Realnetworks (RNWK) 8-K Realnetworks Announces Fourth Quarter and Full Year 2009 Results

Exhibit 99.1

     REALNETWORKS ANNOUNCES FOURTH QUARTER AND FULL YEAR 2009 RESULTS

SEATTLE — February 11, 2010— Digital entertainment services company RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the fourth quarter and fiscal year ended December 31, 2009.

Quarterly Highlights:

• Revenue of $145.5 million

• Net loss attributable to common shareholders of $(13.3) million or $(0.11) per share

• Adjusted EBITDA excluding impairments of $12.9 million

Full Year Highlights:

• Revenue of $562.3 million

• Net loss attributable to common shareholders of $(212.3) million or $(1.60) per share

• Adjusted EBITDA excluding impairments of $39.7 million

• Cash and short term investments of $384.9 million as of December 31, 2009

“The severe recession in 2009 hurt both our revenue and profitability for the year,” said Bob Kimball, president and acting CEO of RealNetworks. “While we don’t expect that overall trend to change in the first quarter, we are aggressively moving to transform RealNetworks into a more simple and focused company that delivers value to its shareholders. The first step in Real’s simplification was announced this week with the separation of our Rhapsody music business into an independent company.”

Mr. Kimball was named president and appointed to Real’s Board of Directors on January 12, when he was also named acting CEO.

Fourth Quarter Results

For the fourth quarter of 2009, revenue declined 5% to $145.5 million compared with $152.6 million for the fourth quarter of 2008. Foreign currency exchange rate fluctuations positively affected 2009 fourth quarter revenue by approximately $4.5 million compared with the year-ago quarter. Excluding the effects of foreign exchange rate changes, revenue declined 8% year over year. Revenue trends in each of Real’s businesses in the fourth quarter of 2009 compared with the year-earlier quarter were: a 4% increase in Technology Products and Solutions revenue to $54.3 million, a 1% increase in Media Software and Services revenue to $22.9 million, a 9% decrease in Games revenue to $30.7 million, and a 14% decrease in Music revenue to $37.6 million.

Net loss attributable to common shareholders for the fourth quarter of 2009 was $(13.3) million, or $(0.11) per share, compared with net loss of $(240.5) million, or $(1.78) per share, in the fourth quarter of 2008. The net loss for the fourth quarter of 2009 included impairment and restructuring charges of $(7.4) million, or $(0.05) per share. Included in the fourth quarter 2008 net loss were impairment charges, net of tax benefit, totaling $(240.7) million, or $(1.78) per share. Adjusted EBITDA excluding impairments for the fourth quarter of 2009 was $12.9 million, compared with $11.3 million for the fourth quarter of 2008. A reconciliation of GAAP net loss attributable to common shareholders to adjusted EBITDA and adjusted EBITDA excluding impairments is provided in the financial tables that accompany this release.

As of December 31, 2009, Real had approximately $384.9 million in unrestricted cash, cash equivalents and short-term investments, an increase of $14 million from the prior year. In addition, Real has approximately $33.3 million in restricted cash and equity investments at December 31, 2009.

Gross margin in the fourth quarter was 61%, compared with 48% for the fourth quarter a year earlier. Excluding the effect of a $19.7 million charge to reflect the impairment of deferred project costs and prepaid royalties, gross margin was 61% in the fourth quarter of 2008.

Income tax provision was a benefit of $124,000, compared with $(17.4) million in the year-earlier period. Interest income in the fourth quarter of 2009 was $779,000 compared with $2.3 million in the year-earlier period.

Full Year Results

For 2009, revenue declined 7% to $562.3 million compared with $604.8 million in 2008. Foreign currency exchange rate fluctuations negatively affected 2009 revenue by approximately $14 million compared with 2008. Excluding the effects of foreign exchange rate changes, revenue declined 5% year over year. Revenue trends in each of Real’s businesses for the full year 2009 compared with 2008 were: a slight increase in Music revenue to $160.9 million, a 7% decrease in Technology Products and Solutions revenue to $191.5 million, a 9% decrease in Games revenue to $122.8 million, and a decrease of 15% in Media Software and Services to $87.1 million.

Net loss attributable to common shareholders for the year was $(212.3) million, or $(1.60) per share, compared with a net loss of $(243.9) million, or $(1.74) per share, in 2008. The net loss for the most recent year included impairments of $(184.6) million, or $(1.37) per share. The net loss in 2008 included impairments of $(241.4) million, or $(1.72) per share.

In 2009, adjusted EBITDA excluding impairments was $39.7 million compared with $60.7 million in 2008. A reconciliation of GAAP net loss attributable to common shareholders to adjusted EBITDA and adjusted EBITDA excluding impairments is provided in the financial tables that accompany this release.

