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): May 6, 2010

RealNetworks, Inc.

(Exact name of registrant as specified in its charter)

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

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 May 6, 2010, RealNetworks, Inc. (the “Company” or “RealNetworks”) announced via press release the Company’s results for its first quarter ended March 31, 2010. 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 first quarter 2010 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 May 6, 2010
	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: May 6, 2010

EXHIBIT INDEX

Exhibit Number		Description
	99.1	Press Release issued by RealNetworks, Inc. dated May 6, 2010
	99.2	Information Regarding Non-GAAP Financial Measures

EX-99.1

Exhibit 99.1

REALNETWORKS ANNOUNCES FIRST QUARTER 2010 RESULTS

SEATTLE – May 6, 2010 – Digital entertainment services company RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the first quarter ended March 31, 2010.

Quarterly Highlights:

• Revenue of $128.6 million

• Net income attributable to common shareholders of $3.2 million or $0.05 per share

• Adjusted EBITDA of $5.7 million

• Cash and short term investments of $335.2 million as of March 31, 2010

“We made significant progress toward achieving our milestones to transform RealNetworks over the coming year into a growing and profitable company,” said Bob Kimball, president and acting CEO of RealNetworks. “While we are moving fast to transform the company, our plans to simplify, restructure and grow RealNetworks require substantial work, and it will take some time before we see the financial benefit of our efforts.”

First Quarter Results

For the first quarter of 2010, revenue declined 9% to $128.6 million compared with $140.8 million for the first quarter of 2009. Foreign currency exchange rate fluctuations positively affected 2010 first quarter revenue by approximately $3.4 million compared with the year-ago quarter. Excluding the effects of foreign exchange rate changes, revenue declined 11% year over year. Revenue trends in each of Real’s businesses in the first quarter of 2010 compared with the year-earlier quarter were: a 2% increase in Media Software and Services revenue to $20.7 million, a 4% decrease in Technology Products and Solutions revenue to $41.9 million, an 8% decrease in Games revenue to $30.2 million, and a 19% decrease in Music revenue to $35.7 million.

Net income attributable to common shareholders for the first quarter of 2010 was $3.2 million, or $0.05 per share, compared with net loss of $(12.1) million, or $(0.10) per share, in the first quarter of 2009. Net income for the first quarter of 2010 was significantly increased by a one-time $2.6 million tax benefit and a $10.9 million gain on the deconsolidation of the company’s Rhapsody joint venture, which was restructured on March 31, 2010. Net income for the first quarter of 2010 also included restructuring charges of $5.6 million for employee severance costs and asset impairments, while net loss in the year-ago quarter included restructuring charges of $800,000. Adjusted EBITDA for the first quarter of 2010 was $5.7 million, compared with $5.6 million for the first quarter of 2009. A reconciliation of GAAP net income (loss) attributable to common shareholders to adjusted EBITDA is provided in the financial tables that accompany this release.

As of March 31, 2010, Real had $335.2 million in unrestricted cash, cash equivalents and short-term investments compared with $384.9 million at December 31, 2009. In addition, Real had $64.4 million in restricted cash and equity investments, including an approximate 47.5% equity interest in the restructured Rhapsody, at March 31, 2010. Of the $49.7 million decrease in cash, cash equivalents and short-term investments from December 31, 2009, $44.2 million was related to non-strategic business activities we have exited, including $5.5 million for the payment of the RealDVD settlement and related legal costs and $38.7 million relating to Rhapsody. The $38.7 million consisted of $18.0 million to capitalize Rhapsody and to repurchase the international radio business from Rhapsody, $11.2 million for the payment of the fourth-quarter Rhapsody advertising payable to Viacom, and approximately $9.5 million for the payment of other Rhapsody payables, primarily royalties. The

remaining $5.5 million decline in cash was primarily due to capital expenditures and ordinary course working capital changes. During the quarter, total liabilities declined by $41.8 million.

Gross margin in the first quarter was 62%, compared with 60% for the first quarter a year earlier. Income tax provision was a benefit of $3.6 million, which included the tax benefit from the Rhapsody deconsolidation, compared with a tax expense of $1.5 million in the year-earlier period. Interest income in the first quarter of 2010 was $380,000 compared with $1.2 million in the year-earlier period.

