8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): October 29, 2009

RealNetworks, Inc.

(Exact name of registrant as specified in its charter)

WASHINGTON	0-23137	91-1628146
(State or other	(Commission File	(I.R.S. Employer
jurisdiction	Number)	Identification No.)
of incorporation)

2601 Elliott Avenue, Suite 1000
Seattle, Washington 98121
(Address of principal executive offices) (Zip code)

(206) 674-2700
Registrant’s telephone number, including area code

Not Applicable
(Former name or former address if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

     On October 29, 2009, RealNetworks, Inc. (the “Company” or “RealNetworks”) announced via press release the Company’s results for its third quarter ended September 30, 2009. A copy of the Company’s press release is attached hereto as Exhibit 99.1 and additional information regarding the inclusion of non-GAAP financial measures in certain of the Company’s public disclosures, including its third quarter 2009 financial results announcement, is included as Exhibit 99.2. The information in Item 2.02 of this Form 8-K is intended to be furnished to the Securities and Exchange Commission (“SEC”). This information shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

     (d) Exhibits.

     Pursuant to the rules and regulations of the SEC, the attached exhibits are deemed to have been furnished to, but not filed with, the SEC.

Exhibit No.		Description
	99.1	Press Release issued by RealNetworks, Inc. dated October 29, 2009
	99.2	Information Regarding Non-GAAP Financial Measures

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

REALNETWORKS, INC.
By:	/s/ Michael Eggers
	Michael Eggers
	Senior Vice President, Chief Financial Officer and Treasurer

Dated: October 29, 2009

EXHIBIT INDEX

Exhibit Number		Description
	99.1	Press Release issued by RealNetworks, Inc. dated October 29, 2009
	99.2	Information Regarding Non-GAAP Financial Measures

EX-99.1

Exhibit 99.1

REALNETWORKS ANNOUNCES THIRD QUARTER 2009 RESULTS

SEATTLE – Oct. 29, 2009 – Digital entertainment services company RealNetworks^®, Inc. (Nasdaq: RNWK) today announced results for the third quarter ended Sept. 30, 2009.

Quarterly Highlights:

• Revenue of $140.3 million

• Net income attributable to common shareholders of $1.5 million

• Adjusted EBITDA of $16.1 million

• Cash and short term investments of $373.2 million as of Sept. 30, 2009

“In the third quarter, we achieved two key financial objectives: we returned to sequential revenue growth and we reduced our operating costs. As a result we significantly increased our EBITDA,” said Rob Glaser, RealNetworks’ Chairman and CEO. “In the quarter, we also made significant progress delivering great new products and services that support two major fundamental platforms, Facebook and the iPhone/iPod Touch.”

Third Quarter Results

For the third quarter of 2009, revenue was $140.3 million, a decrease of 8%, compared with $152.0 million in the third quarter of 2008. Foreign currency exchange rate fluctuations negatively affected 2009 third quarter revenue by approximately $3.6 million compared with the year-ago quarter. Excluding the effects of these foreign exchange rate changes, revenue declined 5% year over year. Revenue trends in each of Real’s businesses in the third quarter of 2009, including the effects of foreign currency exchange rate changes, compared with the year-earlier quarter were: a slight increase in Media Software and Services revenue to $24.6 million, offset by a 7% decrease in Music revenue to $38.8 million, an 8% decrease in Technology Products and Solutions revenue to $47.4 million, and a 14% decrease in Games revenue to $29.5 million.

Net income attributable to common shareholders for the third quarter of 2009 was $1.5 million, or less than $.01 per share, compared with a net loss of $(4.5) million, or $(0.03) per share, in the third quarter of 2008. Adjusted EBITDA for the third quarter of 2009 was $16.1 million compared with $11.4 million in the third quarter of 2008. In the third quarter of 2009, RealNetworks received insurance payments to reimburse litigation-defense costs that reduced G&A expense and increased EBITDA by approximately $3.9 million. A reconciliation of GAAP net income to adjusted EBITDA is provided in the financial tables that accompany this release.