Business Outlook

The following business outlook for the first quarter of 2010 assumes Rhapsody America’s financial results are consolidated in Real’s financial results for the entire first quarter. For the first quarter of 2010, Real expects overall revenue to decline by up to 12% year-over-year and up to 15% sequentially. As a result of the decline in revenue, Real expects adjusted EBITDA excluding impairments for the first quarter of 2010 to be below the first quarter of 2009. Compared with the year-earlier quarter, the company expects first-quarter revenue for Music, Media Software and Services, Games and Technology Products and Solutions to decline. Sequentially, the company expects revenue to be flat in Games, and to decline in Music, Media Software and Services and Technology Products and Solutions, with the largest decline in Technology Products and Solutions, primarily as a result of fourth quarter business seasonality.

Approximately 25% of Real’s revenue is denominated in currencies other than the U.S. dollar, most notably the euro and Korean won. Based on current currency rates, Real expects reported revenues to be affected by foreign currency trends.

The foregoing forward-looking statements reflect Real’s expectations as of February 11, 2010. It is not Real’s general practice to update these forward-looking statements until its next quarterly results announcement.

Webcast and Conference Call Information

The company will host a webcast and conference call today at 5:00pm (Eastern)/ 2:00pm (Pacific). The live webcast will be available at http://investor.realnetworks.com. Listeners must use 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.

Conference Call Details

5:00 p.m. (Eastern) / 2:00 p.m. (Pacific)
Dial in:
800-857-5305 Domestic
773-681-5857 International
Passcode: Fourth Quarter Earnings
Leader: Bob Kimball

Telephonic replay will be available until 8:00 p.m. (Eastern), February 25, 2010.

Replay dial in:
888-277-5024 Domestic
203-369-3021 International

RNWK-F

For More Information Contact
Press:Bill Hankes, (206) 892-6614, bhankes@real.com
Financial:Marj Charlier, (206) 892-6718, mcharlier@real.com

About RealNetworks

RealNetworks, Inc. delivers digital entertainment services to consumers via PC, portable music player, home entertainment system and mobile phone. Real created the streaming media category in 1995 and has continued to lead the market with pioneering products and services, including: RealPlayer^®, the first mainstream media player to enable one-click downloading and recording of Internet video; the award-winning Rhapsody^® digital music service, which delivers more than 1 billion songs per year; RealArcade^®, one of the largest casual games destinations on the Web; and a variety of mobile entertainment services, such as ringback tones, offered to consumers through leading wireless carriers around the world. RealNetworks’ corporate information is located at http://investor.realnetworks.com.

About Non-GAAP Financial Measures

To supplement RealNetworks’ condensed consolidated financial statements presented in accordance with GAAP in this press release, the company also discloses certain non-GAAP financial measures, including adjusted revenue, adjusted EBITDA excluding impairments, adjusted EBITDA, adjusted EBITDA excluding impairments by reporting segment, adjusted cost of revenue and adjusted operating expenses, which management believes provide investors with useful information.

In the financial tables of our earnings press release, RealNetworks has included reconciliations of GAAP net income (loss) attributable to common shareholders to adjusted EBITDA, to adjusted EBITDA excluding impairments, and to adjusted EBITDA excluding

impairments by reporting segment; GAAP cost of revenue to adjusted cost of revenue; and GAAP operating expenses to adjusted operating expenses for the relevant periods.

The rationale for management’s use of non-GAAP measures is included in the supplementary materials presented with the fourth quarter earnings materials. Please refer to Exhibit 99.2 (“Information Regarding Non-GAAP Financial Measures”) to the company’s report on Form 8-K, which is being submitted today to the SEC.

Forward-Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to Real’s current expectations for future revenue, adjusted EBITDA excluding impairments and the impact of foreign currency rates. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements. Actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: fluctuations in foreign currencies; changes in Real’s GAAP tax rate; the potential gain or loss and other potential accounting consequences from the anticipated restructuring of Rhapsody America; development and consumer acceptance of legal online music distribution services generally and RealNetworks’ content services in particular because these are relatively new and unproven business models and markets; risks associated with the operation of Rhapsody America and with the ability of Real and Rhapsody America to realize financial benefits from the anticipated restructuring of Rhapsody America; Real’s ability to realize operating efficiencies and other benefits from the implementation of its strategic initiatives; the potential that Real will be unable to continue to enter into commercially attractive agreements with third parties for the provision of compelling content for its subscription service offerings and the distribution of Real’s carrier application services; the emergence of new entrants and competition in the market for digital media subscription offerings, online music sales and downloadable casual games; the impact on Real’s gross margin from content costs and the mix of subscription offerings sold to Real’s customers; competitive risks, including the emergence or growth of competing technologies, products and services; the potential outcomes and effects of claims and legal proceedings on Real’s business, prospects, financial condition or results of operations; risks associated with strategic relationships, business acquisitions and the introduction of new products and services; and changes in consumer and advertising spending in response to disruptions in the global financial markets. 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, its quarterly reports on Form 10-Q and in other reports and documents filed by RealNetworks from time to time with the Securities and Exchange Commission. The preparation of RealNetworks’ financial statements and forward-looking financial guidance requires the company to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenues and expenses during the reported period. Actual results may differ materially from these estimates under different assumptions or conditions. The company assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