Rhapsody Restructuring

On March 31, 2010, the company completed the restructuring of Rhapsody. RealNetworks now owns approximately 47.5% of the equity in Rhapsody and no longer has operating control over Rhapsody. Because the restructuring was completed on the last day of the quarter, RealNetworks’ income and cash flow statements for the first quarter include results from Rhapsody’s operations, but the company’s first-quarter balance sheet reflects the deconsolidation, accounts for Rhapsody as an equity investment, and reflects the changes in certain assets and working capital items, including the final advertising payable to Viacom, due to the restructuring. Beginning with the second quarter of 2010, RealNetworks will not consolidate Rhapsody’s operating results in any of its financial statements, and will report its share of Rhapsody’s income or losses as “Gain or loss on equity-method investments” in “Other income.”

Business Outlook

For the second quarter of 2010, Real expects overall revenue from its TPS, MSS and Games businesses to decline slightly year-over-year and sequentially. Real expects adjusted EBITDA for the second quarter of 2010 to be negative, in part because shared costs formerly absorbed by the Music business have not yet been completely eliminated in the company’s corporate restructuring. Compared with the second quarter of 2009, the company expects revenue in MSS and Games to be flat and revenue in TPS to decline. Sequentially, the company expects revenue in MSS and TPS to decline slightly and revenue in Games to be flat.

“We expect the second quarter to be the low point in both revenue and adjusted EBITDA for 2010,” said Michael Eggers, chief financial officer of RealNetworks. “As the effects of our restructuring begin to take hold, we expect both top and bottom line operating financial improvement in the second half of the year.”

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

The foregoing forward-looking statements reflect Real’s expectations as of May 6, 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 conference call to review results and discuss the company’s operations for the first quarter at 5:00 p.m. ET on May 6, featuring audio. The Webcast will be available at: http://investor.realnetworks.com

Webcast participants will need RealPlayer® to hear the webcast, which can be downloaded at www.real.com.

The on-demand Webcast will be available beginning 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: First Quarter Earnings
Leader: Bob Kimball

Telephonic replay will be available until 8:00 p.m. (Eastern), May 20, 2010.

Replay dial in:
800-964-4595 Domestic

402-998-1049 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 continues to offer pioneering products and services, including: RealPlayer®, the first mainstream media player to enable downloading, recording, editing and sharing of digital video; GameHouse®, one of the largest casual games services on the Internet; 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, 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) attributable to common shareholders to adjusted EBITDA 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 first 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 and adjusted EBITDA, financial improvement and the impact of foreign currency rates in future periods and plans to transform the Company as well as to realize future benefits from those plans. 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; risks associated with the ability of Real to realize financial benefits from the restructuring of Rhapsody; Real’s ability to realize operating efficiencies and other benefits from the implementation of its strategic initiatives; the emergence of new entrants and competition in the market for digital media products and services; other competitive risks, including the 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 key customer or strategic relationships, 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; and changes in Real’s GAAP tax rate. 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, RealPlayer and GameHouse 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
	March 31,
	2010			2009
	(in thousands, except per share data)
Net revenue	$	128,600		$	140,773
Cost of revenue		49,159			56,021
Gross profit		79,441			84,752
Operating expenses:
Research and development		34,675			28,559
Sales and marketing		37,827			43,685
Advertising with related party (A)		1,065			7,423
General and administrative		14,921			22,831
Restructuring and other charges		5,615			794
Total operating expenses		94,103			103,292
Operating loss		(14,662	)		(18,540	)
Other income (expenses):
Interest income, net		380			1,183
Equity in net loss of investments		—			(655	)
Gain (loss) on sale of equity investments, net		—			137
Gain on deconsolidation of Rhapsody		10,929			—
Other income (expense), net		99			855
Total other income (expense), net		11,408			1,520
Loss before income taxes		(3,254	)		(17,020	)
Income tax benefit (expense)		3,572			(1,549	)
Net income (loss)		318			(18,569	)
Net loss attributable to the noncontrolling interest in Rhapsody(B)		2,910			6,433
Net income (loss) attributable to common shareholders	$	3,228		$	(12,136	)
Basic net income (loss) per share available to common shareholders	$	0.05		$	(0.10	)
Diluted net income (loss) per share available to common shareholders	$	0.05		$	(0.10	)
Shares used to compute basic net income (loss) per share available to common shareholders		135,130			134,380
Shares used to compute diluted net income (loss) per share available to common shareholders		139,573			134,380