Gross margin was 62% in the third quarter of 2009 compared with 59% in the third quarter of 2008. Income tax provision was $(0.7) million in the third quarter of 2009, unchanged from the year-earlier period. Interest income in the third quarter of 2009 was $1.3 million compared with $2.9 million in the year-earlier period.

As of Sept. 30, 2009, Real had approximately $373.2 million in unrestricted cash, cash equivalents and short-term investments, of which nearly 90% is located in the U.S. In addition, Real had approximately $35.5 million in restricted cash and equity investments at Sept. 30, 2009.

1

Business Outlook

For the fourth quarter of 2009, Real expects overall revenue to increase sequentially but to decline year-over-year. Sequentially, the company expects revenue to increase in Games and Technology Products and Solutions, to be flat in Music, and to decline in Media Software and Services. Compared with the year-ago fourth quarter, the company expects fourth-quarter Media Software and Services and Technology Products and Solutions revenue to be flat, and expects revenue in Music and Games to decline.

The foregoing forward-looking statements reflect Real’s expectations as of Oct. 29, 2009. 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 featuring slides and audio 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: Third Quarter Earnings
Leader: Rob Glaser

Telephonic replay will be available until 8:00 p.m. (Eastern), November 12, 2009.
Replay dial in:
800-945-7680 Domestic
203-369-3509 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 Real Networks

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

2

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 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) to adjusted EBITDA, to adjusted EBITDA excluding impairments, and to adjusted EBITDA 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 third quarter earnings materials, available in 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 and other financial results. 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; 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; 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; 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 business acquisitions and the introduction of new products and services; changes in consumer and advertising spending in response to disruptions in the global financial markets; risks inherent in strategic relationships, especially with competitors, and with respect to technology and service integration efforts; and risks relating to the ability of Real’s strategic partners to generate subscribers for Real’s digital content services. 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

3

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.

4

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

	Quarters Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
	(in thousands, except per share data)
Net revenue	$	140,264		$	151,955		$	416,762		$	452,166
Cost of revenue		53,686			62,164			165,321			173,202
Gross profit		86,578			89,791			251,441			278,964
Operating expenses:
Research and development		29,425			31,076			86,907			85,147
Sales and marketing		39,573			55,080			125,531			161,730
Advertising with related party (A)		7,941			15,153			22,229			31,733
General and administrative		13,039			15,453			55,208			50,874
Impairment of goodwill		—			—			175,583			—
Restructuring and other charges		877			—			1,671			686
Total operating expenses		90,855			116,762			467,129			330,170
Operating loss		(4,277	)		(26,971	)		(215,688	)		(51,206	)
Other income (expenses):
Interest income, net		1,253			2,865			3,190			11,198
Equity in net loss of investments		(273	)		(226	)		(1,197	)		(424	)
Gain on sale of equity investments, net		604			—			809			222
Gain on sale of interest in Rhapsody America (B)		—			7,405			—			14,502
Other income (expense), net		(888	)		818			(482	)		1,636
Total other income (expense), net		696			10,862			2,320			27,134
Loss before income taxes		(3,581	)		(16,109	)		(213,368	)		(24,072	)
Income taxes		(686	)		(728	)		(3,445	)		(8,436	)
Net loss		(4,267	)		(16,837	)		(216,813	)		(32,508	)
Net loss attributable to the noncontrolling interest in Rhapsody America (C)		5,787			12,337			17,868			29,129
Net income (loss) attributable to common shareholders	$	1,520		$	(4,500	)	$	(198,945	)	$	(3,379	)
Basic net income (loss) per share available to common shareholders	$	0.00		$	(0.03	)	$	(1.50	)	$	(0.02	)
Diluted net income (loss) per share available to common shareholders	$	0.00		$	(0.03	)	$	(1.50	)	$	(0.02	)
Shares used to compute basic net income (loss) per share available to common shareholders		134,793			141,975			134,531			142,611
Shares used to compute diluted net income (loss) per share available to common shareholders		134,978			141,975			134,531			142,611

(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. 160 Noncontrolling 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)