RealNetworks, Rhapsody, RealPlayer and RealArcade are trademarks or registered trademarks of RealNetworks, Inc. or its subsidiaries. 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						Years Ended
	December 31,						December 31,
	2009			2008			2009			2008
				(in thousands, except per share data)
Net revenue	$	145,502		$	152,644		$	562,264		$	604,810
Cost of revenue		56,821			60,042			222,142			233,244
Impairment of deferred costs and prepaid royalties		—			19,666			—			19,666
Gross profit		88,681			72,936			340,122			351,900
Operating expenses:
Research and development		32,541			28,533			119,448			113,680
Sales and marketing		40,325			50,192			165,856			211,922
Advertising with related party (A)		11,063			12,480			33,292			44,213
General and administrative		19,456			19,107			74,664			69,981
Impairment of goodwill and long-lived assets		—			192,676			175,583			192,676
Restructuring and other charges		2,346			6,147			4,017			6,833
Total operating expenses		105,731			309,135			572,860			639,305
Operating loss		(17,050	)		(236,199	)		(232,738	)		(287,405	)
Other income (expenses):
Interest income, net		779			2,255			3,969			13,453
Equity in net loss of investments		(116	)		(271	)		(1,313	)		(695	)
Gain (loss) on sale of equity investments, net		(121	)		(12	)		688			210
Impairment of equity investments		(5,020	)		—			(5,020	)		—
Gain on sale of interest in Rhapsody America (B)		—			—			—			14,502
Other income (expense), net		(312	)		(1,306	)		(794	)		330
Total other income (expense), net		(4,790	)		666			(2,470	)		27,800
Loss before income taxes		(21,840	)		(235,533	)		(235,208	)		(259,605	)
Income tax benefit (expense)		124			(17,392	)		(3,321	)		(25,828	)
Net loss		(21,716	)		(252,925	)		(238,529	)		(285,433	)
Net loss attributable to the noncontrolling interest in Rhapsody America (C)		8,397			12,426			26,265			41,555
Net loss attributable to common shareholders	$	(13,319	)	$	(240,499	)	$	(212,264	)	$	(243,878	)
Basic net loss per share available to common shareholders	$	(0.11	)	$	(1.78	)	$	(1.60	)	$	(1.74	)
Diluted net loss per share available to common shareholders	$	(0.11	)	$	(1.78	)	$	(1.60	)	$	(1.74	)
Shares used to compute basic net loss per share available to common shareholders		134,844			135,402			134,612			140,432
Shares used to compute diluted net loss per share available to common shareholders		134,844			135,402			134,612			140,432

(A)	Consists of advertising purchased by Rhapsody America from MTV Networks (MTVN). MTVN has a 49% ownership interest in Rhapsody America.
(B)	Consists of gains realized from MTVN’s note payments to Rhapsody America. Effective January 1, 2009, the Company adopted SFAS No. 160Noncontrolling Interests in Consolidated Financial Statements, an amendment to ARB No. 51(SFAS 160) which requires the appreciation of gains on the sale of noncontrolling interest to be recorded as an equity transaction.
(C)	Noncontrolling interest in Rhapsody America reflects MTVN’s 49% ownership share in the losses of Rhapsody America.

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

	December 31,		December 31,
	2009		2008
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	277,030	$	232,968
Short-term investments		107,870		137,766
Trade accounts receivable, net		60,937		70,201
Deferred costs, current portion		5,192		4,026
Prepaid expenses and other current assets		30,624		34,599
Total current assets		481,653		479,560
Equipment, software, and leasehold improvements, at cost:
Equipment and software		151,951		135,788
Leasehold improvements		31,041		30,719
Total equipment, software, and leasehold improvements		182,992		166,507
Less accumulated depreciation and amortization		125,878		103,500
Net equipment, software, and leasehold improvements		57,114		63,007
Restricted cash equivalents and investments		13,700		14,742
Equity investments		19,553		18,582
Other assets		4,030		3,775
Deferred costs, non-current portion		10,182		6,120
Deferred tax assets, net, non-current portion		10,001		9,236
Other intangible assets, net		10,650		18,727
Goodwill		—		175,264
Total assets	$	606,883	$	789,013
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	32,703	$	36,575
Accrued and other liabilities		120,434		118,688
Deferred revenue, current portion		31,374		39,835
Related party payable (A)		11,216		13,155
Accrued loss on excess office facilities, current portion		3,228		4,317
Total current liabilities		198,955		212,570
Deferred revenue, non-current portion		1,933		1,961
Accrued loss on excess office facilities, non-current portion		—		2,893
Deferred rent		4,464		4,614
Deferred tax liabilities, net, non-current portion		961		1,379
Other long-term liabilities		13,006		11,660
Total liabilities		219,319		235,077
Noncontrolling interest in Rhapsody America (B)		7,253		378
Shareholders’ equity		380,311		553,558
Total liabilities and shareholders’ equity	$	606,883	$	789,013

