As of December 31, 2018, the Company no longer intends to indefinitely reinvest substantially alla member of the Company's foreign earnings outside ofAudit Committee for the U.S. We have a recorded deferred tax liability of $0.9 million as of December 31, 2020 and 2019 for local country and foreign withholding taxes associated with the repatriation of such foreign earnings.

As of December 31, 2020 and 2019, RealNetworks had $0.7 million and $5.0 million in uncertain tax positions, respectively. The decrease in uncertain tax positions is primarily the result of the Napster disposition, for which unrecognized tax positions were removed relating to federal research and development tax credit carryforward risks, as well as transfer pricing risks in certain foreign jurisdictions. The remaining unrecognized tax benefits are due to federal research andentire fiscal year.
5538






development tax credit carryforward risks. We do not anticipate that the total amount of unrecognized tax benefits will significantly change within the next twelve months.
We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of December 31, 2020, we have no accrued interest or penalties related to uncertain tax positions.

Reconciliation(9)Mr. Wan served as a member of the beginningAudit Committee from March 8 to December 31.

39




Item 12.    Security Ownership of Certain Beneficial Owners and ending balancesManagement and Related Shareholder Matters
Please see Item 12 of the total amounts of unrecognized tax benefits (in thousands):
 Years ended December 31,
 20202019
Balance, beginning of year$5,020 $374 
Increases related to prior year tax positions77 4,125 
Decreases related to prior year tax positions(4,564)(85)
Increases related to current year tax positions122 606 
Balance, end of year$655 $5,020 

Note 14.Loss Per Share
Basic net income (loss) per share (EPS) is computed by dividing net income (loss) attributable to RealNetworks by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) attributable to RealNetworks by the weighted average number of common and dilutive potential common shares outstanding during the period. Basic and diluted EPS (in thousands, except per share amounts):
 Years ended December 31,
 20202019
Net loss from continuing operations attributable to RealNetworks$(4,830)$(15,065)
Net loss from discontinued operations attributable to RealNetworks(22)(4,936)
Net loss attributable to RealNetworks$(4,852)$(20,001)
Weighted average common shares outstanding used to compute basic EPS38,272 37,994 
Dilutive effect of stock based awards and Series B Preferred Stock0 0 
Weighted average common shares outstanding used to compute diluted EPS38,272 37,994 
Net loss per share attributable to RealNetworks - Basic:
Continuing operations$(0.13)$(0.40)
Discontinued operations0 (0.13)
Total net loss per share - Basic$(0.13)$(0.53)
Net loss per share attributable to RealNetworks - Diluted:
Continuing operations$(0.13)$(0.40)
Discontinued operations0 (0.13)
Total net loss per share - Diluted$(0.13)$(0.53)
Approximately 6.8 million and 7.7 million shares of potentially issuable shares from stock awards were excluded from the calculation of diluted EPSour Form 10-K filed on March 15, 2021, as amended, for the years ended December 31, 2020information required by Item 201(d) of Regulation S-K, Securities Authorized for Issuance Under Equity Compensation Plans.
Security Ownership of Certain Beneficial Owners and 2019, respectively, because of their antidilutive effect.Management
During 2020, 8,064,516 shares of Series B preferred stock were issued.
The Series B Preferred Stock is convertible into common stock on a one-to-one basis subject to the limitation described in Note 19. Related Party Transactions. During the year ended December 31, 2020, these shares were also excluded from the calculation of diluted EPS because of their antidilutive effect.

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Note 15.Leases
We have commitments for future payments related to office facilities leases. We determine if an arrangement is a lease at inception. Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As our leases do not provide an implicit rate, we use our estimated incremental borrowing rate based on the information available in determining the present value of future payments. Operating lease assets also exclude lease incentives and initial direct costs incurred. Some of our leases include options to extend or terminate the lease. Our leases generally include one or more options to renew; however, the exercise of lease renewal options is at our sole discretion. For nearly all of our operating leases, upon adoption of the new guidance, we have not assumed any options to extend will be exercised as part of our calculation of the lease liability.
We have operating leases for office space and data centers with remaining lease terms of 1 year to 5 years.
In 2020, we recorded $1.1 million of lease impairment charges for an office space previously vacated. This charge was recognized in restructuring and other charges on the consolidated statements of operations.
In 2020, we entered into an amendment that extended an office lease, resulting in a right-of-use asset obtained in exchange for lease obligations of $0.9 million.
Details related to lease expense and supplemental cash flow were as follows (in thousands):

Year Ended December 31,
20202019
Operating lease expense$4,118 $4,360 
Variable lease expense711 758 
Sublease income(1,330)(1,363)
Net lease expense$3,499 $3,755 
Operating cash outflows for lease liabilities$4,356 $4,403 