	September 30,		December 31,
	2009		2008
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	204,777	$	232,968
Short-term investments		168,420		137,766
Trade accounts receivable, net		67,060		70,201
Deferred costs, current portion		5,383		4,026
Prepaid expenses and other current assets		31,388		34,599
Total current assets		477,028		479,560
Equipment, software, and leasehold improvements, at cost:
Equipment and software		147,430		135,788
Leasehold improvements		31,003		30,719
Total equipment, software, and leasehold improvements		178,433		166,507
Less accumulated depreciation and amortization		119,903		103,500
Net equipment, software, and leasehold improvements		58,530		63,007
Restricted cash equivalents and investments		13,700		14,742
Equity investments		21,768		18,582
Other assets		4,180		3,775
Deferred costs, non-current portion		8,945		6,120
Deferred tax assets, net, non-current portion		9,867		9,236
Other intangible assets, net		12,761		18,727
Goodwill		—		175,264
Total assets	$	606,779	$	789,013
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	39,264	$	36,575
Accrued and other liabilities		111,295		118,688
Deferred revenue, current portion		35,812		39,835
Related party payable (A)		8,007		13,155
Accrued loss on excess office facilities, current portion		4,338		4,317
Total current liabilities		198,716		212,570
Deferred revenue, non-current portion		1,933		1,961
Accrued loss on excess office facilities, non-current portion		—		2,893
Deferred rent		4,534		4,614
Deferred tax liabilities, net, non-current portion		859		1,379
Other long-term liabilities		11,027		11,660
Total liabilities		217,069		235,077
Noncontrolling interest in Rhapsody America (B)		5,440		378
Shareholders’ equity		384,270		553,558
Total liabilities and shareholders’ equity	$	606,779	$	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)

	Nine Months Ended September 30,
	2009			2008
	(in thousands)
Cash flows from operating activities:
Net loss	$	(216,813	)	$	(32,508	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		22,881			38,032
Stock-based compensation		15,545			17,475
Loss on disposal of equipment, software, and leasehold improvements		302			157
Equity in net loss of investments		1,197			198
Gain on sale of equity investment, net		(809	)		(222	)
Excess tax benefit from stock option exercises		(9	)		(108	)
Impairment of goodwill		175,583			—
Accrued restructuring and other charges		(3,786	)		—
Accrued loss on excess office facilities		(2,872	)		(2,537	)
Deferred income taxes, net		545			2,640
Gain on sale of interest in Rhapsody America		—			(14,502	)
Other		39			111
Net change in certain operating assets and liabilities, net of acquisitions		(8,295	)		(29,750	)
Net cash used in operating activities		(16,492	)		(21,014	)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements		(11,445	)		(24,807	)
Purchases of short-term investments		(124,043	)		(151,378	)
Proceeds from sales and maturities of short-term investments		93,389			130,136
Purchases of intangible assets		—			(1,808	)
Proceeds from the sales of equity investments		1,014			1,225
Purchases of equity investments		(2,000	)		(4,500	)
Payment of acquisition costs, net of cash acquired		(3,324	)		(10,192	)
Decrease in restricted cash equivalents and investments, net		1,042			776
Net cash used in investing activities		(45,367	)		(60,548	)
Cash flows from financing activities:
Net proceeds from sales of common stock under employee stock purchase plan and exercise of stock options		819			8,834
Payments of convertible debt obligations		—			(100,000	)
Net proceeds from sales of interest in Rhapsody America		26,912			31,640
Excess tax benefit from stock option exercises		9			108
Repurchases of common stock		—			(23,062	)
Net cash provided by (used in) financing activities		27,740			(82,480	)
Effect of exchange rate changes on cash and cash equivalents		5,928			(7,512	)
Net decrease in cash and cash equivalents		(28,191	)		(171,554	)
Cash and cash equivalents, beginning of period		232,968			476,697
Cash and cash equivalents, end of period	$	204,777		$	305,143

