
~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act 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 matters of historical fact should be considered forward-looking statements. Forward-looking statements include statements with respect to:

•the expected benefits and other consequences of our growth plans, strategic initiatives, and restructurings;

•our expected introduction, ~~distribution~~ and related monetization, of new and enhanced products, services and technologies across our businesses;

•future revenues, ~~gross profits,~~ 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 the anticipated sale of Napster in the fourth quarter of 2020, and expectations for future acquisitions and divestitures;

•plans, strategies and expected opportunities for future growth, increased profitability and innovation;

~~the~~•our expected financial position, ~~performance, growth~~including liquidity, cash usage and ~~profitability of, and investment in, our businesses and~~conservation, the availability of ~~resources;~~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 ~~of Part I in our 2016 10-K~~ 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.

Overview

Our Segments

RealNetworks ~~creates innovative applications~~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 ~~that make it easy~~ to ~~connect with~~enhance and ~~enjoy digital media.~~secure our daily lives. We manage our business and report revenue and operating income (loss) in three segments: (1) Consumer Media (2) Mobile Services, and (3) Games. ~~See~~ ~~Note 17Segment Information, to the unaudited condensed consolidated financial statements included in Item 1 of Part I of this Form 10-Q.~~

Within our Consumer Media segment, revenue is primarily derived from the software licensing of our video compression, or codec, technology, principally our prior-generation codec RealMedia Variable Bitrate, or RMVB, but also including some early revenue from sales of our latest technology, RealMedia High Definition, or RMHD. We also generate revenue from the sale of our PC-based RealPlayer® products, including RealPlayer Plus and related ~~products, and from the licensing of our intellectual property, primarily our codec technology, including our recently introduced RealMedia High Definition, or RMHD, technology.~~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 ~~SaaS~~subscription services, which include our intercarrier messaging service and ringback tones, as well as through software licenses for the integration of our RealTimes®, ~~intercarrier messaging,~~ platform and ~~our low-margin music on demand service.~~certain system implementations. We generate a significant portion of our revenue from sales within our Mobile Services business to a few mobile ~~telecommunications carriers and~~carriers. Our Mobile Services segment also includes our ~~low-margin music on demand customer in Korea. The loss~~computer vision platform, SAFR, which includes facial recognition technology that leverages artificial intelligence-based machine learning. To date, our SAFR business has generated a modest level of these contracts or the termination or non-renewal or renegotiation of contract terms that are less favorable to us could result in the loss of future revenues and could result in the loss of anticipated profits. Our contract with our music on demand customer in Korea, LOEN, is set to expire at the end of fiscal year 2017, and we do not

~~anticipate renewal. As discussed in Note 6~~ ~~Allowance for Doubtful Accounts Receivable and Sales Returns~~, our low-margin music on demand business generated revenue of $11.4 million and $33.8 million for the three and nine months ended September 30, 2017, respectively. While non-renewal would result in a material decline in our consolidated revenue in periods after 2017, we would not expect the impact to consolidated Gross profit to be significant as the profitability of this contract has declined over time, currently generating less than three percent of our consolidated Gross profit; or $0.3 million and $0.9 million for the three and nine months ended September 30, 2017, respectively.revenue.

Our Games business generates revenue primarily through the development, publishing, and distribution of casual games under the GameHouse and Zylom ~~brands, derives~~brands. Games are offered via mobile devices, digital downloads, and subscription play. We derive revenue from ~~sales~~player purchases of ~~mobile~~in-game virtual goods within our free-to-play games ~~games licenses, online games subscription services,~~ and from advertising on games sites. In addition, we derive revenue from the sale of individual games and subscription offerings.

~~We allocate~~RealNetworks allocates to its Consumer Media, Mobile Services, and Games reportable segments certain corporate expenses which are directly attributable to supporting ~~our~~these businesses, including but not limited to a portion of finance, IT, legal, human resources and headquarters ~~facilities, to our reportable segments.~~facilities. Remaining expenses, which are not directly attributable to supporting ~~the business,~~these businesses, are reported as corporate items. These corporate items may also include restructuring charges ~~lease exit~~ and ~~related charges, as well as~~ stock compensation expense.

As described in Note 5 Acquisitions and Dispositions, RealNetworks acquired an additional 42% interest in Napster on January 18, 2019 bringing 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. On August 25, 2020, RealNetworks entered into a Support Agreement dated August 25, 2020 by and among its 84%-owned subsidiary, Napster, and MelodyVR Group PLC ("MelodyVR"), an English public limited company. The Support Agreement was executed in connection with an Agreement and Plan of Merger by and among Napster, MelodyVR, and their wholly owned subsidiary (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub will merge with and into Napster, with Napster surviving and becoming a wholly owned subsidiary of MelodyVR (the “Transaction”). Other than as Securityholder Representative, RealNetworks is not a party to the Merger Agreement.

Pursuant to the merger transaction, the transaction is valued at approximately $70 million as MelodyVR will assume approximately $44 million of Napster's payment obligations, primarily relating to music licensing, and MelodyVR will pay consideration of approximately $26.3 million to certain holders of debt and equity of Napster, comprised of $12.0 million in cash and approximately $11.3 million in the form of ordinary shares of MelodyVR and subject to a $3.0 million 18-month indemnity escrow. The shares of MelodyVR that RealNetworks receives may not be sold or transferred, except in limited circumstances, for a period of one year. At the time of closing, the consideration will be applied to the full repayment of the advance to Napster on the revolving line of credit, as discussed in Note 8 Debt, payment of Napster's transaction expenses, and payment of amounts payable to certain of Napster's common stockholders. The final value to RealNetworks from the transaction is subject to the allocation to recipients of cash and MelodyVR equity, the market value of MelodyVR equity, payment to the party from which a 42% equity interest was acquired in January 2019, transaction expenses, and the eventual payout of the indemnity escrow.

The transaction is currently expected to close in the fourth quarter of 2020. Effective on the execution of the Agreement and Plan of Merger on August 25, 2020, Napster is being treated as a discontinued operation and held-for-sale for accounting and disclosure purposes. As such, Napster’s operating results and financial condition have been recast to conform to this presentation.

COVID-19

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.

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 businesses 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 the remainder of fiscal 2020 or into fiscal 2021, due to 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 September 30, ~~2017,~~2020, we had ~~$59.1~~$13.2 million in unrestricted cash and cash equivalents, ~~and short-term investments,~~ compared to ~~$77.1~~$8.5 million as of December 31, ~~2016.~~2019. The ~~2017 decrease of~~2020 increase in cash and cash equivalents ~~and short-term investments~~compared to the prior year end amount was due to the $10.0 million in cash proceeds from our first quarter of 2020 issuance of Series B Preferred Stock and the proceeds from a promissory note issued in the second quarter of 2020 pursuant to the PPP of the CARES Act, with RealNetworks receiving $2.9 million. A subsidiary of RealNetworks, Scener, also received $2.1 million in the third quarter of 2020, in return for issuing SAFE Notes, as described in Note 6 Fair Value Measurements. These increases were partially offset by our ongoing cash flows used in operating activities, ~~during~~which totaled $10.0 million for the first nine months of ~~$17.5 million.~~2020.

