Realnetworks (RNWK) 8-K Realnetworks Reports Record Revenue and Increased Quarterly Profit

Exhibit 99.1

REALNETWORKS REPORTS RECORD REVENUE AND
INCREASED QUARTERLY PROFIT

Achieves More than Two Million Paid Subscribers
Announces $75 Million Stock Buyback Authorization

SEATTLE, August 2, 2005— RealNetworks®, Inc. (Nasdaq: RNWK), the leading creator of digital media services and software, today announced results for the second quarter ended June 30, 2005.

Highlights

• Record revenue of $82.7 million, up 26% from the second quarter of 2004

• Net income of $4.7 million

• Increased total paid subscribers to more than 2 million

For the second quarter of 2005, Real reported record quarterly revenue of $82.7 million, up 26 percent from $65.5 million in the second quarter of 2004. The company reported GAAP net income of $4.7 million, or $0.03 per share, compared to a net loss of ($4.6) million, or ($0.03) per share, in the second quarter of 2004. The results for the second quarter of 2005 include a gain of approximately $7.6 million associated with the divestiture of its investment in MusicNet which was offset by approximately $6.5 million of incremental marketing expenses associated with the launch of our new Rhapsody music products during the quarter. Excluding antitrust litigation expenses of approximately $4.7 million, or $0.03 per share, during the second quarter of 2005, net income for the second quarter was $9.4 million, or $0.05 per share.

EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) was $6.4 million compared to a loss of ($1.5) million in last year’s second quarter. Absent antitrust litigation expenses, EBITDA was $11.0 million for the second quarter of 2005, up from $1.3 million in the comparable period during 2004.

“With increased profitability, record revenue and a base of more than 2 million paid subscribers, we continue to make solid progress,” said Rob Glaser, chairman and CEO of RealNetworks. “We’re especially pleased with our launch of Rhapsody 25, a compelling and legitimate free music alternative to illegal P2P sites, and our industry-leading base of 1.15 million premium music subscription customers.”

Real also today announced that its Board of Directors has authorized the repurchase of up to $75 million of the Company’s outstanding common stock. Any repurchases may be made in the open market or through private transactions, in accordance with Securities and Exchange Commission requirements. The timing and amounts of repurchases will depend upon market conditions and other factors. To facilitate its repurchase plan, Real

has entered into a Rule 10(b)5-1 plan designed to facilitate the repurchase of a portion of the authorized repurchase amount.

Financial Overview

Real continued to see revenue growth driven by its consumer segment, including Music and Games products and services. Second quarter revenue from the Consumer Products and Services segment grew 31 percent to $70.6 million, up from $53.7 million in the second quarter of 2004 and was highlighted by growth in Music, Games and Media Properties advertising-related products. In the second quarter, Music revenue grew 61 percent to $24.1 million, up from $15.0 million in the second quarter of 2004. Games revenue grew 63 percent to $13.6 million, up from $8.4 million in the second quarter of 2004. Media Properties revenue, which includes advertising, increased 22 percent to $8.2 million, up from $6.7 million during the same quarter last year and compared to $5.6 million in the first quarter of 2005.

Real’s Business Products and Services generated $12.1 million in revenue in the second quarter of 2005, compared to $11.7 million in the prior year’s second quarter.

Real’s gross margin improved to 70 percent in the second quarter of 2005 as compared to 67 percent in the second quarter of 2004 driven primarily by a changing revenue mix associated with high margin Media Properties revenue. Operating expenses, including antitrust litigation, were $62.9 million for the quarter compared to $48.0 million in the second quarter of 2004 due principally to higher marketing expenses associated with the launch of the new Rhapsody products and services. As of June 30, 2005, Real had approximately $363.2 million in cash, cash equivalents and short-term investments, which includes the proceeds from $100 million of convertible debt.

At the close of the second quarter of 2005, Real had over 2 million paid subscribers to its premium digital media services, up from over 1.4 million for the same quarter in 2004. Of the total paid subscribers, Real had more than 1.15 million music subscribers at the end of the second quarter of 2005, up from more than 550,000 for the same quarter in 2004. The music subscriber counts include Rhapsody, premium commercial-free radio services and Rhapsody radio registrations bundled with broadband internet service providers.

Forward Looking Guidance

For the third quarter of 2005, Real expects net revenue to be between $80 million and $82 million, which is slightly below the net revenue for the second quarter of 2005, based in part on the discontinuation of several low margin standalone video products and a $1.5 million revenue decrease related to a previously disclosed expiring legacy systems license agreement. The company expects revenue in the third quarter of 2005 related to its expanded advertising relationships to be comparable to the second quarter of 2005, complemented by growth in revenue from its Music and Games businesses.