(A)	Consists of advertising purchased by Rhapsody from MTV Networks (MTVN). MTVN had a 49% ownership interest in Rhapsody prior to the restructuring transactions that occurred on March 31, 2010.
(B)	Noncontrolling interest in Rhapsody reflects MTVN’s 49% ownership share in the losses of Rhapsody prior to the restructuring transactions that occurred on March 31, 2010.

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31,		December 31,
	2010		2009
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	202,605	$	277,030
Short-term investments		132,611		107,870
Trade accounts receivable, net		53,976		60,937
Related party receivable (A)		5,994		—
Deferred costs, current portion		4,038		5,192
Prepaid expenses and other current assets		30,239		30,624
Total current assets		429,463		481,653
Equipment, software, and leasehold improvements, at cost:
Equipment and software		139,743		151,951
Leasehold improvements		30,448		31,041
Total equipment, software, and leasehold improvements		170,191		182,992
Less accumulated depreciation and amortization		120,900		125,878
Net equipment, software, and leasehold improvements		49,291		57,114
Restricted cash equivalents and investments		13,700		13,700
Equity investments		50,689		19,553
Other assets		3,974		4,030
Deferred costs, non-current portion		11,064		10,182
Deferred tax assets, net, non-current portion		8,597		10,001
Other intangible assets, net		9,434		10,650
Total assets	$	576,212	$	606,883
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	35,671	$	32,703
Accrued and other liabilities		102,049		124,934
Deferred revenue, current portion		23,184		31,374
Related party payable (B)		—		11,216
Accrued loss on excess office facilities, current portion		2,095		3,228
Total current liabilities		162,999		203,455
Deferred revenue, non-current portion		966		1,933
Deferred rent		4,380		4,464
Deferred tax liabilities, net, non-current portion		884		961
Other long-term liabilities		12,750		13,006
Total liabilities		181,979		223,819
Noncontrolling interest in Rhapsody (C)		—		7,253
Shareholders’ equity		394,233		375,811
Total liabilities and shareholders’ equity	$	576,212	$	606,883

(A)	Related party receivable reflects amounts receivable from Rhapsody, formed on March 31, 2010.
(B)	Related party payable reflects amounts owed to MTVN.
(C)	Noncontrolling interest in Rhapsody reflects MTVN’s 49% ownership interest in the net assets of Rhapsody at December 31, 2009. Due to the restructuring transactions which occurred on March 31, 2010, Rhapsody’s balance sheet is no longer included within RealNetworks consolidated financial statements.

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Quarters Ended March 31,
	2010			2009
	(in thousands)
Cash flows from operating activities:
Net income (loss)	$	318		$	(18,569	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization		7,314			7,776
Stock-based compensation		3,921			5,222
Gain on disposal of equipment, software, and leasehold improvements		(2	)		(33	)
Equity in net loss of investments		—			655
Gain on sale of equity investment, net		—			(137	)
Gain on deconsolidation of Rhapsody		(10,929	)		—
Excess tax benefit from stock option exercises		(29	)		(9	)
Accrued restructuring and other charges		4,455			(2,951	)
Deferred income taxes, net		(1,359	)		(212	)
Other		—			10
Net change in certain operating assets and liabilities, net of acquisitions and disposals		(36,145	)		12,209
Net cash (used in) provided by operating activities		(32,456	)		3,961
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements		(4,692	)		(3,042	)
Purchases of short-term investments		(26,613	)		(52,415	)
Proceeds from sales and maturities of short-term investments		1,872			25,396
Proceeds from the sales of equity investments		—			137
Purchases of equity investments		—			(2,000	)
Payment of acquisition costs, net of cash acquired		—			(3,154	)
Payment in connection with the restructuring of Rhapsody		(18,000	)		—
Repayment of temporary funding on deconsolidation of Rhapsody		5,869			—
Decrease in restricted cash equivalents and investments, net		—			(25	)
Net cash used in investing activities		(41,564	)		(35,103	)
Cash flows from financing activities:
Net proceeds from sales of common stock under employee stock purchase plan and exercise of stock options		341			12
Payments received on MTVN note		1,213			7,667
Capital contribution to Rhapsody from MTVN		—			5,000
Excess tax benefit from stock option exercises		29			9
Net cash provided by financing activities		1,583			12,688
Effect of exchange rate changes on cash and cash equivalents		(1,988	)		(2,805	)
Net decrease in cash and cash equivalents		(74,425	)		(21,259	)
Cash and cash equivalents, beginning of period		277,030			232,968
Cash and cash equivalents, end of period	$	202,605		$	211,709