The following discussion reflects RealNetworks' results from continuing operations. Condensed consolidated results ~~of operations~~ were as follows ~~(dollars in~~(in thousands):


	Quarters ended September 30,											Nine months ended September 30,												Quarter Ended September 30,										Nine months ended September 30,
	2017			2016			$ Change			% Change		2017			2016			$ Change			% Change			2020			2019			$ Change		% Change		2020			2019			$ Change		% Change
Total revenue	$	30,002		$	31,051		$	(1,049	)	(3	)%	$	93,689		$	89,015		$	4,674		5	%	Total revenue	$	16,554		$	17,691		$	(1,137)	(6)	%	$	50,461		$	48,491		$	1,970	4	%
Cost of revenue	16,534			16,740			(206		)	(1	)%	51,117			47,610			3,507			7	%	Cost of revenue	4,062			4,292			(230)		(5)	%	12,429			13,022			(593)		(5)	%
Gross profit	13,468			14,311			(843		)	(6	)%	42,572			41,405			1,167			3	%	Gross profit	12,492			13,399			(907)		(7)	%	38,032			35,469			2,563		7	%
Gross margin	45		%	46		%						45		%	47		%						Gross margin	75		%	76		%					75		%	73		%

Operating expenses	17,673			22,700			(5,027		)	(22	)%	57,528			72,210			(14,682		)	(20	)%	Operating expenses	15,342			18,508			(3,166)		(17)	%	48,504			58,201			(9,697)		(17)	%
Operating income (loss)	$	(4,205	)	$	(8,389	)	$	4,184		50	%	$	(14,956	)	$	(30,805	)	$	15,849		51	%
Operating loss																							Operating loss	$	(2,850)		$	(5,109)		$	2,259	44	%	$	(10,472)		$	(22,732)		$	12,260	54	%

~~Estimating Allowances for Doubtful Accounts and Sales Returns.~~ We make estimates of the uncollectible portion of our accounts receivable. We specifically analyze the age of accounts receivable and historical bad debts, customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. Similarly, we make estimates of potential future product returns related to current period revenue. We analyze historical returns, current economic trends, and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns allowance. Significant judgments and estimates are made and used in connection with establishing allowances for doubtful accounts and sales returns. Material differences may result in the amount and timing of our revenue for any period if we were to make different judgments or utilize different estimates or actual future experience was different from the judgments and estimates.

~~Estimating losses on excess office facilities.~~ We make significant estimates in determining the appropriate amount of accrued loss on excess office facilities, including estimates of sublease income expected to be received. If we make different estimates, our loss on excess office facilities could be significantly different from that recorded, which could have a material impact on our operating results.

~~Valuation of Equity Method Investments.~~ We use the equity method of accounting for investments in circumstances where we have the ability to exert significant influence, but not control, over an investee or joint venture. 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. See ~~Note 4~~, ~~Rhapsody Joint Venture~~, to the unaudited condensed consolidated financial statements included in Item 1 of Part I of this 10-Q, for additional information. We initially record our investment based on a fair value analysis of the investment.

We evaluate impairment of an investment valued under the equity method if events and circumstances warrant. An impairment charge would be recorded if a decline in value of an equity investment below its carrying amount were determined to be other than temporary. In determining if a decline is other than temporary, we consider factors such as the length of time and extent to which the fair value 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.

~~Valuation of Definite-Lived Assets.~~ Definite-lived assets consist primarily of property, plant and equipment, as well as amortizable intangible assets acquired in business combinations. Definite-lived assets are amortized on a straight line basis over their estimated useful lives. We review definite-lived 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 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.

The impairment analysis of definite-lived assets is 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 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 undiscounted cash flows and related fair market 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, and definite-lived assets could result in a significant charge to our earnings" under Item 1A Risk Factors of our 2016 10-K.

~~Valuation of 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 it 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 judgments and estimates are required in determining the reporting units and assessing the fair value of the reporting units. 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, market and interest rate risk, and risk-commensurate discount rates and cost of capital.

~~Stock-Based Compensation.~~ Stock-based compensation cost is estimated at the grant date based on the award’s fair value and is recognized as expense over the requisite service period, which is the vesting period. For stock options, the fair value is calculated using the Black-Scholes option-pricing model or other appropriate valuation models such as a Monte Carlo simulation. The valuation models require various highly 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 our consolidated statement of operations. For all awards, we are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting forfeitures.

~~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 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 significantly 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 September 30, 2017, $19.6 million of the $59.1 million of cash, cash equivalents, and short-term investments was held by our foreign subsidiaries.~~

As of September 30, 2017, we have not provided for U.S. federal and state income taxes on certain undistributed earnings of our foreign subsidiaries, since such earnings are considered indefinitely reinvested outside the U.S. or may be remitted tax-free to the U.S. If these amounts were distributed to the U.S., in the form of dividends or otherwise, RealNetworks could be subject to additional U.S. income and foreign withholding taxes. It is not practicable to determine the foreign withholding and U.S. federal income tax liability or benefit on such earnings due to the timing of such future distributions, the availability of foreign tax credits, and the complexity of the computation if such earnings were not deemed to be permanently reinvested. If future events, including material changes in estimates of cash, working capital, and long-term investment requirements necessitate that these earnings be distributed, an additional provision for U.S. income and foreign withholding taxes may be necessary.


~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~

Item 3. 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 ~~our short-term investment portfolio. Our short-term investments consist~~RealNetworks and Napster's notes payable and current debt. Certain of ~~investment grade debt securities as specified in our investment policy. Investments in both fixed~~RealNetworks and Napster's borrowing arrangements have floating rate ~~instruments carry~~interest payments and thus have a degree of interest rate ~~risk. The fair value of fixed rate securities may be adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected~~risk, if interest rates ~~fall. Additionally, a declining rate environment creates reinvestment risk because as securities mature the proceeds are reinvested at a lower rate, generating less interest income. See~~ ~~Note 5~~, Fair Value Measurements, to the unaudited condensed consolidated financial statements included in Item 1 of Part I of this Form 10-Q, for additional information. Due in part to these factors, our future interest income may be adversely impacted due to changes in interest rates. In addition, we may incur losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates. Because we have historically had the ability to hold our short-term investments until maturity, we would not expect our operating results or cash flows to be significantly impacted by a sudden change in market interest rates. There have been no material changes in our investment methodology regarding our cash equivalents and short-term investments during the quarter ended September 30, 2017.increase. Based on ~~our cash, cash equivalents, short-term investments,~~the outstanding notes payable and ~~restricted cash equivalents~~current debt as of September 30, ~~2017,~~2020, a hypothetical 10% increase/decrease in interest rates would not increase/decrease our annual interest ~~income~~expense or cash flows by more than a nominal amount.