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

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

	Quarters Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2009			2009			2009			2008			2008			2008			2008
	(in thousands)
Net income (loss) attributable to common shareholders	$	1,520		$	(188,329	)	$	(12,136	)	$	(240,499	)	$	(4,500	)	$	(1,305	)	$	2,426
Interest income, net		(1,253	)		(754	)		(1,183	)		(2,255	)		(2,865	)		(3,375	)		(4,958	)
Stock-based compensation		4,727			5,596			5,222			6,056			5,955			6,031			5,489
Loss (gain) on equity investments, net		(604	)		(68	)		(137	)		12			—			(222	)		—
Conversion of WiderThan stock options to a cash equivalent		1			3			17			11			16			26			89
Depreciation and amortization (net of noncontrolling interest effect)		5,432			5,815			5,726			5,784			6,165			6,186			6,282
Acquisitions related intangible asset amortization (net of noncontrolling interest effect)		1,784			1,649			1,768			1,872			5,752			6,171			6,315
Impairment of goodwill and long-lived assets		—			175,583			—			190,347			—			—			—
Impairment of deferred costs and prepaid royalties		—			—			—			19,666			—			—			—
Restructuring and other charges		877			—			794			6,147			—			—			686
Pro forma gain on sale of interest in Rhapsody America		3,839			3,444			4,010			6,568			—			—			—
Expenses related to antitrust litigation		—			—			—			179			174			202			202
Income taxes		686			1,210			1,549			17,392			728			3,700			4,008
Adjusted EBITDA excluding impairments	$	17,009		$	4,149		$	5,630		$	11,280		$	11,425		$	17,414		$	20,539
Impairments:
Impairment of deferred costs and prepaid royalties		—			—			—			(19,666	)		—			—			—
Restructuring and other charges		(877	)		—			(794	)		(6,147	)		—			—			(686	)
Adjusted EBITDA	$	16,132		$	4,149		$	4,836		$	(14,533	)	$	11,425		$	17,414		$	19,853

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

	Quarter Ended September 30, 2009
	Music(A)			MSS(B)			Games(C)			TPS(D)			Other			Grand Total
	(in thousands)
Net revenue	$	38,765		$	24,580		$	29,491		$	47,428		$	—		$	140,264
Cost of revenue		23,720			4,090			7,728			18,148			—			53,686
Gross profit		15,045			20,490			21,763			29,280			—			86,578
Gross margin		39	%		83	%		74	%		62	%		—			62	%
Operating expenses:
Advertising with related party		7,941			—			—			—			—			7,941
Restructuring and other charges		312			139			258			168			—			877
Other operating expenses		16,897			13,110			26,823			25,367			(160	)		82,037
Total operating expenses		25,150			13,249			27,081			25,535			(160	)		90,855
Income (loss) from operations		(10,105	)		7,241			(5,318	)		3,745			160			(4,277	)
Other income (expenses):
Interest income, net		—			—			—			—			1,253			1,253
Equity in net loss of investments		—			—			—			—			(273	)		(273	)
Gain on sale of equity investments, net		—			—			—			—			604			604
Other income (expenses), net		—			—			—			—			(888	)		(888	)
Total other income (expenses), net		—			—			—			—			696			696
Income (loss) before income taxes		(10,105	)		7,241			(5,318	)		3,745			856			(3,581	)
Income taxes		—			—			—			—			(686	)		(686	)
Net income (loss)		(10,105	)		7,241			(5,318	)		3,745			170			(4,267	)
Net income (loss) attributable to noncontrolling interest in Rhapsody America		5,787			—			—			—			—			5,787
Net income (loss) attributable to common shareholders	$	(4,318	)	$	7,241		$	(5,318	)	$	3,745		$	170		$	1,520

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

Net income (loss) attributable to common shareholders	$	(4,318	)	$	7,241	$	(5,318	)	$	3,745	$	170		$	1,520
Income taxes		—			—		—			—		686			686
Interest income, net		—			—		—			—		(1,253	)		(1,253	)
Stock-based compensation		560			732		1,361			2,074		—			4,727
Conversion of WiderThan stock options to a cash equivalent		—			—		—			1		—			1
Acquisitions related intangible asset amortization (F)		278			8		70			1,428		—			1,784
Pro forma gain on sale of interest in Rhapsody America		3,839			—		—			—		—			3,839
Gain on sale of equity investments, net		—			—		—			—		(604	)		(604	)
Depreciation and amortization (F)		893			668		1,150			2,721		—			5,432
Adjusted EBITDA	$	1,252		$	8,649	$	(2,737	)	$	9,969	$	(1,001	)	$	16,132