(A)	Related party payable reflects amounts owed to MTVN.
(B)	Noncontrolling interest in Rhapsody America reflects MTVN’s 49% ownership interest in the net assets of Rhapsody America.

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

	Years Ended December 31,
	2009			2008
	(in thousands)
Cash flows from operating activities:
Net loss	$	(238,529	)	$	(285,433	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		31,454			45,968
Stock-based compensation		21,460			23,531
Loss on disposal of equipment, software, and leasehold improvements		502			10
Equity in net loss of investments		1,313			695
Gain on sale of equity investment, net		(688	)		(210	)
Impairment of equity investments		5,020			—
Excess tax benefit from stock option exercises		(15	)		(127	)
Impairment of goodwill and long-lived assets		175,583			192,676
Accrued restructuring and other charges		(2,773	)		5,524
Accrued loss on excess office facilities		(3,982	)		(3,490	)
Deferred income taxes, net		4,255			11,583
Gain on sale of interest in Rhapsody America		—			(14,502	)
Other		48			111
Net change in certain operating assets and liabilities, net of acquisitions		(2,952	)		(5,622	)
Net cash used in operating activities		(9,304	)		(29,286	)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements		(16,807	)		(29,530	)
Purchases of short-term investments		(143,273	)		(251,887	)
Proceeds from sales and maturities of short-term investments		173,169			194,053
Purchases of intangible assets		—			(2,839	)
Proceeds from the sales of equity investments		1,014			1,140
Purchases of equity investments		(2,000	)		(14,731	)
Payment of acquisition costs, net of cash acquired		(3,324	)		(10,192	)
Decrease in restricted cash equivalents and investments, net		1,042			768
Net cash used in investing activities		9,821			(113,218	)
Cash flows from financing activities:
Net proceeds from sales of common stock under employee stock purchase plan and exercise of stock options		1,455			9,570
Payments of convertible debt obligations		—			(100,000	)
Net proceeds from sales of interest in Rhapsody America		38,022			44,640
Excess tax benefit from stock option exercises		15			127
Repurchases of common stock		—			(50,199	)
Net cash provided by (used in) financing activities		39,492			(95,862	)
Effect of exchange rate changes on cash and cash equivalents		4,053			(5,363	)
Net decrease in cash and cash equivalents		44,062			(243,729	)
Cash and cash equivalents, beginning of period		232,968			476,697
Cash and cash equivalents, end of period	$	277,030		$	232,968

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

	2009								2008
	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
	(in thousands)
Net Revenue by Line of Business:
Consumer products and services (A)	$	91,233	$	92,836	$	89,517	$	97,194	$	100,282	$	100,322	$	101,353	$	96,286
Technology products and solutions (B)		54,269		47,428		46,208		43,579		52,362		51,633		51,295		51,277
Total net revenue	$	145,502	$	140,264	$	135,725	$	140,773	$	152,644	$	151,955	$	152,648	$	147,563
Consumer Products and Services:
Subscriptions (C)	$	50,492	$	52,401	$	54,446	$	59,052	$	57,853	$	57,776	$	55,658	$	55,193
Media properties (D)		20,327		21,001		14,753		15,536		18,337		19,946		23,472		18,702
E-commerce and other (E)		20,414		19,434		20,318		22,606		24,092		22,600		22,223		22,391
Total consumer products and services revenue	$	91,233	$	92,836	$	89,517	$	97,194	$	100,282	$	100,322	$	101,353	$	96,286
Consumer Products and Services:
Music (F)	$	37,598	$	38,765	$	40,452	$	44,053	$	43,882	$	41,591	$	37,170	$	38,079
Media software and services (G)		22,899		24,580		19,291		20,318		22,695		24,531		29,238		26,409
Games (H)		30,736		29,491		29,774		32,823		33,705		34,200		34,945		31,798
Total consumer products and services revenue	$	91,233	$	92,836	$	89,517	$	97,194	$	100,282	$	100,322	$	101,353	$	96,286
Net Revenue by Geography:
United States	$	91,175	$	95,758	$	90,685	$	96,666	$	101,369	$	102,363	$	100,898	$	99,169
Rest of world		54,327		44,506		45,040		44,107		51,275		49,592		51,750		48,394
Total net revenue	$	145,502	$	140,264	$	135,725	$	140,773	$	152,644	$	151,955	$	152,648	$	147,563
Subscribers (presented as greater than) *:
Total subscribers (I)		40,250		38,950		37,700		36,450		34,100		32,650		35,000		32,200
Technology products and solutions application services subscribers (J)		38,850		37,500		36,300		33,850		31,500		29,950		32,450		29,500
Music subscribers:
Consumer music subscribers:
Rhapsody subscribers		675		700		750		800		775		750		600		600
Radio subscribers		75		75		75		1,200		1,225		1,250		1,225		1,275
Total consumer music subscribers		750		775		825		2,000		2,000		2,000		1,825		1,875
Technology products and solutions application services music subscribers (K)		1,150		1,075		975		900		875		850		800		800
Total Music Subscribers**		1,900		1,850		1,800		2,900		2,875		2,850		2,625		2,675