~~Investment Risk.~~ As of September 30, 2017, we had an investment in the voting capital stock of a privately held technology company. See Note 1, Description of Business and Summary of Significant Accounting Policies - ~~Equity Method Investments,~~ ~~and Management's Discussion and Analysis of Financial Condition and Results of Operations -~~ ~~Critical Accounting Policies and Estimates~~ (~~Valuation of equity method investments) in our Form 10-K for details on our accounting treatment for this investment, including the analysis of other-than-temporary impairments.~~

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. ~~We manage a portion of these risks through the use of financial derivatives, but fluctuations could impact our results of operations and financial position.~~

Where appropriate, we manage foreign currency risk for certain material short-term intercompany balances through the use of foreign currency forward contracts. These contracts require us to exchange currencies at rates agreed upon at the

contract’s inception. Because the impact of movements in currency exchange rates on forward contracts offsets the related impact on the short-term intercompany balances, these financial instruments help alleviate the risk that might otherwise result from certain changes in currency exchange rates. We do not designate our foreign exchange forward contracts related to short-term intercompany accounts as hedges and, accordingly, we adjust these instruments to fair value through results of operations. However, we may periodically hedge a portion of our foreign exchange exposures associated with material firmly committed transactions, long-term investments, highly predictable anticipated exposures and net investments in foreign subsidiaries. To the extent we continue to experience adverse economic conditions, our unhedged exposures are impacted by movements in currency exchange rates and we may record losses related to such unhedged exposures in future periods that may have a material adverse effect on our financial condition and results of operations.

Our foreign currency risk management program reduces, but does not entirely eliminate, the impact of currency exchange rate movements.

We have cash balances denominated in foreign currencies which are subject to foreign currency fluctuation risk. ~~The majority of our foreign currency denominated cash is held in Korean won and euros. A~~However, a hypothetical 10% increase or decrease in ~~the Korean won and euro~~cash balances denominated in foreign currencies relative to the U.S. dollar ~~as of September 30, 2017~~ would not result in a material impact on our financial position, results of operations or cash ~~flows.~~flows as of September 30, 2020.


~~Item 4.~~	~~Controls and Procedures~~

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, ~~2017~~.2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, ~~2017~~,2020, our disclosure controls and procedures were effective.

(b) Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the third quarter of ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings~~

Item 1. Legal Proceedings

See Note 15,5 Acquisitions and Dispositions and Note 11 Commitments and Contingencies, to the unaudited condensed consolidated financial statements included in Item 1 of Part I of this Form 10-Q.


~~Item 1A.~~	Item 1A. Risk Factors

~~Our operations and financial results are subject to various risks and uncertainties. Readers~~You should carefully consider the ~~risk factors~~risks described below together with all of the other information included in ~~Part I, Item 1A, "Risk Factors" in our Annual Report on~~this Form 10-K (as amended) for the year ended December 31, 2016, which could adversely affect our business or financial condition, including (without limitation) results of operations, liquidity and the trading price of our common stock. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2016.10-Q. The risks and uncertainties described ~~in our 2016 Form 10-K and in this and other reports filed with the Securities and Exchange Commission~~below are not the only ~~risks~~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.

Our operating plans, financial condition, and stock price have been adversely affected by the COVID-19 pandemic, and we expect to experience continued and possibly more severe adverse affects 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 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.

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. We have also reduced current expenditures in an effort to efficiently manage our businesses in the current climate. In addition, the severe turmoil in financial markets has contributed to volatility in the trading price of our common stock. 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 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 the remainder of fiscal 2020 or beyond.

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 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 recent global outbreak of the coronavirus that causes COVID-19, such as travel restrictions, community lockdowns, tightening of corporate budgets, reduction in consumer confidence, and significant 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 the obligation to repay funds raised through debt instruments or securities liability in the case of equity financings. Our business would suffer, and our operational and financial results would be negatively impacted to a significant degree in the event that any of our growth initiatives fail.

In August 2019, RealNetworks and Napster entered into a loan agreement with a third-party financial institution. Under the terms of that agreement, the bank extended a revolving line of credit not to exceed $10.0 million in the aggregate. The loan

agreement contains customary covenants, including financial covenants, minimum EBITDA levels, and maintaining an unrestricted cash balance of $3.5 million. We have not had a debt facility in place in our recent past, therefore the entry into this facility introduces 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, RealNetworks, following an assessment of eligibility and upon approval by our Board of Directors, issued a promissory note in the principal amount of $2.9 million pursuant to the PPP of the CARES Act. In May 2020, Napster, majority owned by RealNetworks but maintaining distinct legal status and control, issued its own promissory note in the principal amount of $1.7 million pursuant to the program. On April 23, 2020, the Small Business Administration issued new guidance that questioned 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 will review all PPP loans of more than $2 million for which the borrower applies for forgiveness. While we believe that each of RealNetworks and Napster fully qualify 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. If we and/or Napster were to be audited and receive an adverse finding in such audit, we and/or Napster could be required to return the full amount of our/its respective PPP loan, which would reduce 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 going concern assessment or our governance structure in the future. The occurrence of these or any of the risks described above would impair our financial results and stock price.

Our 84% equity interest in Napster, if the pending sale transaction does not close, could result in material negative implications to our financial condition and stock price.

From March 31, 2010, when we completed the restructuring of our digital audio music service joint venture, Rhapsody America LLC, now doing business under the Napster brand, until January 18, 2019, we did not have a majority voting interest in Napster. During that period, we accounted for Napster using the equity method of accounting and disclosed only strategic, business and financial information regarding Napster in our financial statements and disclosures, in accordance with accounting principles generally accepted in the United States, or GAAP. Historically, Napster generated significant accounting losses and, applying the equity method of accounting, we recognized our share of such losses on our investment. As we had no implicit or explicit commitment to provide future financial support to Napster, we did not record any further share of Napster losses that would reduce our carrying value of Napster below zero.

On January 18, 2019, we acquired an additional 42% of the outstanding equity of Rhapsody International, Inc., which we refer to as Napster as noted above, from a third party in a distressed sale resulting in our ownership of an aggregate of 84% of Napster's outstanding stock. See Note 5 Acquisitions and Dispositions for additional information. We also now have the right to nominate directors constituting a majority of the Napster board of directors, however, Napster continues to operate as an independent business with its own board of directors, strategy, and leadership team. Napster's separate legal existence is 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. Accordingly, although we have no legal or constructive obligation to fund Napster losses and it is our intention to have Napster continue to operate as an independent company, RealNetworks has in the past extended loans to Napster and may do so in the future.

Due to our majority voting interest and the consolidation of Napster's results and financial position with ours, Napster's current liabilities are included in RealNetworks' consolidated balance sheet, including accrued but unbilled music royalties related to past services, the ultimate payment of which is uncertain. These liabilities, although not a legal or constructive obligation of RealNetworks, result in consolidated working capital being negative, which causes management to consider whether liquidity risks exist. While we believe that these liabilities are separate obligations of Napster and RealNetworks assumes no responsibility for these liabilities, in the remote event that any such liquidity issues become significant or are deemed material to our consolidated financial statements, there could be material negative implications to our financial condition and the trading price of our stock.

As discussed in Note 5 Acquisitions and Dispositions, at the time of acquiring an additional interest in Napster, we recorded contingent consideration, which involves the application of judgments and estimates, including but not limited to, the estimation of expected future cash flows and related discount rates. Also due to the acquisition of the controlling interest in Napster, beginning with the first quarter of 2019, we consolidate Napster’s financial results into the RealNetworks financial statements. Accordingly, we must receive Napster’s quarterly financial statements and related information in a timely manner in order to prepare our quarterly and annual consolidated financial statements and disclosures in our quarterly reports on Form 10-Q and annual reports on Form 10-K. Any failure in receiving Napster's financial statements and related information in a timely and materially accurate manner could cause our reports to be filed in an untimely and/or inaccurate manner, which would preclude us from utilizing certain registration statements and could negatively impact our stock price.