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

(Unaudited)

	2010		2009
	Q1		Q4		Q3		Q2		Q1
	(in thousands)
Net Revenue by Line of Business:
Consumer products and services (A)	$	86,708	$	91,233	$	92,836	$	89,517	$	97,194
Technology products and solutions (B)		41,892		54,269		47,428		46,208		43,579
Total net revenue	$	128,600	$	145,502	$	140,264	$	135,725	$	140,773
Consumer Products and Services:
Subscriptions (C)	$	49,805	$	50,492	$	52,401	$	54,446	$	59,052
Media properties (D)		17,168		20,327		21,001		14,753		15,536
E-commerce and other (E)		19,735		20,414		19,434		20,318		22,606
Total consumer products and services revenue	$	86,708	$	91,233	$	92,836	$	89,517	$	97,194
Consumer Products and Services:
Music (F)	$	35,733	$	37,598	$	38,765	$	40,452	$	44,053
Media software and services (G)		20,739		22,899		24,580		19,291		20,318
Games (H)		30,236		30,736		29,491		29,774		32,823
Total consumer products and services revenue	$	86,708	$	91,233	$	92,836	$	89,517	$	97,194
Net Revenue by Geography:
United States	$	84,550	$	91,175	$	95,758	$	90,685	$	96,666
Rest of world		44,050		54,327		44,506		45,040		44,107
Total net revenue	$	128,600	$	145,502	$	140,264	$	135,725	$	140,773
Subscribers (presented as greater than) *:
Total subscribers (I)		39,250		40,250		38,950		37,700		36,450
Technology products and solutions application services subscribers (J)		37,950		38,850		37,500		36,300		33,850
Music subscribers:
Consumer music subscribers:
Rhapsody subscribers		650		675		700		750		800
Radio subscribers		75		75		75		75		1,200
Total consumer music subscribers		725		750		775		825		2,000
Technology products and solutions application services music subscribers (K)		1,300		1,150		1,075		975		900
Total Music Subscribers**		2,025		1,900		1,850		1,800		2,900

*	Total music subscribers includes subscribers from our technology products and SaaS 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 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 is as follows:

	Quarters Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2010			2009			2009			2009			2009
	(in thousands)
Net income (loss) attributable to common shareholders	$	3,228		$	(17,819	)	$	1,520		$	(188,329	)	$	(12,136	)
Interest income, net		(380	)		(779	)		(1,253	)		(754	)		(1,183	)
Stock-based compensation		3,921			5,915			4,727			5,596			5,222
Loss (gain) on sale of equity investments, net		—			121			(604	)		(68	)		(137	)
Impairment of equity investments		—			5,020			—			—			—
Gain on deconsolidation of Rhapsody		(10,929	)		—			—			—			—
Conversion of WiderThan stock options to a cash equivalent		—			—			1			3			17
Depreciation and amortization (net of noncontrolling interest effect)		6,005			6,355			5,432			5,815			5,726
Acquisitions related intangible asset amortization (net of noncontrolling interest effect)		1,239			1,797			1,784			1,649			1,768
Impairment of goodwill and long-lived assets		—			—			—			175,583			—
Restructuring and other charges		5,615			2,346			877			—			794
Pro forma gain on sale of interest in Rhapsody		598			5,577			3,839			3,444			4,010
Income taxes		(3,572	)		(124	)		686			1,210			1,549
Adjusted EBITDA	$	5,725		$	8,409		$	17,009		$	4,149		$	5,630