	Quarter Ended September 30, 2008
	Music(A)			MSS(B)			Games(C)			TPS(D)			Other			Grand Total
	(in thousands)
Net revenue	$	41,591		$	24,531		$	34,200		$	51,633			—		$	151,955
Cost of revenue		23,787			4,539			10,251			23,587			—			62,164
Gross profit		17,804			19,992			23,949			28,046			—			89,791
Gross margin		43	%		81	%		70	%		54	%		—			59	%
Operating expenses:
Advertising with related party		15,153			—			—			—			—			15,153
Other operating expenses		27,202			16,064			28,412			29,719			212			101,609
Total operating expenses		42,355			16,064			28,412			29,719			212			116,762
Income (loss) from operations		(24,551	)		3,928			(4,463	)		(1,673	)		(212	)		(26,971	)
Other income (expenses):
Interest income, net		—			—			—			—			2,865			2,865
Equity in net loss of investments		—			—			—			—			(226	)		(226	)
Gain on sale of interest in Rhapsody America (E)		7,405			—			—			—			—			7,405
Other income (expenses), net		—			—			—			—			818			818
Total other income (expenses), net		7,405			—			—			—			3,457			10,862
Income (loss) before income taxes		(17,146	)		3,928			(4,463	)		(1,673	)		3,245			(16,109	)
Income taxes		—			—			—			—			(728	)		(728	)
Net income (loss)		(17,146	)		3,928			(4,463	)		(1,673	)		2,517			(16,837	)
Net income (loss) attributable to noncontrolling interest in Rhapsody America		12,337			—			—			—			—			12,337
Net income (loss) attributable to common shareholders	$	(4,809	)	$	3,928		$	(4,463	)	$	(1,673	)	$	2,517		$	(4,500	)

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

Net income (loss) attributable to common shareholders	$	(4,809	)	$	3,928	$	(4,463	)	$	(1,673	)	$	2,517		$	(4,500	)
Income taxes		—			—		—			—			728			728
Interest income, net		—			—		—			—			(2,865	)		(2,865	)
Stock-based compensation		1,005			786		1,552			2,612			—			5,955
Conversion of WiderThan stock options to a cash equivalent		—			—		—			16			—			16
Acquisitions related intangible asset amortization (F)		422			—		611			4,719			—			5,752
Depreciation and amortization (F)		1,206			893		923			3,143			—			6,165
Expenses related to antitrust litigation		—			—		—			—			174			174
Adjusted EBITDA	$	(2,176	)	$	5,607	$	(1,377	)	$	8,817		$	554		$	11,425

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)	Comprises gains realized from MTVN’s note payments to Rhapsody America. Effective January 1, 2009, the Company adopted SFAS 160 which requires the appreciation of gains on the sale of non-controlling interest to be recorded as an equity transaction.
(F)	Net of noncontrolling interest effect.

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

	Quarter Ended September 30, 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	$	53,686	$	(309	)	$	(540	)	$	—	$	—	$	52,837
Operating expenses:
Research and development	$	29,425	$	(1,788	)	$	—		$	—	$	—	$	27,637
Sales and marketing		39,573		(1,099	)		(1,244	)		1		—		37,231
General and administrative		13,039		(1,531	)		—			—		—		11,508
Adjusted operating expenses, net	$	82,037	$	(4,418	)	$	(1,244	)	$	1	$	—	$	76,376

	Quarter Ended September 30, 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	$	62,164	$	(696	)	$	(1,995	)	$	(1	)	$	—		$	59,472
Operating expenses:
Research and development	$	31,076	$	(2,247	)	$	—		$	—		$	—		$	28,829
Sales and marketing		55,080		(1,458	)		(3,757	)		(3	)		—			49,862
General and administrative		15,453		(1,554	)		—			(12	)		(174	)		13,713
Adjusted operating expenses, net	$	101,609	$	(5,259	)	$	(3,757	)	$	(15	)	$	(174	)	$	92,404