*	Total music subscribers includes subscribers from our technology products and solutions application subscription services, such as music-on-demand, as well as our consumer music services, such as Rhapsody and Premium Radio. Although music-on-demand subscribers are included in the technology products and solution application services subscribers and total music subscribers, these subscribers are only counted once as part of our total subscribers.
**	Prior periods have been changed to reflect current period presentation. Totals may not equal due to rounding convention.
(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)	The Technology Products and Solutions (TPS) segment includes revenue and related costs from: sales of ringback tones, music-on-demand, video-on-demand, messaging, and information services; sales of media delivery system software, including Helix system software and related authoring and publishing tools, both directly to customers and indirectly through original equipment manufacturer channels; support and maintenance services sold to customers who purchase software products; broadcast hosting services; and consulting and professional services that are offered to customers.
(C)	Revenue is derived from consumer digital media subscription services including: SuperPass, RadioPass, Rhapsody, GamePass and FunPass.
(D)	Revenue is derived from advertising and through the distribution of third party products.
(E)	Revenue is derived from RealPlayer Plus and related products, sales of third party software products, and content such as games and music.
(F)	The Music segment primarily includes revenue and related costs from: Rhapsody America’s Rhapsody and RadioPass subscription services; sales of digital music content through the Rhapsody service and the RealPlayer music store; and advertising from music websites.
(G)	The Media Software and Services (MSS) segment primarily includes revenue and related costs from: the SuperPass premium subscription service; RealPlayer Plus and related products; sales and distribution of third-party software products; and all advertising other than that related directly to our Music and Games businesses.
(H)	The Games segment primarily includes revenue and related costs from: the sale of individual games on our websites RealArcade.com, GameHouse.com and Zylom.com; the sales of games subscription services; advertising through our games websites; the sale of games through the syndication on partner sites, and sales of games through wireless carriers.
(I)	Total subscribers include technology products and solutions application services and consumer subscription services including: ringback tones, music-on-demand, video-on-demand, Rhapsody, Rhapsody-to-Go, RadioPass, SuperPass, and GamePass.
(J)	Technology products and solutions application service subscribers include: ringback tones, music-on-demand and video-on-demand.
(K)	Technology products and solutions application services music subscribers include music-on-demand.

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

Reconciliation of GAAP net income (loss) attributable to common shareholders to adjusted EBITDA and adjusted EBITDA excluding impairments is as follows:

	Year
	Ended			Quarters Ended
	December 31,			December 31,			September 30,			June 30,			March 31,
	2009			2009			2009			2009			2009
							(in thousands)
Net income (loss) attributable to common shareholders	$	(212,264	)	$	(13,319	)	$	1,520		$	(188,329	)	$	(12,136	)
Interest income, net		(3,969	)		(779	)		(1,253	)		(754	)		(1,183	)
Stock-based compensation		21,460			5,915			4,727			5,596			5,222
Loss (gain) on sale of equity investments, net		(688	)		121			(604	)		(68	)		(137	)
Impairment of equity investments		5,020			5,020			—			—			—
Conversion of WiderThan stock options to a cash equivalent		21			—			1			3			17
Depreciation and amortization (net of noncontrolling interest effect)		23,328			6,355			5,432			5,815			5,726
Acquisitions related intangible asset amortization (net of noncontrolling interest effect)		6,998			1,797			1,784			1,649			1,768
Impairment of goodwill and long-lived assets		175,583			—			—			175,583			—
Pro forma gain on sale of interest in Rhapsody America		16,870			5,577			3,839			3,444			4,010
Income taxes		3,321			(124	)		686			1,210			1,549
Adjusted EBITDA	$	35,680		$	10,563		$	16,132		$	4,149		$	4,836
Impairments:
Impairment of deferred costs and prepaid royalties		—			—			—			—			—
Restructuring and other charges		4,017			2,346			877			—			794
Adjusted EBITDA excluding impairments	$	39,697		$	12,909		$	17,009		$	4,149		$	5,630