In August 2020, we announced that Napster had entered into an agreement to be acquired by a publicly traded company in the U.K., MelodyVR Group PLC. Although the transaction is expected to close in the fourth quarter of 2020, the closing is subject to specific and customary conditions that may fail to be met, in which case the risks described above would continue to exist. If the transaction closes, there is risk that the expected benefits of the transactions, including the expected proceeds to RealNetworks, are less favorable to us than anticipated.

We need to successfully monetize our new products and services in order to sustain and grow our businesses, and manage our constrained 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. 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 constrained 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.

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 we currently or are seeking 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

some 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 to continue to materially impact our operating results in this business. We also compete with a wide variety of companies, as small startups and well established, heavily resourced global companies continue to develop technologies and launch products in the facial recognition market. The success of this newly launched business is highly dependent on our ability to differentiate our product offering within this 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, and some of our competitors may be able to offer games for free, 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.

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. 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 recently experienced in our China business, 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 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.

Our operating results are difficult to predict and may fluctuate, which may contribute to continued weakness in our stock price, which could, in turn, jeopardize our ability to comply with Nasdaq's continued listing requirements threatening the continued listing of our common stock.

The trading price for our common stock has been steadily declining. 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 continue to decline from period to period, which may contribute to continued weakness or volatility of 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 continued weakness and volatility in our stock price. Compounding these internal factors, external factors such as

the significant recent instability in global financial markets caused in part by a global pandemic, are impacting our operating results and stock price, potentially driving our stock price to record lows.

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 between March 11, 2020 through 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, further volatility in the stock market could cause our common stock price to again fall below the $1.00 minimum. We continually monitor our 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 and definite-lived 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 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. At the time of acquiring a controlling stake in Napster, we recorded goodwill and definite-lived intangibles that totaled $69.2 million. See Note 5 Acquisitions and Dispositions, for further information related to Napster. The total carrying value of our goodwill and definite-lived intangible assets, excluding Napster's intangible assets, which are recorded within discontinued operations, as of September 30, 2020 was $17.1 million.

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.

Given our declining revenue and operating losses, compounded by the COVID-19 pandemic and related impacts to global financial markets, management has concluded that substantial doubt exists concerning our ability to continue as a going concern.

Our unrestricted cash and cash equivalents balance at September 30, 2020 was $13.2 million, $8.4 million of which was held by our foreign subsidiaries, and our operating loss for the nine months ended September 30, 2020 was $10.5 million . As further discussed in Part II, Item 8, “Note 1—Description of Business and Summary of Significant Accounting Policies” to our Consolidated Financial Statements in our Form 10-K, due to our history of declining revenue and operating losses, as well as our near-term expectations of net negative cash flows from operating activities, compounded by the COVID-19 pandemic and severe impacts to global financial markets, management has concluded that substantial doubt is deemed to exist about the company’s ability to continue as a going concern through the next 12 months. Our financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our ability to continue as a going concern will require us to improve cash flow by implementing some combination of the following: reduce operating expenses; improve working capital; defer certain obligations where we believe we have the legal basis to do so; draw upon our line of credit; sell businesses, product lines or assets; effectuate strategic alliances; efficiently repatriate cash; or obtain outside investment. Our limited cash resources and our potential inability to continue as a going concern may materially adversely affect our share price, inhibit our ability to obtain outside investment or strategic alliances.

Government regulation of the Internet, facial recognition technology, 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. For example, the European Union's General Data Protection Regulation (GDPR), effective in May 2018, created a variety of new compliance obligations, with significant penalties for noncompliance. 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 sales of our SAFR product to governmental agencies, such as the Small Business Innovation Research, or SIBR, contracts with the U.S. Air Force that we announced in the second quarter, 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 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 cash, 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, particularly if the U.S. dollar strengthens against the euro, 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 significantly disrupt our ability to produce and sell products. We are monitoring 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.

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. We recently experienced an increase in executive-level turnover, as we have experienced in the past, 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 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.

These risks also apply to our material subsidiaries, most notably Napster, which has experienced a high level of turnover in recent periods.

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 represents a significant acquisition for RealNetworks. We incurred significant transaction-related costs to effectuate the acquisition, which were recorded throughout fiscal year 2019 and in the first quarter of 2020. Furthermore, although Napster will continue to operate independently and its business will not be integrated into our businesses, we still face risks related to the acquisition such as the consolidation of Napster's financial results into our financial statements. Moreover, in August 2020 Napster entered into a definitive agreement

to be acquired by a publicly traded company in the U.K. As an 84% stockholder of Napster, significant resources of ours, both in terms of personnel and transaction costs, were required and we expect further costs to be incurred in connection with the closing of the merger and post-closing accounting for the transaction.

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 the incurrence of 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 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. With regard to Napster, the goodwill that we recorded in connection with the January 2019 acquisition could be deemed impaired in the event that Napster's cash position or profitability further deteriorates, or upon the effectuation of certain strategic events.

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.

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.

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.

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, the acquisition method of accounting and its related estimated fair value amounts, stock-based compensation, music publisher and royalty accruals, and intangible asset valuations. Changes in accounting standards or practices, or in our judgments and estimates underlying accounting standards and practices, could harm 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.

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 8.0 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.

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 have adopted a shareholder rights plan, 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.

Our January 2019 acquisition of a majority stake in Napster subjects our consolidated financial condition to new risks and uncertainties, even though Napster operates as an independent business with its own board of directors, strategy, and leadership team. These risks and uncertainties include the following:

Napster’s financial results and growth are subject to risks involving revenue concentration, strategic focus, and market competition.

In recent years, Napster’s business has shifted from a predominant reliance on a direct to consumer subscription model to delivering its music streaming content to users through business partners. With this shift in strategy, Napster’s revenue has become concentrated among fewer partners, its sales cycle has become longer and more complex, and its competitive landscape has shifted. All of these factors contribute to risks and uncertainties that could impair the implementation of Napster’s growth strategy thus causing declines in Napster’s revenue and gross margin. Any such declines would negatively impact our consolidated financial results.

As Napster’s direct to consumer subscription base declines due to intense competition in the music streaming market, its growth has become dependent on successful implementation of its platform-as-a-service strategy. Reliance on fewer key partnerships brings risk to Napster’s revenue base, and developing relationships with distribution partners requires a significant investment of time and resources, with partnerships taking longer to execute than anticipated and terms becoming increasingly complex as negotiations continue. The result is a higher degree of risk in Napster’s revenue base, compressed margins, and more uncertainty in its strategy.

Napster’s access to content and dependence on third-party licenses cause substantial risk and uncertainty to its business and could, therefore, harm our financial results.