	Nine Months Ended September 30, 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	$	165,321	$	(1,302	)	$	(1,639	)	$	(1	)	$	—	$	162,379
Operating expenses:
Research and development	$	86,907	$	(5,846	)	$	—		$	(8	)	$	—	$	81,053
Sales and marketing		125,531		(3,364	)		(3,562	)		(12	)		—		118,593
General and administrative		55,208		(5,034	)		—			—			—		50,174
Adjusted operating expenses, net	$	267,646	$	(14,244	)	$	(3,562	)	$	(20	)	$	—	$	249,820

	Nine Months Ended September 30, 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	$	173,202	$	(1,592	)	$	(6,592	)	$	(24	)	$	—		$	164,994
Operating expenses:
Research and development	$	85,147	$	(6,307	)	$	—		$	(9	)	$	—		$	78,831
Sales and marketing		161,730		(4,798	)		(11,646	)		(31	)		—			145,255
General and administrative		50,874		(4,778	)		—			(67	)		(578	)		45,451
Adjusted operating expenses, net	$	297,751	$	(15,883	)	$	(11,646	)	$	(107	)	$	(578	)	$	269,537

(A) —  Net of noncontrolling interest effect.

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

	Quarters Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
	(in thousands, except per share data)
Net income (loss) attributable to common shareholders	$	1,520		$	(4,500	)	$	(198,945	)	$	(3,379	)
Less accretion of MTVN’s preferred return in Rhapsody America		(925	)		—			(2,775	)		—
Net income (loss) available to common shareholders	$	595		$	(4,500	)	$	(201,720	)	$	(3,379	)
Shares used to compute basic net income (loss) per share available to common shareholders		134,793			141,975			134,531			142,611
Dilutive potential common shares:
Stock options and restricted stock		185			—			—			—
Convertible debt		—			—			—			—
Shares used to compute diluted net income (loss) per share available to common shareholders		134,978			141,975			134,531			142,611
Basic net income (loss) per share available to common shareholders	$	0.00		$	(0.03	)	$	(1.50	)	$	(0.02	)
Diluted net income (loss) per share available to common shareholders	$	0.00		$	(0.03	)	$	(1.50	)	$	(0.02	)

EX-99.2

EXHIBIT 99.2

About Non-GAAP Financial Measures

To supplement RealNetworks’ condensed consolidated financial statements presented in accordance with GAAP, the Company presents investors with certain non-GAAP financial measures, including adjusted revenue, adjusted EBITDA, adjusted EBITDA excluding impairments, adjusted EBITDA by reporting segment, adjusted cost of revenue and adjusted operating expenses.

• Adjusted revenue consists of revenue excluding the impact of foreign exchange rate fluctuations experienced in the third quarter.

• Adjusted EBITDA and adjusted EBITDA by reporting segment consist of net income (loss) attributable to common shareholders excluding the impact of the following: interest income, net; income taxes; depreciation and amortization (net of noncontrolling interest effect); stock-based compensation; expenses for employee stock options that were converted to cash rights; equity investment gains and losses from sales or impairments; expenses related to antitrust litigation; impairment of goodwill and long-lived assets (net of noncontrolling interest effect); and the effect of the change in accounting for the sale of noncontrolling interest in Rhapsody America.

• Adjusted EBITDA excluding impairments consists of net income (loss) attributable to common shareholders excluding the impact of the following: interest income, net; income taxes; depreciation and amortization (net of noncontrolling interest effect); stock-based compensation; expenses for employee stock options that were converted to cash rights; equity investment gains and losses from sales or impairments; expenses related to antitrust litigation; impairment of goodwill and long-lived assets (net of noncontrolling interest effect); impairment of deferred costs and prepaid royalties; restructuring and other charges; and the effect of the change in accounting for the sale of noncontrolling interest in Rhapsody America.

• Adjusted cost of revenue consists of GAAP cost of revenue excluding stock-based compensation expenses, acquisition costs including amortization of intangible assets (net of noncontrolling interest effect), and expenses for employee stock options that were converted to cash rights.