	Year
	Ended			Quarters Ended
	December 31,			December 31,			September 30,			June 30,			March 31,
	2008			2008			2008			2008			2008
							(in thousands)
Net income (loss) attributable to common shareholders	$	(243,878	)	$	(240,499	)	$	(4,500	)	$	(1,305	)	$	2,426
Interest income, net		(13,453	)		(2,255	)		(2,865	)		(3,375	)		(4,958	)
Stock-based compensation		23,531			6,056			5,955			6,031			5,489
Loss (gain) on sale of equity investments, net		(210	)		12			—			(222	)		—
Conversion of WiderThan stock options to a cash equivalent		142			11			16			26			89
Depreciation and amortization (net of noncontrolling interest effect)		24,417			5,784			6,165			6,186			6,282
Acquisitions related intangible asset amortization (net of noncontrolling interest effect)		20,110			1,872			5,752			6,171			6,315
Impairment of goodwill and long-lived assets (net of noncontrolling interest effect)		190,347			190,347			—			—			—
Pro forma gain on sale of interest in Rhapsody America		6,568			6,568			—			—			—
Expenses related to antitrust litigation		757			179			174			202			202
Income taxes		25,828			17,392			728			3,700			4,008
Adjusted EBITDA	$	34,159		$	(14,533	)	$	11,425		$	17,414		$	19,853
Impairments:
Impairment of deferred costs and prepaid royalties		19,666			19,666			—			—			—
Restructuring and other charges		6,833			6,147			—			—			686
Adjusted EBITDA excluding impairments	$	60,658		$	11,280		$	11,425		$	17,414		$	20,539

RealNetworks, Inc. and Subsidiaries
Segment Results of Operations
(Unaudited)

	Quarter Ended December 31, 2009
	Music (A)			MSS (B)			Games (C)			TPS (D)			Other			Grand Total
							(in thousands)
Net revenue	$	37,598		$	22,899		$	30,736		$	54,269		$	—		$	145,502
Cost of revenue		22,692			3,719			8,399			22,011			—			56,821
Gross profit		14,906			19,180			22,337			32,258			—			88,681
Gross margin		40	%		84	%		73	%		59	%		—			61	%
Operating expenses:
Advertising with related party		11,063			—			—			—			—			11,063
Restructuring and other charges		376			556			549			865			—			2,346
Other operating expenses		20,507			16,835			29,007			25,964			9			92,322
Total operating expenses		31,946			17,391			29,556			26,829			9			105,731
Income (loss) from operations		(17,040	)		1,789			(7,219	)		5,429			(9	)		(17,050	)
Other income (expenses):
Interest income, net		—			—			—			—			779			779
Equity in net loss of investments		—			—			—			—			(116	)		(116	)
Loss on sale of equity investments, net		—			—			—			—			(121	)		(121	)
Impairment of equity investments		—			—			—			—			(5,020	)		(5,020	)
Other income (expenses), net		—			—			—			—			(312	)		(312	)
Total other income (expenses), net		—			—			—			—			(4,790	)		(4,790	)
Income (loss) before income taxes		(17,040	)		1,789			(7,219	)		5,429			(4,799	)		(21,840	)
Income taxes		—			—			—			—			124			124
Net income (loss)		(17,040	)		1,789			(7,219	)		5,429			(4,675	)		(21,716	)
Net income (loss) attributable to noncontrolling interest in Rhapsody America		8,397			—			—			—			—			8,397
Net income (loss) attributable to common shareholders	$	(8,643	)	$	1,789		$	(7,219	)	$	5,429		$	(4,675	)	$	(13,319	)
Reconciliation of segment GAAP net income (loss) attributable to common shareholders to segment adjusted EBITDA excluding impairments is as follows:
Net income (loss) attributable to common shareholders	$	(8,643	)	$	1,789		$	(7,219	)	$	5,429		$	(4,675	)	$	(13,319	)
Income taxes		—			—			—			—			(124	)		(124	)
Interest income, net		—			—			—			—			(779	)		(779	)
Stock-based compensation		926			822			1,606			2,561			—			5,915
Conversion of WiderThan stock options to a cash equivalent		—			—			—			—			—			—
Acquisitions related intangible asset amortization(E)		279			25			95			1,398			—			1,797
Pro forma gain on sale of interest in Rhapsody America		5,577			—			—			—			—			5,577
Loss on sale of equity investments, net		—			—			—			—			121			121
Impairment of equity investments		—			—			—			—			5,020			5,020
Restructuring and other charges		376			556			549			865			—			2,346
Depreciation and amortization(E)		890			552			2,151			2,762			—			6,355
Adjusted EBITDA excluding impairments	$	(595	)	$	3,744		$	(2,818	)	$	13,015		$	(437	)	$	12,909