Details related to lease term and discount rate were as follows:
December 31,
2020		December 31,
2019
Weighted-average remaining lease term (in years)3 years4 years
Weighted-average discount rate4.95 %4.66 %

Future minimum lease paymentsfollowing table sets forth, as of DecemberMarch 31, 2020 are as follows (in thousands):
Office
Leases
2021$3,599 
20222,899 
20232,600 
20241,867 
2025195 
Total minimum payments (a)
11,160 
Less: Imputed interest950 
Present value of total minimum payments (b)
$10,210 
(a) Total minimum payments exclude executory costs, inclusive of insurance, maintenance, and taxes, of $5.1 million; minimum payments also have not been reduced by sublease rentals of $2.7 million due in the future under subleases.
(b) $6.8 million is included in Long-term lease liabilities and $3.4 million is included in Accrued and other current liabilities on the consolidated balance sheets.

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Note 16.Commitments and Contingencies
We have been in the past and could become in the future subject to legal proceedings, governmental investigations, and claims in the ordinary course of business, including employment claims, contract-related claims, and claims of alleged infringement of third-party patents, trademarks, and other intellectual property rights. Such claims, even if not meritorious, could force us to expend significant financial and managerial resources. In addition, given the broad distribution of some of our consumer products, any individual claim related to those products could give rise to liabilities that may be material to us. In the event of a determination adverse to us, we may incur substantial monetary liability, and/or be required to change our business practices. Either of these could have a material adverse effect on our consolidated financial statements.  
On April 6, 2020, RealNetworks Asia Pacific Co., Ltd. received notice of a civil lawsuit filed by Korean Music Copyright Association (KOMCA) seeking damages of $2.6 million. Also named as a defendant in the lawsuit is Kakao M Corp (formerly known as LOEN Entertainment Corp.2021 (the “table date”), one of the largest media publishing companies in Korea, which operates the Melon music platform. The claim is for a late payment penalty under a music licensing contract, pursuant to which, from 2004 to 2017, RealNetworks licensed music for its services to LOEN for its Melon platform. The current lawsuit relates solely to the late payment of music licensing fees under the contract; the underlying music licensing fees were paid by Kakao M to KOMCA in a separate settlement prior to KOMCA’s filing of this lawsuit. While we believe we have meritorious defenses to this lawsuit and intend to vigorously defend RealNetworks, litigation is inherently uncertain and we cannot predict the outcome of this matter. We have not recorded an accrual related to this matter as of December 31, 2020 as it is early in the litigation and any potential liability cannot be reasonably estimated.

Note 17.Guarantees
In the ordinary course of business, RealNetworks is subject to potential obligations for standard warranty and indemnification provisions that are contained within many of our customer license and service agreements. Our warranty provisions are consistent with those prevalent in our industry, and we do not have a history of incurring losses on warranties; therefore, we do not maintain accruals for warranty-related obligations. With regard to indemnification provisions, nearly all of our carrier contracts obligate us to indemnify our carrier customers for certain liabilities that may be incurred by them. We have received in the past, and may receive in the future, claims for indemnification from some of our carrier customers.

Note 18.Segment Information
We manage our business and report revenue and operating income (loss) in 3 segments: (1) Consumer Media, which includes licensing of our codec technology and our PC-based RealPlayer products, including RealPlayer Plus and related products; (2) Mobile Services, which includes our SaaS services, our integrated RealTimes® platform which is sold to mobile carriers and our computer vision platform, SAFR (Secure Accurate Facial Recognition); and (3) Games, which includes all our games-related businesses, including sales of in-game virtual goods, mobile games and games licenses, games subscription services, and in-game advertising and advertising on games sites.
RealNetworks allocates to its Consumer Media, Mobile Services and Games reportable segments certain corporate expenses which are directly attributable to supporting these businesses, including but not limited to a portion of finance, legal, human resources and headquarters facilities. Remaining expenses, which are not directly attributable to supporting these businesses, are reported as corporate items. These corporate items may also include changes in the fair value of the contingent consideration liability, restructuring charges and stock compensation charges.
RealNetworks reports the 3 reportable segments based on factors such as how we manage our operations and how our Chief Operating Decision Maker (CODM) reviews results. The CODM reviews financial information presented on both a consolidated basis and on a business segment basis. The accounting policies used to derive segment results are the same as those described in Note 1. Description of Business and Summary of Significant Accounting Policies.
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Segment results for the years ended December 31, 2020 and 2019 were as follows (in thousands):