Real expects earnings per share of $0.04 to $0.05 for the third quarter of 2005. This guidance includes an estimated $8 million, or $0.04 per share, associated with the gain on the sale of certain equity investments and ($3.9) million, or ($0.02) per share, of estimated expenses related to antitrust litigation. Excluding antitrust litigation expenses, Real expects earnings per share of $0.06 to $0.07 for the third quarter of 2005. Real reaffirms full-year revenue guidance between $323 million and $333 million, which represents a 21 percent to 25 percent growth rate over 2004 results. For the full-year, Real previously expected 2005 earnings of $0.02 to $0.04 per share which it is now raising to $0.06 to $0.08 per share based on the estimated third quarter investment gain of $0.04 per share. Excluding antitrust litigation expenses, Real previously expected earnings per share of $0.10 to $0.12 per share for the full year and is now raising its estimate to between $0.14 to $0.16 per share.

Real previously expected full year EBITDA, excluding antitrust litigation expenses, to be between $25 million and $28 million and is now raising its guidance to be between $33 million and $36 million based on the estimated $8 million equity investment gain. In addition, Real expects that its antitrust litigation expenses for the full year will be approximately $16 million, or ($0.09) per share.

Webcast Information

The company will host a webcast and conference call today at 5:00 pm (Eastern)/ 2:00 pm (Pacific). The live webcast, featuring slides and audio, will be available at http://www.realnetworks.com/company/investor/earnings.html. Listeners will require RealPlayer® to listen to the conference call, which can be downloaded for free at www.real.com. The on-demand webcast will be available approximately two hours following the conclusion of the live webcast. Participants may access the conference call by dialing 800-857-5305 (773-681-5857 for international callers). The passcode is “Second Quarter Earnings,” and the leader is Rob Glaser. A telephonic replay will be available until 8 pm (Eastern), August 9th, and may be accessed by dialing 866-417-5772 (203-369-0740 for international callers).

For More Information Contact:

Press: Jeremy Pemble, RealNetworks, (206) 892-6614, jpemble@real.com

Financial: Roy Goodman, RealNetworks, (206) 892-6841, rgoodman@real.com

About RealNetworks
RealNetworks, Inc. is the leading creator of digital media services and software including Rhapsody®, RealPlayer 10, and casual PC and mobile games. With more than one million subscribers, the company is the market leader in premium music subscription services. Consumers can access and experience audio/video programming and download RealNetworks’ consumer software at http://www.real.com. Broadcasters, network operators, media companies and enterprises use RealNetworks’ products and services to create and deliver digital media to PCs, mobile phones and consumer electronics devices. RealNetworks’ corporate information is located at http://www.realnetworks.com/company

Forward Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to: (a) Real’s future revenues, expenses, margins, profitability, net income, earnings per share and other measures of results of operation; (b) the growth of Real’s music and games businesses; (c) the prospects for future growth; (d) the potential repurchase of shares; (e) future advertising revenue; and (f) future gain on equity investments. Actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: development and consumer acceptance of legal online music distribution services; risks associated with the sustained adoption and use of RealNetworks’ services by customers, including the uncertainty of whether consumers will continue to pay for subscription content over the Internet, which is a relatively new and unproven business model; the potential that we will be unable to continue to enter into commercially attractive agreements with third parties for the provision of compelling content for our subscription service offerings; risks associated with consumer adoption of devices that support portable subscription content; the risk that the costs of our antitrust litigation will be greater than we anticipate; the emergence of new entrants and competition in the market for digital media subscription offerings and on-line music sales; the impact on our gross margins from content costs and from the mix of subscribers to subscription offerings with higher content costs than others; competitive risks, including competing technologies, products and services, and the competitive activities of our larger competitors, some of which have strong ties to streaming media users through other products; risks associated with the introduction of new products and services; risks associated with Real’s ability to repurchase its shares in the open market or dispose of certain equity investments currently held by Real; risks associated with acquisitions that we may undertake in the future; and RealNetworks’ independent decisions, from time to time, based on all factors it deems relevant, whether to repurchase shares under its stock buyback program. More information about potential risk factors that could affect RealNetworks’ business and financial results is included in RealNetworks’ annual report on Form 10-K for the most recent year ended December 31, and its quarterly reports on Form 10-Q and from time to time in other reports filed by RealNetworks with the Securities and Exchange Commission.

RealNetworks, RealAudio, RealVideo, Helix, Rhapsody, RealArcade, GameHouse and RealPlayer are trademarks or registered trademarks of RealNetworks, Inc. All other companies or products listed herein are trademarks or registered trademarks of their respective owners.