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

	Quarter Ended March 31, 2010
	Music (A)			MSS (B)			Games (C)			TPS (D)			Other			Grand Total
	(in thousands)
Net revenue	$	35,733		$	20,739		$	30,236		$	41,892		$	—		$	128,600
Cost of revenue		21,930			2,764			7,812			16,653			—			49,159
Gross profit		13,803			17,975			22,424			25,239			—			79,441
Gross margin		39	%		87	%		74	%		60	%		—			62	%
Operating expenses:
Advertising with related party		1,065			—			—			—			—			1,065
Restructuring and other charges		—			—			—			—			5,615			5,615
Other operating expenses		18,608			14,364			27,793			26,620			38			87,423
Total operating expenses		19,673			14,364			27,793			26,620			5,653			94,103
Income (loss) from operations		(5,870	)		3,611			(5,369	)		(1,381	)		(5,653	)		(14,662	)
Other income (expenses):
Interest income, net		—			—			—			—			380			380
Equity in net loss of investments		—			—			—			—			—			—
Gain on deconsolidation of Rhapsody		10,929			—			—			—			—			10,929
Other income (expenses), net		—			—			—			—			99			99
Total other income (expenses), net		10,929			—			—			—			479			11,408
Income (loss) before income taxes		5,059			3,611			(5,369	)		(1,381	)		(5,174	)		(3,254	)
Income taxes		—			—			—			—			3,572			3,572
Net income (loss)		5,059			3,611			(5,369	)		(1,381	)		(1,602	)		318
Net income (loss) attributable to noncontrolling interest in Rhapsody		2,910			—			—			—			—			2,910
Net income (loss) attributable to common shareholders	$	7,969		$	3,611		$	(5,369	)	$	(1,381	)	$	(1,602	)	$	3,228
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	$	7,969		$	3,611		$	(5,369	)	$	(1,381	)	$	(1,602	)	$	3,228
Income taxes		—			—			—			—			(3,572	)		(3,572	)
Interest income, net		—			—			—			—			(380	)		(380	)
Stock-based compensation		522			556			1,100			1,743			—			3,921
Conversion of WiderThan stock options to a cash equivalent		—			—			—			—			—			—
Acquisitions related intangible asset amortization (E)		58			25			60			1,096			—			1,239
Pro forma gain on sale of interest in Rhapsody		598			—			—			—			—			598
Gain on deconsolidation of Rhapsody		(10,929	)		—			—			—			—			(10,929	)
Restructuring and other charges		—			—			—			—			5,615			5,615
Depreciation and amortization (E)		943			492			2,139			2,431			—			6,005
Adjusted EBITDA	$	(839	)	$	4,684		$	(2,070	)	$	3,889		$	61		$	5,725

	Quarter Ended March 31, 2009
	Music (A)			MSS (B)			Games (C)			TPS (D)			Other			Grand Total
	(in thousands)
Net revenue	$	44,053		$	20,318		$	32,823		$	43,579		$	—		$	140,773
Cost of revenue		27,300			3,707			8,564			16,450			—			56,021
Gross profit		16,753			16,611			24,259			27,129			—			84,752
Gross margin		38	%		82	%		74	%		62	%		—			60	%
Operating expenses:
Advertising with related party		7,423			—			—			—			—			7,423
Restructuring and other charges		—			—			—			—			794			794
Other operating expenses		22,093			19,882			26,846			26,216			38			95,075
Total operating expenses		29,516			19,882			26,846			26,216			832			103,292
Income (loss) from operations		(12,763	)		(3,271	)		(2,587	)		913			(832	)		(18,540	)
Other income (expenses):
Interest income, net		—			—			—			—			1,183			1,183
Equity in net loss of investments		—			—			—			—			(655	)		(655	)
Loss on sale of equity investments, net		—			—			—			—			137			137
Other income (expenses), net		—			—			—			—			855			855
Total other income (expenses), net		—			—			—			—			1,520			1,520
Income (loss) before income taxes		(12,763	)		(3,271	)		(2,587	)		913			688			(17,020	)
Income taxes		—			—			—			—			(1,549	)		(1,549	)
Net income (loss)		(12,763	)		(3,271	)		(2,587	)		913			(861	)		(18,569	)
Net income (loss) attributable to noncontrolling interest in Rhapsody		6,433			—			—			—			—			6,433
Net income (loss) attributable to common shareholders	$	(6,330	)	$	(3,271	)	$	(2,587	)	$	913		$	(861	)	$	(12,136	)
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	$	(6,330	)	$	(3,271	)	$	(2,587	)	$	913		$	(861	)	$	(12,136	)
Income taxes		—			—			—			—			1,549			1,549
Interest income, net		—			—			—			—			(1,183	)		(1,183	)
Stock-based compensation		865			698			1,397			2,262			—			5,222
Conversion of WiderThan stock options to a cash equivalent		—			—			—			17			—			17
Acquisitions related intangible asset amortization (E)		278			—			144			1,346			—			1,768
Pro forma gain on sale of interest in Rhapsody		4,010			—			—			—			—			4,010
Loss on sale of equity investments, net		—			—			—			—			(137	)		(137	)
Restructuring and other charges		—			—			—			—			794			794
Depreciation and amortization (F)		1,102			819			951			2,854			—			5,726
Adjusted EBITDA	$	(75	)	$	(1,754	)	$	(95	)	$	7,392		$	162		$	5,630