Consumer Media
20202019
Revenue$12,581 $13,170 
Cost of revenue2,273 3,031 
Gross profit10,308 10,139 
Operating expenses8,889 11,186 
Operating income (loss)$1,419 $(1,047)
Mobile Services
20202019
Revenue$26,889 $27,143 
Cost of revenue6,725 7,500 
Gross profit20,164 19,643 
Operating expenses24,787 29,340 
Operating income (loss)$(4,623)$(9,697)
Games
20202019
Revenue$28,592 $25,489 
Cost of revenue7,451 6,975 
Gross profit21,141 18,514 
Operating expenses19,936 20,220 
Operating income (loss)$1,205 $(1,706)

Corporate
20202019
Cost of revenue$16 $(280)
Operating expenses3,009 14,894 
Operating income (loss)$(3,025)$(14,614)

Our customers consist primarily of consumers and corporations located in the U.S., Europe and various foreign countries (Rest of the World). Revenue by geographic region (in thousands):
 Years ended December 31,
 20202019
United States$43,704 $39,724 
Europe9,375 10,632 
Rest of the World14,983 15,446 
Total$68,062 $65,802 

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Long-lived assets (consists of equipment, software, leasehold improvements, operating lease assets, and goodwill) by geographic region (in thousands):
 December 31,
 20202019
United States$18,318 $20,515 
Europe7,638 7,221 
Rest of the World1,227 1,790 
Total long-lived assets$27,183 $29,526 

Note 19.Related Party Transactions
The sale of Napster closed on December 30, 2020. For additional details, see Note 4. Acquisitions and Dispositions.
In February 2020, we entered into a Series B Preferred Stock Purchase Agreement with Mr. Glaser, pursuant to which Mr. Glaser invested approximately $10.0 million in RealNetworks in exchange for the issuance to him of 8,064,516 shares of Series B Preferred Stock. The Series B Preferred Stock is non-voting and is convertible into common stock on a one-to-one basis, provided, however, that no conversion is permitted in the event that such conversion would cause Mr. Glaser’sregarding beneficial ownership of our common stock by (a) each person known to exceedRealNetworks to be the 38.5% threshold set forthbeneficial owner of more than five percent of RealNetworks’ outstanding common stock, (b) each director, (c) our named executive officers, and (d) all of our current executive officers and directors as a group. Percentage of beneficial ownership is based on 38,602,450 shares outstanding as of March 31, 2021. The mailing address for each executive officer and director in our Second Amendedthe table below is c/o RealNetworks, Inc., 1501 First Avenue South, Suite 600, Seattle, Washington 98134.


Name of Beneficial OwnerNumber of Shares of Common Stock Beneficially Owned **Percentage of Common Stock Outstanding
Robert Glaser (1)15,232,59538.5%
Thomas A. Satterfield, Jr. (2)3,004,0007.8%
Bruce A. Jaffe (3)254,571*
Christopher R. Jones (4)150,509*
Dawn G. Lepore (5)197,502*
Erik E. Prusch (6)62,882*
Michael B. Slade (7)260,825*
Tim Wan (8)62,882*
Michael Ensing0*
Michael Parham (9)338,973*
Christine Chambers2,278*
All directors and executive officers as a group (10 persons)(10)16,563,01740.9%
*    Less than 1%.
**    Beneficial ownership is determined in accordance with rules of the SEC and Restated Shareholder Rights Plan dated November 30, 2018. Theincludes shares over which the beneficial owner exercises voting or investment power. Shares of common stock subject to options currently exercisable or exercisable within 60 days of the table date, and restricted stock units, or RSUs, that will have vested within 60 days of the table date, are deemed outstanding for the purpose of computing the percentage ownership of the person holding the options, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Except as otherwise indicated, and subject to community property laws where applicable, RealNetworks believes, based on information provided by such persons, that the persons named in the table above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
(1)    Includes 459,101 shares of common stock owned by the Glaser Progress Foundation, of which Mr. Glaser is trustee. Mr. Glaser disclaims beneficial ownership of these shares. Also includes 962,732 shares of common stock issuable upon
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exercise of options exercisable within 60 days of the table date, and 878,160 shares of Series B Preferred Stock has no liquidation preference and no preferred dividend.
In July 2020, Mr. Glaser invested $0.7 millionconvertible into a RealNetworks subsidiary, Scener. Scener is developing a platform that transforms the experience of viewing video entertainment into a social, connected playground. The July 2020 funding was in addition to $0.8 million that Mr. Glaser had previously directly invested in 2019. In August 2020, this same subsidiary entered into agreements and received $1.4 million in funding from outside investors. The 2020 investments were in the form of SAFEs, as described in Note 5. Fair Value Measurements. As of December 31, 2020, RealNetworks owned approximately 82%common stock within 60 days of the subsidiary's outstanding equity, and we consolidate its financial results into our financial statements. The financial results oftable date.
(2)    Information is based on a Schedule 13G filed with the subsidiary are reported in our Consumer Media segment.