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

	Quarters Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
				(in thousands, except per share data)
Net revenue	$	82,686		$	65,473		$	159,258		$	125,863
Cost of revenue		24,841			21,735			49,578			43,496
Loss on content agreement		—			—			—			4,938
Gross profit		57,845			43,738			109,680			77,429
Operating expenses:
Research and development		15,292			13,219			28,962			25,470
Sales and marketing		35,044			23,247			63,064			45,450
General and administrative		7,898			8,599			14,064			15,420
Antitrust litigation (A)		4,650			2,756			8,394			5,077
Stock-based compensation		48			213			84			479
Total operating expenses		62,932			48,034			114,568			91,896
Operating loss		(5,087	)		(4,296	)		(4,888	)		(14,467	)
Other income (expense), net:
Interest income, net		2,579			800			4,595			1,660
Equity in net loss of MusicNet		(2	)		(1,019	)		(1,068	)		(2,134	)
Gain on sale of MusicNet investment		7,590			—			7,590			—
Other, net		(209	)		10			(400	)		100
Other income (expense), net		9,958			(209	)		10,717			(374	)
Income (loss) before income taxes		4,871			(4,505	)		5,829			(14,841	)
Income tax provision		(162	)		(113	)		(306	)		(215	)
Net income (loss)	$	4,709		$	(4,618	)	$	5,523		$	(15,056	)
Basic net income (loss) per share	$	0.03		$	(0.03	)	$	0.03		$	(0.09	)
Diluted net income (loss) per share	$	0.03		$	(0.03	)	$	0.03		$	(0.09	)
Shares used to compute basic net income (loss) per share		171,393			168,846			171,171			167,930
Shares used to compute diluted net income (loss) per share		184,816			168,846			184,752			167,930

(A) Consists of legal fees, personnel costs, public relations and other professional service fees incurred related to antitrust complaints against Microsoft, including proceedings in the European Union.

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

	June 30,		December 31,
	2005		2004
	(in thousands)
ASSETS
Current assets:
Cash, cash equivalents and short-term investments	$	363,230	$	363,621
Trade accounts receivable, net of allowances for doubtful accounts and sales returns		15,818		14,501
Prepaid expenses and other current assets		5,156		8,196
Total current assets		384,204		386,318
Equipment and leasehold improvements, at cost:
Equipment and software		50,721		45,324
Leasehold improvements		26,141		25,015
Total equipment and leasehold improvements		76,862		70,339
Less accumulated depreciation and amortization		46,235		41,508
Net equipment and leasehold improvements		30,627		28,831
Restricted cash equivalents		18,813		20,151
Equity investments		41,577		36,588
Goodwill, net		130,581		119,217
Other intangible assets, net		10,041		8,383
Other		2,807		3,014
Total assets	$	618,650	$	602,502
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,962	$	10,219
Accrued and other liabilities		56,771		50,033
Deferred revenue, excluding non-current portion		25,532		30,307
Accrued loss on excess office facilities and content agreement, excluding non-current portion		6,915		8,160
Total current liabilities		104,180		98,719
Deferred revenue, excluding current portion		237		548
Accrued loss on excess office facilities and content agreement, excluding current portion		16,363		19,017
Deferred rent		3,640		3,413
Convertible debt		100,000		100,000
Other long-term liabilities		200		—
Total shareholders’ equity		394,030		380,805
Total liabilities and shareholders’ equity	$	618,650	$	602,502

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information
(Unaudited)

	2005						2004												2003
	Q2			Q1			Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
													(in thousands)
Net Revenue by Line of Business: *
Consumer products and services (A)	$	70,593			64,206			61,541			56,034			53,743			47,025			41,679			36,377			33,172			32,886
Business products and services (B)		12,093			12,366			11,005			12,276			11,730			13,365			12,377			15,432			16,474			13,980
Total net revenue	$	82,686			76,572			72,546			68,310			65,473			60,390			54,056			51,809			49,646			46,866
Consumer Products and Services:
Subscriptions (C)	$	47,817			44,400			42,722			38,386			35,459			32,073			30,540			27,909			25,470			23,639
E-commerce and other (D)		22,776			19,806			18,819			17,648			18,284			14,952			11,139			8,468			7,702			9,247
Total consumer products and services revenue	$	70,593			64,206			61,541			56,034			53,743			47,025			41,679			36,377			33,172			32,886
Consumer Products and Services: *
Music (E)	$	24,135			22,243			20,252			18,040			14,954			11,940			7,937			4,655			1,670			831
Video, consumer software and other (F)		24,607			24,154			25,169			23,619			23,715			24,289			26,369			26,235			27,555			28,485
Games (G)		13,648			12,189			10,330			9,098			8,352			6,755			3,930			3,150			2,672			2,410
Media Properties (H)		8,203			5,620			5,790			5,277			6,722			4,041			3,443			2,337			1,275			1,160
Total consumer products and services revenue	$	70,593			64,206			61,541			56,034			53,743			47,025			41,679			36,377			33,172			32,886
Net Revenue by Geography:
United States	$	63,443			57,757			55,608			52,054			50,949			43,963			40,175			37,660			36,009			33,769
Rest of world		19,243			18,815			16,938			16,256			14,524			16,427			13,881			14,149			13,637			13,097
Total net revenue	$	82,686			76,572			72,546			68,310			65,473			60,390			54,056			51,809			49,646			46,866
Gross Margin by Line of Business: **
Consumer products and services		68	%		65	%		64	%		59	%		63	%		58	%		55	%		54	%		61	%		63	%
Business products and services		83	%		82	%		82	%		83	%		83	%		83	%		83	%		87	%		88	%		89	%
Total gross margin		70	%		68	%		67	%		64	%		67	%		56	%		62	%		64	%		70	%		71	%
Subscribers (presented as greater than) ****
Total ***		2,000			1,850			1,550			1,550			1,400			1,300			1,300			1,150			1,000			1,000
Music		1,150			975			700			625			550			450			350			250			150			100

