10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2013

OR

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

For the transition period from              to             

Commission file number 0-23137

	RealNetworks, Inc.
	(Exact name of registrant as specified in its charter)
Washington		91-1628146
(State of incorporation)		(I.R.S. Employer Identification Number)
1501 First Avenue South, Suite 600 Seattle, Washington		98134
(Address of principal executive offices)		(Zip Code)
	(206) 674-2700
	(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	ý
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   ý

The number of shares of the registrant’s Common Stock outstanding as of October 31, 2013 was 35,733,174.

TABLE OF CONTENTS

	Page
Part I. Financial Information	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
Item 4. Controls and Procedures	32
Part II. Other Information	33
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3. Default Upon Senior Securities	41
Item 4. Mine Safety Disclosures	41
Item 5. Other Information	41
Item 6. Exhibits	41
Signature	42
Index to Exhibits	43

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

	September 30, 2013			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	134,879		$	163,198
Short-term investments	83,527			108,216
Trade accounts receivable, net of allowances	26,494			30,754
Deferred costs, current portion	1,622			825
Deferred tax assets, current	3,942			2,869
Prepaid expenses and other current assets	12,152			17,002
Total current assets	262,616			322,864
Equipment, software, and leasehold improvements, at cost:
Equipment and software	94,054			98,041
Leasehold improvements	3,516			22,767
Total equipment, software, and leasehold improvements, at cost	97,570			120,808
Less accumulated depreciation and amortization	73,105			91,492
Net equipment, software, and leasehold improvements	24,465			29,316
Restricted cash equivalents and investments	5,000			10,000
Equity method investment	12,656			19,204
Available for sale securities	34,485			34,334
Other assets	2,844			3,153
Deferred costs, non-current portion	1,032			531
Deferred tax assets, net, non-current portion	1,576			4,911
Other intangible assets, net	14,051			3,275
Goodwill	17,518			6,309
Total assets	$	376,243		$	433,897
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	20,562		$	19,013
Accrued and other current liabilities	58,024			57,530
Deferred revenue, current portion	7,604			8,675
Total current liabilities	86,190			85,218
Deferred revenue, non-current portion	167			169
Deferred rent	613			2,250
Deferred tax liabilities, net, non-current portion	3,166			432
Other long-term liabilities	492			3,100
Total liabilities	90,628			91,169
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.001 par value, no shares issued and outstanding:
Series A: authorized 200 shares	—			—
Undesignated series: authorized 59,800 shares	—			—
Common stock, $0.001 par value authorized 250,000 shares; issued and outstanding 35,679 shares in 2013 and 35,324 shares in 2012	36			35
Additional paid-in capital	608,595			603,770
Accumulated other comprehensive loss	(26,959		)	(26,540		)
Retained deficit	(296,057		)	(234,537		)
Total shareholders’ equity	285,615			342,728
Total liabilities and shareholders’ equity	$	376,243		$	433,897

See accompanying notes to unaudited condensed consolidated financial statements.