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Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors
RealNetworks, Inc.
Seattle, Washington

OpinionSEC on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of RealNetworks, Inc. (the “Company”)February 11, 2021 by Thomas A. Satterfield, Jr. reporting that as of December 31, 2020, the related consolidated statementshe beneficially owned an aggregate of operations, comprehensive loss, shareholders’ equity,3,004,000 shares of common stock and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial positionthat his address is 2609 Caldwell Mill Lane, Birmingham, Alabama 35243.
(3)    Includes 111,250 shares of common stock issuable upon exercise of options exercisable within 60 days of the Company at December 31, 2020,table date and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
We also have audited the adjustments11,867 RSUs that are scheduled to the 2019 financial statements to retrospectively apply the accounting for discontinued operations, as described in Note 4. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2019 financial statementsvest within 60 days of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other formtable date.
(4)    Includes 70,846 shares of assurance on the 2019 financial statements taken as a whole.
Basis for Opinion
These consolidated financial statements are the responsibilitycommon stock issuable upon exercise of options exercisable within 60 days of the Company’s management. Our responsibilitytable date and 11,867 RSUs that are scheduled to vest within 60 days of the table date.
(5)    Includes 96,250 shares of common stock issuable upon exercise of options exercisable within 60 days of the table date and 11,867 RSUs that are scheduled to vest within 60 days of the table date.
(6)    Includes 20,000 shares of common stock issuable upon exercise of options exercisable within 60 days of the table date and 11,867 RSUs that are scheduled to vest within 60 days of the table date.
(7)    Includes 162,079 shares of common stock issuable upon exercise of options exercisable within 60 days of the table date and 11,867 RSUs that are scheduled to vest within 60 days of the table date.
(8)    Includes 20,000 shares of common stock issuable upon exercise of options exercisable within 60 days of the table date and 11,867 RSUs that are scheduled to vest within 60 days of the table date.
(9)    Includes 334,848 shares of common stock issuable upon exercise of options exercisable within 60 days of the table date.
(10)    Includes an aggregate of 1,778,005 shares of common stock issuable upon exercise of options exercisable within 60 days of the table date and 71,202 RSUs that are scheduled to vest within 60 days of the table date.

41





Item 13.    Certain Relationships and Related Transactions, and Director Independence
Policies and Procedures With Respect to Related Person Transactions
It is the policy of RealNetworks not to express an opinion onenter into any related person transaction unless the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered withAudit Committee of the Public Company Accounting Oversight Board (United States) (“PCAOB”)of Directors reviews and are required to be independent with respect to the Companyapproves such transaction in accordance with guidelines set forth in the U.S. federal securities lawsRealNetworks, Inc. Policy Regarding Related Party Transactions, or the transaction is approved by a majority of RealNetworks’ disinterested directors. In reviewing and approving any related person transaction, the Audit Committee will satisfy itself that it has been fully informed as to the related person’s relationship and interest including all material facts of the proposed transaction, and determine that the transaction is fair to RealNetworks.
All related person transactions of which RealNetworks’ management is aware will be disclosed to the Audit Committee. At least annually, management will elicit information from our executive officers and directors as to existing and potential related person transactions, and will seek to obtain such information from 5% shareholders who do not file reports with the SEC on Schedule 13G. An executive officer or director will promptly inform the Chair of the Audit Committee when the officer or director becomes aware of a potential related person transaction in which the officer or director would be a related person.
Certain Relationships and Related Transactions
Pursuant to the terms of an agreement entered into in September 1997 between RealNetworks and Mr. Glaser, RealNetworks has agreed to use its best efforts to nominate, elect and not remove Mr. Glaser from the Board of Directors so long as Mr. Glaser owns a specified number of shares of common stock.
Director Independence
Our Board of Directors has determined that all of our directors other than Mr. Glaser are independent under the Nasdaq listing standards and the applicable rules and regulationspromulgated by the SEC. Applying these same rules, our Board has determined that all members of the Securities and Exchange CommissionAudit Committee, the Compensation Committee, and the PCAOB.Nominating and Corporate Governance Committee are independent.


We conducted
42




Item 14.    Principal Accounting Fees and Services
Change in Independent Registered Public Accounting Firm
On May 26, 2020, our audit in accordance withAudit Committee approved the standardsdismissal of the PCAOB. Those standards requireKPMG LLP as RealNetworks' independent registered public accounting firm effective as of that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.date.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinionKPMG’s reports on the consolidated financial statements taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Contingent Consideration Liability
As described in Notes 4 and 5 to the consolidated financial statements, the Company acquired a controlling interest in Rhapsody International, Inc. (doing business as Napster) in January 2019, which included contingent consideration as part of the purchase price. The amount of contingent consideration payable is limited to the amount received in selling the acquired interests over five years following the acquisition if the proceeds are less than $15 million. All of the interests in Napster held by the Company, including the acquired interests, were sold in December 2020. In connection with this transaction, the Company estimated the fair value of the contingent consideration liability based on a probability-weighted valuation methodology. Management estimated the fair value of the liability as of December 31, 2020 to be $4.8 million. The fair value of the liability decreased by $8.6 million during the year ended December 31, 2020.
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We identified the measurement of the fair value of the contingent consideration liability to be a critical audit matter. The principal considerations for our determination were: (i) the evaluation of the purchase agreement terms in relation to contract law; and (ii) the evaluation of the settlement amount probabilities. Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge in contract law.