	Quarter Ended December 31, 2008
	Music(A)			MSS(B)			Games(C)			TPS(D)			Other			Grand Total
							(in thousands)
Net revenue	$	43,882		$	22,695		$	33,705		$	52,362		$	—		$	152,644
Cost of revenue		25,068			4,199			10,387			20,388			—			60,042
Impairment of deferred costs and prepaid royalties		1,000			—			7,829			10,837			—			19,666
Gross profit		17,814			18,496			15,489			21,137			—			72,936
Gross margin		41	%		81	%		46	%		40	%		—			48	%
Operating expenses:
Advertising with related party		12,480			—			—			—			—			12,480
Impairment of goodwill and long-lived assets		4,753			167			45,889			141,867			—			192,676
Restructuring and other charges		681			1,134			1,898			2,434			—			6,147
Other operating expenses		24,777			15,818			28,196			28,823			218			97,832
Total operating expenses		42,691			17,119			75,983			173,124			218			309,135
Income (loss) from operations		(24,877	)		1,377			(60,494	)		(151,987	)		(218	)		(236,199	)
Other income (expenses):
Interest income, net		—			—			—			—			2,255			2,255
Equity in net loss of investments		—			—			—			—			(271	)		(271	)
Loss on sale of equity investments, net		—			—			—			—			(12	)		(12	)
Other income (expenses), net		—			—			—			—			(1,306	)		(1,306	)
Total other income (expenses), net		—			—			—			—			666			666
Income (loss) before income taxes		(24,877	)		1,377			(60,494	)		(151,987	)		448			(235,533	)
Income taxes		—			—			—			—			(17,392	)		(17,392	)
Net income (loss)		(24,877	)		1,377			(60,494	)		(151,987	)		(16,944	)		(252,925	)
Net income (loss) attributable to noncontrolling interest in Rhapsody America		12,426			—			—			—			—			12,426
Net income (loss) attributable to common shareholders	$	(12,451	)	$	1,377		$	(60,494	)	$	(151,987	)	$	(16,944	)	$	(240,499	)
Reconciliation of segment GAAP net income (loss) attributable to common shareholders to segment adjusted EBITDA excluding impairments is as follows:
Net income (loss) attributable to common shareholders	$	(12,451	)	$	1,377		$	(60,494	)	$	(151,987	)	$	(16,944	)	$	(240,499	)
Income taxes		—			—			—			—			17,392			17,392
Interest income, net		—			—			—			—			(2,255	)		(2,255	)
Stock-based compensation		1,058			765			1,632			2,601			—			6,056
Conversion of WiderThan stock options to a cash equivalent		—			—			—			11			—			11
Acquisitions related intangible asset amortization(E)		278			—			273			1,321			—			1,872
Pro forma gain on sale of interest in Rhapsody America		6,568			—			—			—			—			6,568
Impairment of goodwill and long-lived assets(E)		2,424			167			45,889			141,867			—			190,347
Loss on sale of equity investments, net		—			—			—			—			12			12
Impairment of deferred costs and prepaid royalties		1,000			—			7,829			10,837			—			19,666
Restructuring and other charges		681			1,134			1,898			2,434			—			6,147
Depreciation and amortization(F)		1,127			804			957			2,896			—			5,784
Expenses related to antitrust litigation		—			—			—			—			179			179
Adjusted EBITDA excluding impairments	$	685		$	4,247		$	(2,016	)	$	9,980		$	(1,616	)	$	11,280

Note: Cost of revenue and operating expenses of the segments shown above include costs directly attributable to those segments and an allocation of general and administrative and other common or shared costs.

(A)	The Music segment primarily includes revenue and related costs from: Rhapsody America’s Rhapsody and RadioPass subscription services; sales of digital music content through the Rhapsody service and the RealPlayer music store; and advertising from music websites.
(B)	The Media Software and Services (MSS) segment primarily includes revenue and related costs from: the SuperPass premium subscription service; RealPlayer Plus and related products; sales and distribution of third-party software products; and all advertising other than that related directly to our Music and Games businesses.
(C)	The Games segment primarily includes revenue and related costs from: the sale of individual games on our websites RealArcade.com, GameHouse.com and Zylom.com; the sales of games subscription services; advertising through our games websites; the sale of games through the syndication on partner sites, and sales of games through wireless carriers.
(D)	The Technology Products and Solutions (TPS) segment includes revenue and related costs from: sales of ringback tones, music-on-demand, video-on-demand, messaging, and information services; sales of media delivery system software, including Helix system software and related authoring and publishing tools, both directly to customers and indirectly through original equipment manufacturer channels; support and maintenance services sold to customers who purchase software products; broadcast hosting services; and consulting and professional services that are offered to customers.
(E)	Net of noncontrolling interest effect.