Napster’s business relies on its ability to access content in a cost-efficient and dependable manner. To secure the rights necessary to stream music to its users, Napster must obtain licenses from record labels, aggregators, artists, publishers, performing rights organizations, collecting societies, and other copyrights owners and their agents. These rights holders, to the extent that Napster is able to identify them, possess different levels of bargaining power, require payment by Napster of varying royalty rates, and may or may not continue to make licenses available to Napster. Uncertainty with regard to, and any significant changes in, royalty rates, content availability, or Napster’s ability to identify and negotiate with these rights holders could have a material adverse effect on Napster’s revenue, profitability, and ability to provide its services. This, in turn, could harm our financial condition and stock price.

Related to Napster’s ability to access the content necessary to provide its streaming services is its dependence on third-party licenses, including the major record labels that hold the rights to stream a significant number of sound recordings. Specifically, three major labels dominate the market, and the loss of access to content controlled by any one of these labels would materially limit Napster’s offering, which would likely result in the loss of users, through both consumer subscriptions and business partnerships. Any such loss could materially impact Napster’s revenue and cause negative implications to our consolidated financial results.

The various complexities involved in Napster’s music royalty accrual could negatively impact our financial results.

As is common in the music streaming industry, Napster’s ability to determine and appropriately accrue music royalty liabilities involves a significant degree of risk and uncertainty. This accrual requires, among other things, identification of rights holders, application of statutory and contractual royalty rates, contractual terms such as advances and minimum guarantees, estimation of market share, user information and geographies, and a significant degree of judgment. Also, in certain jurisdictions, rights holders may have several years to claim royalties for musical compositions, in respect of which ownership has not already been claimed. While Napster bases its estimates on contractual rates, historical experience and on various other assumptions that management believes to be reasonable, actual results may differ materially from these estimates under different assumptions or conditions. The complexity, subjectivity, and variability around Napster’s royalty accrual could result in actual royalty costs exceeding amounts accrued, negatively impacting Napster’s profitability and our financial results.

Also common in the industry are royalty audits, lawsuits filed by rights holders, and other third-party assertions related to use of content on our platform. Napster has been the target of these types of actions in the past and expects to continue to be in the future. These matters create uncertainty, are costly, and can require a significant amount of management’s attention. Moreover, negotiations and disclosures related to these types of matters and disputes can cause damage to key business relationships, which could materially harm Napster’s business and prospects, thus impairing our consolidated financial results.

Underlying the complexity and risk involved in Napster’s ability to determine its music royalty liabilities, is the reliability of its systems of internal control and disclosure controls and procedures. We cannot provide assurance that these systems are or will continue to be effective. Although a subsidiary of ours, Napster has not historically been subject to public reporting requirements or the level of visibility and scrutiny that accompanies public reporting. In the event that Napster’s system of

internal controls, particularly relating to its music royalty accrual, is found to be ineffective, it would likely have significant implications to Napster’s financial results and, therefore, to our consolidated financial results.


~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable

(b) Not applicable


~~Item 3.~~	Item 3. Default Upon Senior Securities

~~None~~

None


~~Item 4.~~	~~Mine Safety Disclosures~~

Item 4. Mine Safety Disclosures

Not applicable


~~Item 5.~~	Item 5. Other Information

~~None.~~

None


~~Item 6.~~	~~Exhibits~~

Item 6. Exhibits

See Index to Exhibits below.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-Q Report to be signed on its behalf by the undersigned, thereunto duly authorized.



			REALNETWORKS, INC.

			By:						/s/ ~~Cary Baker~~Judd Lee
									~~Cary Baker~~Judd Lee
			Title:						Senior Vice President, Chief Financial Officer and Treasurer ~~(Principal~~ (Principal Financial and Accounting Officer)

Dated: November ~~2, 2017~~

4, 2020

INDEX TO EXHIBITS



Exhibit Number			Description

~~31.1~~





10.1			Employment agreement dated August 17, 2020 between RealNetworks, Inc. and Michael Ensing
31.1			Certification of Robert Glaser, Chairman and 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 ~~Cary Baker, Senior Vice President,~~Judd Lee, Chief Financial Officer ~~and Treasurerof~~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			Certification of Robert Glaser, Chairman and Chief Executive Officer of RealNetworks, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2			Certification of ~~Cary Baker, Senior Vice President,~~Judd Lee, Chief Financial Officer ~~and Treasurerof~~of RealNetworks, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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


	September 30, 2017			December 31, 2016				September 30, 2020		December 31, 2019
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	45,597		$	33,721		Cash and cash equivalents	$	13,245	$	8,472
Short-term investments	13,482			43,331
Trade accounts receivable, net of allowances	26,651			22,162

Trade accounts receivable, net of allowances of $623 and $516							Trade accounts receivable, net of allowances of $623 and $516	13,015		12,767
Deferred costs, current portion	508			760			Deferred costs, current portion	364		537

Prepaid expenses and other current assets	4,558			4,910			Prepaid expenses and other current assets	3,552		4,428
Current assets of discontinued operations							Current assets of discontinued operations	89,547		28,376
Total current assets	90,796			104,884			Total current assets	119,723		54,580
Equipment, software, and leasehold improvements, at cost:							Equipment, software, and leasehold improvements, at cost:
Equipment and software	45,557			46,231			Equipment and software	30,675		31,699
Leasehold improvements	3,464			3,317			Leasehold improvements	2,720		3,071
Total equipment, software, and leasehold improvements, at cost	49,021			49,548			Total equipment, software, and leasehold improvements, at cost	33,395		34,770
Less accumulated depreciation and amortization	44,962			44,294			Less accumulated depreciation and amortization	31,459		32,350
Net equipment, software, and leasehold improvements	4,059			5,254			Net equipment, software, and leasehold improvements	1,936		2,420
Restricted cash equivalents and investments	2,400			2,700
Operating lease assets							Operating lease assets	8,726		10,198
Restricted cash equivalents							Restricted cash equivalents	4,630		4,880

Other assets	2,177			1,742			Other assets	973		1,808
Deferred costs, non-current portion	1,010			1,246			Deferred costs, non-current portion	71		388
Deferred tax assets, net	871			816			Deferred tax assets, net	781		761
Other intangible assets, net	429			938
Goodwill	13,042			12,857			Goodwill	17,073		16,908
Non-current assets of discontinued operations							Non-current assets of discontinued operations	0		67,811
Total assets	$	114,784		$	130,437		Total assets	$	153,913	$	159,754

LIABILITIES AND SHAREHOLDERS’ EQUITY							LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	18,560		$	18,225		Accounts payable	$	3,398	$	4,042
Accrued and other current liabilities	12,933			15,425			Accrued and other current liabilities	25,272		17,495
Commitment to Rhapsody	—			1,500