The primary procedures we performed to address this critical audit matter included:

•Recalculating the allocation of the proceeds from the sale of Napster to the interests sold, including the acquired interests, to assess the probabilities utilized by management for estimating the fair value of the contingent consideration liability.

•Utilizing professionals with specialized skills and knowledge in contract law to assist in the interpretation and assessment of the appropriateness of management’s evaluation and assumptions within the terms of the purchase agreement.

Revenue Recognition – Business-to-Business Software Licensing, Subscription Services, and Product Sales
As described in Note 3 to the consolidated financial statements, the Company generates revenue from various sources including software licensing, subscription services, product sales, and advertising. Certain of the Company’s revenue agreements relating to software licensing, subscription services, and product sales with business-to-business customers contain multiple performance obligations and the Company must identify those performance obligations and recognize revenue at a point in time or over time depending on the nature of the performance obligation.

We identified the process of the identification of performance obligations and the recognition of revenue for business-to-business software licensing, subscription services, and product sales based on the nature of each performance obligation as a critical audit matter. Auditing these transactions was challenging and complex due to the volume of contracts and unique contract terms requiring significant effort to assess and identify the performance obligations within these agreements which determines the pattern of revenue recognition for each performance obligation.

The primary procedures we performed to address this critical audit matter included:

•Evaluating management’s accounting policies and practices, including the reasonableness of management’s judgments and assumptions related to evaluation of performance obligations and their pattern of revenue recognition.

•Examining a sample of revenue contracts and other source documents to test management’s identification of significant terms and application of their revenue recognition policy by: (i) identifying each distinct performance obligation and (ii) assessing the determination of the appropriate pattern of revenue recognition for each performance obligation.

/s/ BDO USA, LLP

We have served as the Company’s auditor since 2020.

Seattle, Washington

March 15, 2021


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
RealNetworks, Inc.:

Opinion on the ConsolidatedFinancial Statements
We have audited, before the effects of the adjustments to retrospectively present the disposition of Napster as discontinued operations as described in Note 4, the consolidated balance sheet of RealNetworks Inc. and subsidiaries (the Company) as of December 31, 2019, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for the yearits fiscal years ended December 31, 2019 and the related notes (collectively, the consolidated financial statements). The 2019 consolidated financial statements before the effects2018 did not contain any adverse opinion or disclaimer of the adjustments described in Note 4 areopinion, and were not presented herein. In our opinion,qualified or modified as to uncertainty, audit scope, or accounting principles, except that: KPMG’s report on the consolidated financial statements before the effects of the adjustments to retrospectively present the disposition of Napster as discontinued operations described in Note 4, present fairly, in all material respects, the financial position of the CompanyRealNetworks, Inc. as of December 31, 2019 and for each of the results of its operations and its cash flows foryears in the yeartwo-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively present the disposition of Napster as discontinued operations described in Note 4 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

Going Concern
Thecontained separate paragraphs that stated, “The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and anticipates negative operating cash flows that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is” and “As discussed in Note 2 to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements, are freethe Company has changed its method of material misstatement, whetheraccounting for leases in 2019 due to error or fraud. Our audit included performing procedures to assess the risksadoption of material misstatement ofAccounting Standards Codification Topic 842 - Leases.”
KPMG’s report on the consolidated financial statements whether dueof RealNetworks, Inc. as of December 31, 2018 and for each of the years in the three-year period ended December 31, 2018 contained a separate paragraph that stated, “As discussed in Note 2 to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluatingstatements, the Company has changed its method of accounting principles usedfor revenue from contracts with customers in 2018 due to the adoption of Accounting Standards Codification Topic 606 - Revenue from Contracts with Customers.”
During the two fiscal years ended December 31, 2019 and significant estimates made by management, as well as evaluating2018 and the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ KPMG LLP
We served as the Company's auditorsubsequent interim period from 1994 to 2020.