• Adjusted operating expenses consist of GAAP operating expenses excluding stock-based compensation expenses, antitrust litigation expenses, acquisition costs including amortization of intangible assets (net of noncontrolling interest effect), and expenses for employee stock options that were converted to cash rights.

RealNetworks believes that the presentation of adjusted revenue, adjusted EBITDA, adjusted EBITDA excluding impairments, adjusted EBITDA by reporting segment, adjusted cost of revenue and adjusted operating expenses provide important supplemental information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations. Management believes that the use of these non-GAAP financial measures provides consistency and comparability with RealNetworks’ past financial reports, and also facilitates comparisons with other companies in the Company’s industry, many of which use similar non-GAAP financial measures to supplement their GAAP results. Management has historically used these non-GAAP measures when evaluating operating performance because the inclusion or exclusion of the items described above provides additional useful measures of the Company’s operating results and facilitates comparisons of the Company’s core operating performance against prior periods and its business model objectives. The

1

Company has chosen to provide this information to investors in order to enable them to perform additional analyses of past, present and future operating performance, to enable them to compare RealNetworks with other companies, and as a supplemental means to evaluate the Company’s ongoing operations. In addition, RealNetworks believes that providing adjusted revenue allows investors to compare 2009 revenue with 2008 revenue in constant dollars, providing a more consistent view of revenue trends for its ongoing business. Externally, the Company believes that adjusted EBITDA and adjusted EBITDA excluding impairments are useful to investors in their assessment of RealNetworks’ operating performance and the valuation of the Company.

Internally, adjusted revenue, adjusted EBITDA, adjusted EBITDA excluding impairments, and adjusted EBITDA by reporting segment, adjusted cost of revenue and adjusted operating expenses are significant measures used by management for purposes of:

• supplementing the financial results and forecasts reported to the Company’s board of directors;

• evaluating the operating performance of RealNetworks which includes direct and incrementally controllable revenue and costs of operations, but excludes items considered by management to be non-cash or non-operating such as interest income and expense, stock-based compensation, tax expense, depreciation and amortization; impairment of goodwill and long-lived assets; or not within management’s control, such as significant fluctuations in foreign currencies;

• managing and comparing performance internally across the Company’s businesses and externally against the Company’s peers;

• establishing internal operating budgets; and

• evaluating and valuing potential acquisition candidates.

Adjusted revenue, adjusted EBITDA, adjusted EBITDA excluding impairments, adjusted EBITDA by reporting segment, adjusted cost of revenue and adjusted operating expenses are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of RealNetworks’ business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of RealNetworks’ results as reported under GAAP. The Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from its non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. Some of the limitations in relying on the Company’s non-GAAP financial measures are:

• Adjusted EBITDA, adjusted EBITDA excluding impairments and adjusted EBITDA by reporting segment are measures that the Company has defined for internal and investor purposes and are not in accordance with GAAP. A further limitation associated with these measures is that they do not include all costs and income that impact the Company’s net income (loss) attributable to common shareholders and net income (loss) per share attributable to common shareholders. The Company compensates for these limitations by prominently disclosing GAAP net income (loss) attributable to common shareholders, which the Company believes is the most directly comparable GAAP measure, and providing investors with reconciliations from GAAP net income (loss) attributable to common shareholders to adjusted EBITDA, adjusted EBITDA excluding impairments and adjusted EBITDA by reporting segment.

2

• Adjusted cost of revenue is limited in that it does not include stock-based compensation expenses and certain costs associated with the Company’s acquisitions. Adjusted operating expenses are limited in that they do not include stock-based compensation expenses, antitrust litigation expenses and certain costs associated with the Company’s acquisitions. The Company compensates for these limitations by prominently disclosing the reported GAAP results and providing investors with a reconciliation from GAAP to the adjusted amount.

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 by reporting segment; GAAP cost of revenue to adjusted cost of revenue; and GAAP operating expenses to adjusted operating expenses for the relevant periods in the financial tables of its earnings press release, which is included as Exhibit 99.1 to this report.

3