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 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 March 31, 2010
						Acquisitions			WiderThan
						Related			Options
						Intangible			Converted
	As		Stock-Based			Asset			to a Cash
	Reported		Compensation			Amortization (A)			Equivalent		Adjusted
						(in thousands)
Cost of revenue	$	49,159	$	(231	)	$	(520	)	$	—	$	48,408
Operating expenses:
Research and development	$	34,675	$	(1,597	)	$	—		$	—	$	33,078
Sales and marketing		37,827		(996	)		(719	)		—		36,112
General and administrative		14,921		(1,097	)		—			—		13,824
Adjusted operating expenses, net	$	87,423	$	(3,690	)	$	(719	)	$	—	$	83,014

	Quarter Ended March 31, 2009
						Acquisitions			WiderThan
						Related			Options
						Intangible			Converted
	As		Stock-Based			Asset			to a Cash
	Reported		Compensation			Amortization(A)			Equivalent			Adjusted
	(in thousands)
Cost of revenue	$	56,021	$	(630	)	$	(546	)	$	(1	)	$	54,844
Operating expenses:
Research and development	$	28,559	$	(1,824	)	$	—		$	(5	)	$	26,730
Sales and marketing		43,685		(1,066	)		(1,222	)		(11	)		41,386
General and administrative		22,831		(1,702	)		—			—			21,129
Adjusted operating expenses, net	$	95,075	$	(4,592	)	$	(1,222	)	$	(16	)	$	89,245

(A) - Net of noncontrolling interest effect.

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

	Quarters Ended
	March 31,
	2010		2009
	(in thousands, except per share data)
Net income (loss) attributable to common shareholders	$	3,228	$	(12,136	)
Less accretion of MTVN’s preferred return in Rhapsody		3,700		(1,434	)
Net income (loss) available to common shareholders	$	6,928	$	(13,570	)
Shares used to compute basic net income (loss) per share available to common shareholders		135,130		134,380
Dilutive potential common shares:
Stock options and restricted stock		4,443		—
Shares used to compute diluted net income (loss) per share available to common shareholders		139,573		134,380
Basic net income (loss) per share available to common shareholders	$	0.05	$	(0.10	)
Diluted net income (loss) per share available to common shareholders	$	0.05	$	(0.10	)

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 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 first 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; impairment of goodwill and long-lived assets (net of noncontrolling interest effect); restructuring and other charges; the effect of the change in accounting for the sale of noncontrolling interest in the Company’s Rhapsody joint venture; and the gain on the deconsolidation of the Company’s Rhapsody joint venture.

• 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, 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 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 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 2010 revenue with 2009 revenue in constant dollars, providing a more consistent view of revenue trends for its ongoing business. Externally, the Company believes that adjusted EBITDA is useful to investors in their assessment of RealNetworks’ operating performance and the valuation of the Company.

1

Internally, adjusted revenue, adjusted EBITDA, 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 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 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 and adjusted EBITDA by reporting segment.

• 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 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.

2

RealNetworks has included reconciliations of GAAP net income (loss) attributable to common shareholders to adjusted EBITDA 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