Seattle, Washington
March 30,January 1, 2020
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Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
As previously reported on our Form 8-K dated through May 26, 2020, we, following an evaluationthere were (i) no disagreements within the meaning of audit fees and costs and atItem 304(a)(1)(iv) of Regulation S-K with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the direction of our audit committee, chose not to renew the engagementsatisfaction of KPMG, LLP ("KPMG"), which was then serving aswould have caused it to make reference to the company’s independent registered public accounting firm. We notified KPMG on May 26, 2020 that it would be dismissed as our independent registered public accounting firm, effective immediately. The decision to change independent registered public accounting firm was approved by the Audit Committeesubject matter of the disagreements in connection with its reports on the RealNetworks Boardconsolidated financial statements for such periods, and (ii) no “reportable events” within the meaning of Directors. Item 304(a)(1)(v) of Regulation S-K.
On May 26, 2020, the audit committeeour Audit Committee approved, effective immediately, the appointment of BDO USA, LLP ("BDO") as RealNetworks' new independent registered public accounting firm.

Item 9A.Controls and Procedures
Disclosure Controls and Procedures
Our management, with During the participation of the principal executive officer and principal financial officer, has evaluated the effectiveness of our “disclosure controls and procedures” (as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based on their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that we file or submit under the Exchange Act (1) is recorded, processed, summarized, and reported within the time period specified in the Securities and Exchange Commission rules and forms and (2) is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation, our management concluded that, as of December 31, 2020, RealNetworks maintained effective internal control over financial reporting.
Changes in Internal Control over Financial Reporting
Our management, with the participation of the principal executive officer and principal financial officer, has evaluated the changes to our internal control over financial reporting that occurred during thetwo fiscal quarteryears ended December 31, 2019 and 2018, and the subsequent interim period from January 1, 2020 through May 26, 2020, neither RealNetworks nor anyone acting on its behalf consulted with BDO regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report nor oral advice was provided to the Company that BDO concluded was an important factor considered by the Company in reaching a decision as requiredto any accounting, auditing, or financial reporting issue, (ii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of Regulation S-K, or (iii) any “reportable event” within the meaning of Item 304(a)(1)(v) of Regulation S-K.

Fees Billed by paragraph (d)KPMG LLP During 2019 and by BDO USA, LLP During 2020
The following table presents fees for professional audit services rendered by KPMG LLP, an independent registered public accounting firm, for the audit of Rules 13a-15our annual financial statements for 2019, and 15d-15fees billed for other services rendered by KPMG.
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2019
Audit Fees (1)$1,445,000
Audit-Related Fees—
Tax Fees—
All Other Fees—
Total Fees$1,445,000
(1)Fees in connection with the audit of RealNetworks’ annual financial statements for the fiscal years ended December 31, 2019, reviews of the Exchange Actfinancial statements included in RealNetworks’ quarterly reports on Form 10-Q during the 2019 fiscal year, Sarbanes-Oxley Section 404 attestation services and has concluded that there were no such changes that have materially affected, or are reasonably likely to materially affect,statutory and other audits for subsidiaries of RealNetworks, including Rhapsody International, Inc. after our internal control over financial reporting.

Item 9B.Other Information
Not applicable.
PART III.

Item 10.Directors, Executive Officers and Corporate Governance
acquisition of an additional 42% interest on January 18, 2019.
The information requiredfollowing table presents fees for professional audit services rendered by this item is incorporatedBDO USA LLP, an independent registered public accounting firm, for the audit of our annual financial statements for 2020, and fees billed for other services rendered by reference to the information containedBDO.
2020
Audit Fees (1)$400,000
Audit-Related Fees—
Tax Fees—
All Other Fees—
Total Fees$400,000
(1)Fees in part in the sections captioned “Proposal 1–Election of Directors,” “Board of Directors,” and “Voting Securities and Principal Holders” of the Proxy Statement relating to RealNetworks’ 2021 Annual Meeting of Shareholders or in an amendment to this 10-K, to be filedconnection with the Securities and Exchange Commission within 120 days afteraudit of RealNetworks’ annual financial statements for the fiscal year ended December 31, 2020.