Deferred revenue, current portion	3,008			3,430			Deferred revenue, current portion	2,302		2,003
Current debt							Current debt	3,900		0
Current liabilities of discontinued operations							Current liabilities of discontinued operations	70,713		72,641
Total current liabilities	34,501			38,580			Total current liabilities	105,585		96,181
Deferred revenue, non-current portion	553			240			Deferred revenue, non-current portion	46		96
Deferred rent	798			748
Deferred tax liabilities, net	98			87			Deferred tax liabilities, net	1,076		1,076
Long-term lease liabilities							Long-term lease liabilities	6,672		8,234
Long-term debt							Long-term debt	2,883		3,900
Other long-term liabilities	1,651			2,201			Other long-term liabilities	2,243		10,151
Non-current liabilities of discontinued operations							Non-current liabilities of discontinued operations	0		1,843
Total liabilities	37,601			41,856			Total liabilities	118,505		121,481
Commitments and contingencies							Commitments and contingencies
Shareholders’ equity:							Shareholders’ equity:
Preferred stock, $0.001 par value, no shares issued and outstanding:
Series A: authorized 200 shares	—			—
Undesignated series: authorized 59,800 shares	—			—
Common stock, $0.001 par value authorized 250,000 shares; issued and outstanding 37,289 shares in 2017 and 37,501 shares in 2016	37			37
Preferred stock, $0.001 par value:							Preferred stock, $0.001 par value:
Series A: authorized 200 shares, no shares issued and outstanding							Series A: authorized 200 shares, no shares issued and outstanding	0		0
Series B: authorized 8,100 shares; issued and outstanding 8,065 shares in 2020 and 0 shares in 2019							Series B: authorized 8,100 shares; issued and outstanding 8,065 shares in 2020 and 0 shares in 2019	8		0
Undesignated series: authorized 51,700 shares							Undesignated series: authorized 51,700 shares	0		0
Common stock, $0.001 par value, authorized 250,000 shares; issued and outstanding 38,275 shares in 2020 and 38,227 shares in 2019							Common stock, $0.001 par value, authorized 250,000 shares; issued and outstanding 38,275 shares in 2020 and 38,227 shares in 2019	38		38
Additional paid-in capital	637,862			633,928			Additional paid-in capital	655,143		644,070
Accumulated other comprehensive loss	(59,833		)	(61,645		)	Accumulated other comprehensive loss	(61,717)		(61,323)
Retained deficit	(500,883		)	(483,739		)
Accumulated deficit							Accumulated deficit	(557,002)		(544,010)
Total shareholders’ equity	77,183			88,581			Total shareholders’ equity	36,470		38,775
Total liabilities and shareholders’ equity	$	114,784		$	130,437
Noncontrolling interests							Noncontrolling interests	(1,062)		(502)
Total equity							Total equity	35,408		38,273
Total liabilities and equity							Total liabilities and equity	$	153,913	$	159,754



	Quarter Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net revenue (A)	$	30,002		$	31,051		$	93,689		$	89,015
Cost of revenue (B)	16,534			16,740			51,117			47,610
Gross profit	13,468			14,311			42,572			41,405
Operating expenses:
Research and development	7,152			6,699			22,085			23,185
Sales and marketing	4,883			7,183			17,534			24,157
General and administrative	5,081			7,086			15,638			21,380
Restructuring and other charges	557			499			2,271			1,297
Lease exit and related charges	—			1,233			—			2,191
Total operating expenses	17,673			22,700			57,528			72,210
Operating income (loss)	(4,205		)	(8,389		)	(14,956		)	(30,805		)
Other income (expenses):
Interest income, net	116			119			353			316
Gain (loss) on investments, net	—			6,021			—			5,978
Equity in net loss of Rhapsody investment	—			(233		)	(1,097		)	(629		)
Other income (expense), net	(50		)	(243		)	(288		)	(515		)
Total other income (expenses), net	66			5,664			(1,032		)	5,150
Income (loss) before income taxes	(4,139		)	(2,725		)	(15,988		)	(25,655		)
Income tax expense (benefit)	195			331			1,156			919
Net income (loss)	$	(4,334	)	$	(3,056	)	$	(17,144	)	$	(26,574	)

Basic net income (loss) per share	$	(0.12	)	$	(0.08	)	$	(0.46	)	$	(0.72	)
Diluted net income (loss) per share	$	(0.12	)	$	(0.08	)	$	(0.46	)	$	(0.72	)
Shares used to compute basic net income (loss) per share	37,200			36,805			37,112			36,693
Shares used to compute diluted net income (loss) per share	37,200			36,805			37,112			36,693

Comprehensive income (loss):
Unrealized investment holding gains (losses), net of reclassification adjustments	$	—		$	72		$	10		$	239
Foreign currency translation adjustments, net of reclassification adjustments	562			428			1,802			483
Total other comprehensive income (loss)	562			500			1,812			722
Net income (loss)	(4,334		)	(3,056		)	(17,144		)	(26,574		)
Comprehensive income (loss)	$	(3,772	)	$	(2,556	)	$	(15,332	)	$	(25,852	)

(A) Components of net revenue:
License fees	$	6,319		$	7,850		$	21,996		$	20,305
Service revenue	23,683			23,201			71,693			68,710
	$	30,002		$	31,051		$	93,689		$	89,015
(B) Components of cost of revenue:
License fees	$	1,655		$	1,755		$	5,381		$	4,458
Service revenue	14,879			14,985			45,736			43,152
	$	16,534		$	16,740		$	51,117		$	47,610


	Quarter Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net revenue	$	16,554	$	17,691	$	50,461	$	48,491
Cost of revenue	4,062		4,292		12,429		13,022
Gross profit	12,492		13,399		38,032		35,469
Operating expenses:
Research and development	5,781		6,931		18,375		21,439
Sales and marketing	5,130		5,644		15,969		17,501
General and administrative	4,124		5,242		13,063		17,674

Restructuring and other charges	307		691		1,097		1,587
Total operating expenses	15,342		18,508		48,504		58,201
Operating loss	(2,850)		(5,109)		(10,472)		(22,732)
Other income (expenses):
Interest expense	(7)		0		(12)		0
Interest income	6		0		31		89
Gain (loss) on equity investments, net	(37)		0		(90)		12,338
Other income (expenses), net	(104)		85		63		197
Total other income (expenses), net	(142)		85		(8)		12,624
Loss from continuing operations before income taxes	(2,992)		(5,024)		(10,480)		(10,108)
Income tax expense	316		233		606		515
Net loss from continuing operations	(3,308)		(5,257)		(11,086)		(10,623)
Net loss from discontinued operations, net of tax	(1)		(997)		(2,466)		(3,872)
Net loss	(3,309)		(6,254)		(13,552)		(14,495)
Net loss attributable to noncontrolling interests of continuing operations	(77)		(54)		(196)		(106)
Net income (loss) attributable to noncontrolling interests of discontinued operations	6		(232)		(364)		(752)
Net loss attributable to RealNetworks	$	(3,238)	$	(5,968)	$	(12,992)	$	(13,637)

Net loss from continuing operations attributable to RealNetworks	$	(3,231)	$	(5,203)	$	(10,890)	$	(10,517)
Net loss from discontinued operations attributable to RealNetworks	(7)		(765)		(2,102)		(3,120)
Net loss attributable to RealNetworks	$	(3,238)	$	(5,968)	$	(12,992)	$	(13,637)
Net loss per share attributable to RealNetworks- Basic:
Continuing operations	$	(0.08)	$	(0.14)	$	(0.28)	$	(0.28)
Discontinued operations	0		(0.02)		(0.06)		(0.08)
Total net loss per share - Basic	$	(0.08)	$	(0.16)	$	(0.34)	$	(0.36)
Net loss per share attributable to RealNetworks- Diluted:
Continuing operations	$	(0.08)	$	(0.14)	$	(0.28)	$	(0.28)
Discontinued operations	0		(0.02)		(0.06)		(0.08)
Total net loss per share - Diluted	$	(0.08)	$	(0.16)	$	(0.34)	$	(0.36)
Shares used to compute basic net loss per share	38,270		38,062		38,247		37,944
Shares used to compute diluted net loss per share	38,270		38,062		38,247		37,944