*	Reclassifications were made to the presentation of 2004 and 2003 data to conform to the presentation for 2005
**	For the quarter ended March 31, 2004, total gross margin includes loss on content agreement of $4.9 million
***	Total subscribers as of March 31, 2004 reflect the removal of approximately 142,000 subscribers resulting from the non-renewal of the MLB contract
****	Beginning the quarter ended March 31, 2005, total and music subscribers reflect the inclusion of subscribers that registered for the Comcast Rhapsody Radio Plus service
(A)	Revenue is derived from consumer digital media subscription services, RealPlayer Plus and related products, sales and distribution of third party software products, content such as games and music, and advertising
(B)	Revenue is derived from media delivery system software, support and maintenance services, broadcast hosting services and consulting services
(C)	Revenue is derived from consumer digital media subscription services including: SuperPass, RadioPass, Rhapsody, GamePass and stand-alone subscriptions
(D)	Revenue is derived from RealPlayer Plus and related products, sales and distribution of third party software products, content such as games and music, and advertising
(E)	Revenue is derived from RadioPass, Rhapsody subscription services and sales of music content, advertising generated from our music and music related websites and the distribution of third party products
(F)	Revenue is derived from RealOne SuperPass subscriptions, RealPlayer Plus and related products, stand-alone subscription services and sales of third party software products
(G)	Revenue is derived from the GamePass subscription service, sales of games, advertising generated from our games and game-related websites and the distribution of third party products
(H)	Revenue is derived from non-game and non-music related advertising and distribution of third party products

RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)

A reconciliation of Generally Accepted Accounting Principles (“GAAP”) net income (loss) to income (loss) before interest, taxes, depreciation, amortization and stock compensation (“EBITDA”) and EBITDA excluding antitrust litigation and loss on content agreement is as follows:

	Quarters Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2005			2005			2004			2004			2004			2004
	(in thousands)
Net income (loss) in accordance with GAAP	$	4,709			814			(972	)		(6,969	)		(4,618	)		(10,438	)
Interest income, net		(2,579	)		(2,016	)		(1,602	)		(1,190	)		(800	)		(860	)
Taxes		162			144			165			142			113			102
Depreciation, amortization and stock compensation		4,092			3,666			3,791			4,089			3,810			3,648
EBITDA		6,384			2,608			1,382			(3,928	)		(1,495	)		(7,548	)
Antitrust litigation		4,650			3,744			2,997			2,974			2,756			2,321
Loss on content agreement		—			—			—			—			—			4,938
EBITDA excluding antitrust litigation and loss on content agreement	$	11,034			6,352			4,379			(954	)		1,261			(289	)

This reconciliation has been provided as a performance measure, as the Company uses EBITDA and EBITDA excluding antitrust litigation expense on an ongoing basis to track and assess its financial performance. The Company has calculated EBITDA excluding loss on content agreement because it believes that the loss on content agreement is an item that does not reflect the ongoing financial operations of the Company’s business.

     Forward Looking GuidanceA reconciliation of GAAP net income guidance for 2005 to EBITDA excluding antitrust litigation is as follows:

	Ranges for Year Ending
	December 31, 2005
	(in thousands)
	Low		High
Net income in accordance with GAAP	$	12,000		15,000
Antitrust litigation		16,000		16,000
Interest, taxes, depreciation and amortization, net		5,000		5,000
EBITDA excluding antitrust litigation	$	33,000		36,000