Item 11.Executive Compensation
64

The information required by this Item is incorporated by reference to the information contained in the section captioned “Executive Compensation”2020 and reviews of the Proxy Statement relating tofinancial statements included in RealNetworks’ 2021 Annual Meeting of Shareholders or in an amendment to this 10-K, to be filed with the Securities and Exchange Commission within 120 days after thequarterly reports on Form 10-Q for fiscal year ended December 31, 2020.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by this item is incorporated by reference to the information contained in the section captioned “Voting Securities and Principal Holders” of the Proxy Statement relating to RealNetworks’ 2021 Annual Meeting of Shareholders or in an amendment to this 10-K, to be filed with the Securities and Exchange Commission within 120 days after the fiscal year ended December 31, 2020.
Equity Compensation Plans
As of December 31, 2020, we had awards outstanding under three equity compensation plans. These plans, which have been approved by our shareholders, with the exception of the RealNetworks, Inc. 2020 Inducement Equity Plan (2020 Plan), include the RealNetworks, Inc. 1996 Stock Option Plan, as amended and restated (1996 Plan) and the RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and restated (2005 Plan). In addition, we maintain the RealNetworks, Inc. 2007 Employee Stock Purchase Plan, as amended and restated October 2010 (2007 ESPP).
All new equity awards are issued under the 2005 Plan, except for certain qualifying inducement awards that are awarded under the 2020 Plan. In 2007, our shareholders approved the 2007 ESPP.
The following table aggregates the data from our plans (in thousands):
Plan Category
Number of Securities
to be Issued upon
Exercise of
Outstanding Options,
Warrants and Rights
(in 000’s)(a)
Weighted-average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
Number of Securities
Remaining Available
for Future Issuance
under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a))
(in 000’s)(c)
 
Equity compensation plans approved by security holders7,167 $2.97 2,320 (1)(2) 
Equity compensation plans not approved by security holders1,135 -1,365   
Total8,302 $2.97 3,685 (3)
(1)On January 1, 2008, the 2007 ESPP became effective; the Company suspended the 2007 ESPP effective January 1, 2020. Column (c) above excludes an aggregate of 0.1 million shares of the Company’s common stock that are authorized for issuance pursuant to the 2007 ESPP.
(2)Includes shares available for future issuances pursuant to the RealNetworks, Inc. 2007 Director Compensation Stock Plan (2007 Director Plan), a sub-plan that operates and is administered under the 2005 Plan. Under the 2007 Director Plan, outside directors may elect to receive all or a portion of their quarterly director compensation in shares of the Company’s common stock in lieu of cash. Shares issued to directors under the 2007 Director Plan are issued from the shares reserved under the 2005 Plan.
(3)The total securities in column (a) include 6,499 stock options and 1,803 restricted stock units and awards. The weighted average exercise prices in column (b) relate to the stock options only; restricted stock units and awards have no exercise price.

Item 13.Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to the information contained in the section captioned “Executive Compensation–Pre-Approval Policies and Procedures
The Audit Committee approves in advance all audit and non-audit services to be performed by our independent auditors. As part of its pre-approval procedures, the Audit Committee considers whether the provision of any proposed non-audit services is consistent with Respectthe SEC’s rules on auditor independence. In accordance with its pre-approval procedures, the Audit Committee has pre-approved all specified audit and non-audit services to Related Person Transactions” and “Election of Directors–Director Independence”be provided by its principal independent auditors for up to twelve months from the date of the Proxy Statement relating to RealNetworks’ 2021 Annual Meeting of Shareholders or in an amendment to this 10-K,pre-approval. If there are any additional services to be filedprovided, a request for pre-approval must be submitted by management to the Audit Committee for its consideration. In 2019 and 2020, the Audit Committee approved all services and fees of KPMG and BDO identified in the above table in accordance with the Securities and Exchange Commission within 120 days after the fiscal year ended December 31, 2020.SEC requirements.


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Item 14.Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the information contained in the section captioned “Proposal 2–Ratification of Appointment of Independent Registered Public Accounting Firm” of the Proxy Statement relating to RealNetworks’ 2021 Annual Meeting of Shareholders or in an amendment to this 10-K, to be filed with the Securities and Exchange Commission within 120 days after the fiscal year ended December 31, 2020.
PART IV.

Item 15.    Exhibits, Financial Statement Schedules

Item 15.Exhibits and Financial Statement Schedules
(a)(1) Index to Consolidated Financial Statements
The following consolidated financial statements of RealNetworks, Inc. and subsidiaries arewere previously filed as part of this report:
Consolidated Balance Sheets —with RealNetworks’ Annual Report on Form 10-K for the year ended December 31, 2020 and 20192020.
Consolidated Statements of Operations and Comprehensive Loss — Years Ended December 31, 2020 and 2019
Consolidated Statements of Cash Flows — Years Ended December 31, 2020 and 2019
Consolidated Statements of Shareholders’ Equity — Years Ended December 31, 2020 and 2019
Notes to Consolidated(a)(2) Financial Statements
Reports of Independent Registered Public Accounting Firms
(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted since they are either not required, not applicable, or because the information required is included in the consolidated financial statements or the notes thereto.thereto, which were previously filed with RealNetworks’ Annual Report on Form 10-K for the year ended December 31, 2020.
(a)(3) Index to Exhibits
See Exhibit Index to Exhibits below.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Reportreport to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, on March 15,April 6, 2021.