	Quarter Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net loss	$	(3,309)	$	(6,254)	$	(13,552)	$	(14,495)
Comprehensive loss:

Foreign currency translation adjustments	(7)		(232)		(394)		(811)
Total other comprehensive loss	(7)		(232)		(394)		(811)
Comprehensive loss including noncontrolling interests	(3,316)		(6,486)		(13,946)		(15,306)
Comprehensive loss attributable to noncontrolling interests	(71)		(286)		(560)		(858)
Comprehensive loss attributable to RealNetworks	$	(3,245)	$	(6,200)	$	(13,386)	$	(14,448)



	Nine Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net income (loss)	$	(17,144	)	$	(26,574	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	2,402			5,897
Stock-based compensation	3,045			4,557
Equity in net loss of Rhapsody	1,097			629
Deferred income taxes, net	(55		)	(198		)
Loss (gain) on investments, net	—			(5,978		)
Realized translation loss (gain)	—			272
Fair value of warrants granted in 2015 and 2017, net of subsequent mark to market adjustments in 2017 and 2016	(367		)	112
Net change in certain operating assets and liabilities:
Trade accounts receivable	(3,516		)	(1,744		)
Prepaid expenses and other assets	1,072			1,155
Accounts payable	(447		)	450
Accrued and other liabilities	(3,630		)	(872		)
Net cash provided by (used in) operating activities	(17,543		)	(22,294		)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements	(541		)	(2,009		)
Proceeds from sale of equity and other investments	—			2,110
Purchases of short-term investments	(13,905		)	(59,124		)
Proceeds from sales and maturities of short-term investments	43,754			68,473
Decrease (increase) in restricted cash equivalents and investments, net	300			190
Acquisitions	—			(150		)
Advance to Rhapsody	(1,500		)	—
Proceeds from the sale of Slingo and social casino business	—			4,000
Net cash provided by (used in) investing activities	28,108			13,490
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options and stock purchase plan)	130			166
Tax payments from shares withheld upon vesting of restricted stock	(338		)	(843		)
Net cash provided by (used in) financing activities	(208		)	(677		)
Effect of exchange rate changes on cash and cash equivalents	1,519			450
Net increase (decrease) in cash and cash equivalents	11,876			(9,031		)
Cash and cash equivalents, beginning of period	33,721			47,315
Cash and cash equivalents, end of period	$	45,597		$	38,284

Supplemental disclosure of cash flow information:
Cash received from income tax refunds	$	419		$	531
Cash paid for income taxes	$	1,124		$	1,876
Non-cash investing activities:
Increase (decrease) in accrued purchases of equipment, software, and leasehold improvements	$	42		$	(6	)



ý			QUARTERLY 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




		~~Page~~

Part I. Financial Information	3
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		29
Item 4. Controls and Procedures		30
Part II. Other Information		31
Item 1. Legal Proceedings		31
Item 1A. Risk Factors		31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 3. Default Upon Senior Securities		31
Item 4. Mine Safety Disclosures		31
Item 5. Other Information		31
Item 6. Exhibits		31
Signature		32
Index to Exhibits		33


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Amount

Balances, January 1, 2019	37,728	$	37	$	641,930	$	(61,118)	$	(524,009)	$	56,840	$	0	$	56,840

Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock	190	—		(271)		—		—		(271)		—		(271)
Napster acquisition	—	—		(1,346)		—		—		(1,346)		570		(776)
Stock-based compensation	—	—		1,384		—		—		1,384		—		1,384

Foreign currency translation adjustments	—	—		—		(87)		—		(87)		—		(87)
Net income (loss)	—	—		—		—		1,533		1,533		(319)		1,214
Other equity transactions	—	—		362		—		—		362		88		450
Balances, March 31, 2019	37,918	37		642,059		(61,205)		(522,476)		58,415		339		58,754

Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock	131	—		128		—		—		128		—		128

Stock-based compensation	—	—		533		—		—		533		—		533

Foreign currency translation adjustments	—	—		—		(492)		—		(492)		—		(492)
Net income (loss)	—	—		—		—		(9,202)		(9,202)		(253)		(9,455)
Balances, June 30, 2019	38,049	37		642,720		(61,697)		(531,678)		49,382		86		49,468
Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock	18	1		(3)		—		—		(2)		—		(2)

Stock-based compensation	—	—		503		—		—		503		—		503

Foreign currency translation adjustments	—	—		—		(232)		—		(232)		—		(232)
Net income (loss)	—	—		—		—		(5,968)		(5,968)		(286)		(6,254)
Other equity transactions	—	—		353		—		—		353		97		450
Balances, September 30, 2019	38,067	$	38	$	643,573	$	(61,929)	$	(537,646)	$	44,036	$	(103)	$	43,933


	Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Amount		Shares	Amount

Balances, January 1, 2020	0	$	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	—	—		4	—		0		—		—		0		—		0

Stock-based compensation	—	—		—	—		380		—		—		380		—		380

Foreign currency translation adjustments	—	—		—	—		—		(907)		—		(907)		—		(907)

Net income (loss)	—	—		—	—		—		—		(4,642)		(4,642)		(47)		(4,689)
Issuance of Preferred B Stock	8,065	8		—	—		9,992		—		—		10,000		—		10,000
Balances, March 31, 2020	8,065	8		38,231	38		654,442		(62,230)		(548,652)		43,606		(549)		43,057
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	—	—		23	—		(5)		—		—		(5)		—		(5)

Stock-based compensation	—	—		—	—		323		—		—		323		—		323

Foreign currency translation adjustments	—	—		—	—		—		520		—		520		—		520
Net income (loss)	—	—		—	—		—		—		(5,112)		(5,112)		(442)		(5,554)
Balances, June 30, 2020	8,065	8		38,254	38		654,760		$	(61,710)	(553,764)		39,332		(991)		38,341
Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock	—	—		21	—		(7)		—		—		(7)		—		(7)

Stock-based compensation	—	—		—	—		390		—		—		390		—		390

Foreign currency translation adjustments	—	—		—	—		—		(7)		—		(7)		—		(7)
Net income (loss)	—	—		—	—		—		—		(3,238)		(3,238)		(71)		(3,309)

Balances, September 30, 2020	8,065	$	8	38,275	$	38	$	655,143	$	(61,717)	$	(557,002)	$	36,470	$	(1,062)	$	35,408



Note 1			Description of Business and Summary of Significant Accounting Policies


	Quarter Ended September 30, 2020						Nine Months Ended September 30, 2020
	Consumer Media		Mobile Services		Games		Consumer Media		Mobile Services		Games
Business Line
Software License	$	642	$	931	$	0	$	4,364	$	2,734	$	0
Subscription Services	892		5,469		2,705		2,719		16,817		8,205
Product Sales	193		0		3,874		676		0		10,564
Advertising and Other	816		0		1,032		1,438		0		2,944
Total	$	2,543	$	6,400	$	7,611	$	9,197	$	19,551	$	21,713