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

	Quarter Ended December 31, 2009
						Acquisitions			WiderThan
						Related			Options
						Intangible			Converted		Antitrust
	As		Stock-Based			Asset			to a Cash		Litigation
	Reported		Compensation			Amortization(A)			Equivalent		Related		Adjusted
						(in thousands)
Expenses in accordance with GAAP
Cost of revenue	$	56,821	$	(351	)	$	(537	)	$	—	$	—	$	55,933
Operating expenses:
Research and development	$	32,541	$	(2,481	)	$	—		$	—	$	—	$	30,060
Sales and marketing		40,325		(1,467	)		(1,260	)		—		—		37,598
General and administrative		19,456		(1,616	)		—			—		—		17,840
Adjusted operating expenses, net	$	92,322	$	(5,564	)	$	(1,260	)	$	—	$	—	$	85,498

	Quarter Ended December 31, 2008
						Acquisitions			WiderThan
						Related			Options
						Intangible			Converted			Antitrust
	As		Stock-Based			Asset			to a Cash			Litigation
	Reported		Compensation			Amortization(A)			Equivalent			Related			Adjusted
						(in thousands)
Expenses in accordance with GAAP
Cost of revenue	$	60,042	$	(607	)	$	(596	)	$	(2	)	$	—		$	58,837
Operating expenses:
Research and development	$	28,533	$	(2,103	)	$	—		$	—		$	—		$	26,430
Sales and marketing		50,192		(1,433	)		(1,276	)		(5	)		—			47,478
General and administrative		19,107		(1,913	)		—			(4	)		(179	)		17,011
Adjusted operating expenses, net	$	97,832	$	(5,449	)	$	(1,276	)	$	(9	)	$	(179	)	$	90,919

	Year Ended December 31, 2009
						Acquisitions			WiderThan
						Related			Options
						Intangible			Converted			Antitrust
	As		Stock-Based			Asset			to a Cash			Litigation
	Reported		Compensation			Amortization(A)			Equivalent			Related		Adjusted
						(in thousands)
Expenses in accordance with GAAP
Cost of revenue	$	222,142	$	(1,653	)	$	(2,176	)	$	(1	)	$	—	$	218,312
Operating expenses:
Research and development	$	119,448	$	(8,327	)	$	—		$	(8	)	$	—	$	111,113
Sales and marketing		165,856		(4,830	)		(4,822	)		(12	)		—		156,192
General and administrative		74,664		(6,650	)		—			—			—		68,014
Adjusted operating expenses, net	$	359,968	$	(19,807	)	$	(4,822	)	$	(20	)	$	—	$	335,319

	Year Ended December 31, 2008
						Acquisitions			WiderThan
						Related			Options
						Intangible			Converted			Antitrust
	As		Stock-Based			Asset			to a Cash			Litigation
	Reported		Compensation			Amortization(A)			Equivalent			Related			Adjusted
						(in thousands)
Expenses in accordance with GAAP
Cost of revenue	$	233,244	$	(2,570	)	$	(7,188	)	$	(26	)	$	—		$	223,460
Operating expenses:
Research and development	$	113,680	$	(8,410	)	$	—		$	(9	)	$	—		$	105,261
Sales and marketing		211,922		(5,860	)		(12,922	)		(36	)		—			193,104
General and administrative		69,981		(6,691	)		—			(71	)		(757	)		62,462
Adjusted operating expenses, net	$	395,583	$	(20,961	)	$	(12,922	)	$	(116	)	$	(757	)	$	360,827

(A) — Net of noncontrolling interest effect.

RealNetworks, Inc. and Subsidiaries
Earnings Per Share Reconciliation
(Unaudited)

	Quarters Ended						Year Ended
	December 31,						December 31,
	2009			2008			2009			2008
				(in thousands, except per share data)
Net loss attributable to common shareholders	$	(13,319	)	$	(240,499	)	$	(212,264	)	$	(243,878	)
Less accretion of MTVN’s preferred return in Rhapsody America		(925	)		—			(3,700	)		—
Net loss available to common shareholders	$	(14,244	)	$	(240,499	)	$	(215,964	)	$	(243,878	)
Shares used to compute basic net loss per share available to common shareholders		134,844			135,402			134,612			140,432
Dilutive potential common shares:
Stock options and restricted stock		—			—			—			—
Convertible debt		—			—			—			—
Shares used to compute diluted net loss per share available to common shareholders		134,844			135,402			134,612			140,432
Basic net loss per share available to common shareholders	$	(0.11	)	$	(1.78	)	$	(1.60	)	$	(1.74	)
Diluted net loss per share available to common shareholders	$	(0.11	)	$	(1.78	)	$	(1.60	)	$	(1.74	)