REALNETWORKS, INC.
BY:/s/ ROBERT GLASER     
Robert GlaserREALNETWORKS, INC.
Chairman of the Board and Chief Executive Officer
By:/s/ Michael Parham
Michael Parham
SVP, General Counsel & Corporate Secretary
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Robert Glaser and Michael Parham, and each of them severally, his or her true and lawful attorneys-in-fact and agents, with full power to act without the other and with full power of substitution and resubstitution, to execute in his or her name and on his or her behalf, individually and in each capacity stated below, any and all amendments and supplements to this Report, and any and all other instruments necessary or incidental in connection herewith, and to file the same with the Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated below on March 15,April 6, 2021.
Signature

Title

/s/ *Chairman and Chief Executive Officer
Robert Glaser(Principal Executive Officer)
/s/ Christine ChambersChief Financial Officer and Treasurer
Christine Chambers(Principal Financial and Accounting Officer)

/s/ *
Bruce A. JaffeDirector

/s/ *
Christopher R. JonesDirector

/s/ *
Dawn G. LeporeDirector

/s/ *
Erik E. PruschDirector

/s/ *
Michael B. SladeDirector

/s/ *
Tim M. WanDirector

* By: Michael Parham
Michael Parham, attorney-in-fact

46






Exhibit Index


SignatureTitle
/s/  ______ROBERT GLASER________
                         Robert Glaser
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
/s/ _______JUDD LEE ___________
                         Judd Lee
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ _______BRUCE A. JAFFE________
                          Bruce A. Jaffe
Director
/s/ ____CHRISTOPHER R. JONES____
                          Christopher R. Jones
Director
/s/  _______DAWN G. LEPORE_______        
                         Dawn G. Lepore
Director
/s/ _______ERIK E. PRUSCH________
                          Erik E. Prusch
Director
/s/  ______MICHAEL B. SLADE______        
                         Michael B. Slade
Director
/s/ _______TIM WAN______________
                          Tim Wan
Director

67

Exhibit Index
Incorporated by Reference
Exhibit
No.
  Exhibit DescriptionFormSEC File No.ExhibitFiling Date
2.18-K000-231372.104/06/10
2.210-Q001-377452.105/09/19
2.310-Q001-377452.208/06/19
3.110-Q000-231373.108/11/00
3.28-K000-231373.108/31/11
3.38-K000-231373.107/29/10
4.18-K001-377454.111/30/18
4.28-K001-377454.102/11/20
10.18-K000-2313710.104/15/16
10.2
†

10-K001-3774510.302/27/17
10.3†10-Q000-2313710.111/14/02
10.4†10-K000-2313710.1003/16/11
10.5†10-K000-2313710.902/29/08
10.6
†

10-K001-3774510.1302/27/17
10.7†10-K000-2313710.1303/18/13
10.8†10-K000-2313710.1403/18/13
10.9†10-K000-2313710.1503/18/13
10.10†S-8333-2496714.110/26/20
10.11†S-8333-2496714.210/26/20
10.12†S-8333-2496714.310/26/20
10.1310-Q000-2313710.208/08/13
68

Incorporated by Reference
Exhibit
No.
  Exhibit DescriptionFormSEC File No.ExhibitFiling Date
10.14†S-1333-3655310.1409/26/97
10.15S-1333-3655310.1709/26/97
10.16S-1333-3655310.1809/26/97
10.178-K001-3774510.102/11/20
10.18†10-Q000-2313710.211/06/14
10.19†10-Q000-2313710.105/08/13
10.20†10-Q000-2313710.308/08/13
10.21†10-Q001-3774510.105/04/17
10.22†10-Q001-3774510.111/04/20
10.23†10-Q001-3774510.108/06/20
10.24†10-Q000-2313710.508/09/11
10.25†8-K001-3774510.104/05/19
10.26†8-K001-3774510.106/19/20
10.27s10-K000-2313710.2403/16/06
10.28s10-Q000-2313710.111/09/07
10.2910-K000-2313710.4302/29/12
10.3010-Q001-3774510.108/06/19
10.318-K001-3774510.104/29/20
10.328-K001-3774510.108/27/20
16.18-K001-3774516.105/29/20
21.1*
23.1*
23.2*
24.1*
69

Incorporated by Reference
Exhibit
No.
Exhibit DescriptionFormSEC File No.ExhibitFiling Date
31.1
31.1*
Certification of Robert Glaser, Chief Executive Officer of RealNetworks, Inc., pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Judd LeeChristine Chambers, Chief Financial Officer of RealNetworks, Inc., pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1***
32.2**
101.INS*XBRL Instance Document
101.SCH*XBRL Taxonomy Extension Schema Document
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*XBRL Taxonomy Extension Label Linkbase Document
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
†Indicates management contract or compensatory plan.
sPortions of this exhibit are omitted and were filed separately with the Securities and Exchange Commission pursuant to an application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.
*Filed herewith.
**Furnished herewith.




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