	Quarter Ended September 30, 2019						Nine Months Ended September 30, 2019
	Consumer Media		Mobile Services		Games		Consumer Media		Mobile Services		Games
Business Line
Software License	$	1,987	$	888	$	0	$	3,666	$	2,444	$	0
Subscription Services	1,028		6,007		3,056		3,156		18,387		9,114
Product Sales	207		0		3,078		632		0		7,243
Advertising and Other	410		0		1,030		1,284		0		2,565
Total	$	3,632	$	6,895	$	7,164	$	8,738	$	20,831	$	18,922



Note 45			~~Rhapsody Joint Venture~~Acquisitions and Dispositions


	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	6,247	$	8,333
Trade accounts receivable, net of allowance	16,621		16,740
Other current assets	2,424		3,303
Total current assets of discontinued operations	25,292		28,376
Net equipment, software, and leasehold improvements	445		401
Other intangible assets	16,371		19,286
Goodwill	45,520		45,520
Other non-current assets	1,919		2,604
Total assets of discontinued operations	$	89,547	$	96,187
Accrued royalties, fulfillment and other current liabilities	$	59,504	$	65,310
Notes payable	7,945		7,331
Total current liabilities of discontinued operations	67,449		72,641
Other non-current liabilities	3,264		1,843
Total liabilities of discontinued operations	$	70,713	$	74,484


	Fair Value Measurements as of								Amortized Cost as of
	September 30, 2020								September 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	13,245	$	0	$	0	$	13,245	$	13,245






Restricted cash equivalents	3,500		1,130		0		4,630		4,630

Total assets	$	16,745	$	1,130	$	0	$	17,875	$	17,875
Liabilities:
Accrued and other current liabilities
Napster acquisition contingent consideration	$	0	$	0	$	12,400	$	12,400	N/A
Other long-term liabilities
Simple Agreements for Future Equity	0		0		2,106		2,106		N/A
Total liabilities	$	0	$	0	$	14,506	$	14,506	N/A



			FORM ~~10-Q~~			10-Q


~~Item 1.~~	~~Financial Statements~~



Note 2			Recent Accounting Pronouncements



Note 34			Stock-Based Compensation



	Fair Value Measurements as of								Amortized Cost as of
	September 30, 2017								September 30, 2017
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Cash	$	27,254	$	—	$	—	$	27,254	$	27,254
Money market funds	16,843		—		—		16,843		16,843
Corporate notes and bonds	—		1,500		—		1,500		1,500
Total cash and cash equivalents	44,097		1,500		—		45,597		45,597
Short-term investments:
Corporate notes and bonds	—		13,482		—		13,482		13,478
Total short-term investments	—		13,482		—		13,482		13,478
Restricted cash equivalents and investments	—		2,400		—		2,400		2,400
Warrants issued by Rhapsody (included in Other assets)	—		—		1,140		1,140		—
Total	$	44,097	$	17,382	$	1,140	$	62,619	$	61,475



	Fair Value Measurements as of								Amortized Cost as of
	December 31, 2016								December 31, 2016
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Cash	$	32,585	$	—	$	—	$	32,585	$	32,585
Money market funds	136		—		—		136		136
Corporate notes and bonds	—		1,000		—		1,000		1,000
Total cash and cash equivalents	32,721		1,000		—		33,721		33,721
Short-term investments:
Corporate notes and bonds	—		43,331		—		43,331		43,343
Total short-term investments	—		43,331		—		43,331		43,343
Restricted cash equivalents and investments	—		2,700		—		2,700		2,700
Warrant issued by Rhapsody (included in Other assets)	—		—		773		773		—
Total	$	32,721	$	47,031	$	773	$	80,525	$	79,764



	Estimated Fair Value
Within one year	$	11,969
Between one year and five years	1,513
Total short-term investments	$	13,482



~~Note 6~~	~~Allowance for Doubtful Accounts Receivable and Sales Returns~~



	Allowance For
	Doubtful Accounts Receivable			Sales Returns
Balances, December 31, 2016	$	633		$	169
Addition (reduction) to allowance	(19		)	13
Amounts written off	—			(11		)
Foreign currency translation	73			(1		)
Balances, September 30, 2017	$	687		$	170



		September 30, 2017						December 31, 2016
		Gross Amount		Accumulated Amortization		Net		Gross Amount		Accumulated Amortization		Net
Amortizing intangible assets:
	Customer relationships	$	30,810	$	30,452	$	358	$	29,308	$	28,781	$	527
	Developed technology	24,440		24,422		18		23,574		23,263		311
	Patents, trademarks and tradenames	3,758		3,705		53		3,530		3,430		100
	Service contracts	5,413		5,413		—		5,205		5,205		—
	Total	$	64,421	$	63,992	$	429	$	61,617	$	60,679	$	938



Balance, December 31, 2016	$	12,857
Effects of foreign currency translation	185
Balance, September 30, 2017	$	13,042



Note 97			Accrued and ~~Other Current Liabilities~~other current liabilities


	September 30, 2020		December 31, 2019
Royalties and other fulfillment costs	$	1,157	$	1,535
Employee compensation, commissions and benefits	4,172		4,655

Sales, VAT and other taxes payable	1,020		801
Operating lease liabilities - current	3,577		3,643
Napster acquisition contingent consideration	12,400		2,800
Other	2,946		4,061
Total accrued and other current liabilities	$	25,272	$	17,495



	Employee Separation Costs
Costs incurred and charged to expense for the nine months ended September 30, 2017	$	2,271
Costs incurred and charged to expense for the nine months ended September 30, 2016	$	1,297


	Employee Separation and Other Costs		Asset Related and Other Costs		Total
Costs incurred and charged to expense for the nine months ended September 30, 2020	$	965	$	132	$	1,097
Costs incurred and charged to expense for the nine months ended September 30, 2019	$	1,050	$	537	$	1,587



	Employee Separation Costs
Accrued liability at December 31, 2016	$	209
Costs incurred and charged to expense for the nine months ended September 30, 2017	2,271
Cash payments	(2,024		)
Accrued liability at September 30, 2017	$	456



Accrued loss at December 31, 2016	$	3,186
Additions and adjustments to the lease loss accrual, including estimated sublease income	—
Less amounts paid, net of sublease amounts	(1,275		)
Accrued loss at September 30, 2017	1,911
Less current portion (included in Accrued and other current liabilities)	(313		)
Accrued loss, non-current portion (included in Other long term liabilities)	$	1,598


Corporate	Quarter Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Cost of revenue	$	3	$	(68)	$	10	$	(212)
Operating expenses	2,521		3,522		7,852		11,895
Operating loss	$	(2,524)	$	(3,454)	$	(7,862)	$	(11,683)


	September 30, 2020		December 31, 2019
United States	$	18,889	$	20,515
Europe	7,475		7,221

Rest of the World	1,371		1,790
Total long-lived assets	$	27,735	$	29,526


	September 30, 2020		December 31, 2019
Working capital	$	(4,696)	$	2,664
Cash and cash equivalents	13,245		8,472
Restricted cash equivalents	4,630		4,880