3

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net revenue (A)	$	48,958		$	59,088		$	155,601		$	191,578
Cost of revenue (B)	18,990			25,244			59,015			78,633
Gross profit	29,968			33,844			96,586			112,945
Sale of patents and other technology assets, net of costs (See Note 1)	—			—			—			116,353
Operating expenses:
Research and development	15,707			15,321			45,951			49,167
Sales and marketing	19,427			21,972			59,830			68,462
General and administrative	9,869			8,759			28,506			35,103
Restructuring and other charges	1,877			10,724			4,075			13,872
Lease exit and related charges	—			243			3,066			243
Loss on litigation settlements	11,525			—			11,525			—
Total operating expenses	58,405			57,019			152,953			166,847
Operating income (loss)	(28,437		)	(23,175		)	(56,367		)	62,451
Other income (expenses):
Interest income, net	166			164			992			1,033
Gain (loss) on sale of equity and other investments, net	—			2,210			—			5,288
Equity in net loss of Rhapsody investment	(2,629		)	(1,613		)	(6,209		)	(4,095		)
Other income (expense), net	(118		)	248			(146		)	1,674
Total other income (expenses), net	(2,581		)	1,009			(5,363		)	3,900
Income (loss) before income taxes	(31,018		)	(22,166		)	(61,730		)	66,351
Income tax expense (benefit)	357			48			(210		)	24,583
Net income (loss)	$	(31,375	)	$	(22,214	)	$	(61,520	)	$	41,768
Basic net income (loss) per share	$	(0.88	)	$	(0.63	)	$	(1.73	)	$	1.20
Diluted net income (loss) per share	$	(0.88	)	$	(0.63	)	$	(1.73	)	$	1.19
Shares used to compute basic net income (loss) per share	35,670			34,998			35,490			34,747
Shares used to compute diluted net income (loss) per share	35,670			34,998			35,490			35,000
Comprehensive income (loss):
Unrealized investment holding gains (losses)	$	(1,043	)	$	5,407		$	(28	)	$	1,840
Foreign currency translation adjustments, net of reclassification adjustments	1,235			506			(391		)	(1,730		)
Total other comprehensive income (loss)	192			5,913			(419		)	110
Net income (loss)	(31,375		)	(22,214		)	(61,520		)	41,768
Comprehensive income (loss)	$	(31,183	)	$	(16,301	)	$	(61,939	)	$	41,878
(A) Components of net revenue:
License fees	$	10,503		$	11,957		$	33,494		$	41,137
Service revenue	38,455			47,131			122,107			150,441
	$	48,958		$	59,088		$	155,601		$	191,578
(B) Components of cost of revenue:
License fees	$	2,062		$	3,226		$	6,377		$	9,143
Service revenue	16,928			22,018			52,638			69,490
	$	18,990		$	25,244		$	59,015		$	78,633

See accompanying notes to unaudited condensed consolidated financial statements.

4

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities:
Net income (loss)	$	(61,520	)	$	41,768
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	15,045			12,478
Stock-based compensation	5,671			6,419
Loss on disposal of equipment, software, and leasehold improvements	—			1,965
Equity in net loss of Rhapsody	6,209			4,095
Deferred income taxes, net	(1,238		)	22,399
Gain on sale of patent and other technology assets, net of costs	—			(116,353		)
Gain on sale of equity and other investments, net	—			(5,288		)
Realized translation gain	(35		)	(1,968		)
Other	51			—
Net change in certain operating assets and liabilities:
Trade accounts receivable	6,466			5,848
Prepaid expenses and other assets	4,772			(2,956		)
Accounts payable	26			3,683
Accrued and other liabilities	(3,750		)	(2,840		)
Net cash provided by (used in) operating activities	(28,303		)	(30,750		)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements	(5,798		)	(6,478		)
Proceeds from sale of patents and other technology assets, net of costs	—			116,353
Proceeds from sale of equity and other investments	—			7,244
Purchases of short-term investments	(85,670		)	(76,191		)
Proceeds from sales and maturities of short-term investments	110,359			51,885
Decrease (increase) in restricted cash equivalents and investments, net	5,000			103
Acquisitions of businesses, net of cash acquired	(22,480		)	—
Net cash provided by (used in) investing activities	1,411			92,916
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options and stock purchase plan)	408			3,240
Tax payments from shares withheld upon vesting of restricted stock	(911		)	(964		)
Payment of contingent consideration	(828		)	—
Net cash provided by (used in) financing activities	(1,331		)	2,276
Effect of exchange rate changes on cash and cash equivalents	(96		)	(73		)
Net increase (decrease) in cash and cash equivalents	(28,319		)	64,369
Cash and cash equivalents, beginning of period	163,198			106,333
Cash and cash equivalents, end of period	$	134,879		$	170,702
Supplemental disclosure of cash flow information:
Cash received from income tax refunds	$	8,354		$	247
Cash paid for income taxes	$	2,988		$	2,015
Non-cash investing activities:
Increase (decrease) in accrued purchases of equipment, software, and leasehold improvements	$	1,096		$	116

See accompanying notes to unaudited condensed consolidated financial statements.

5

REALNETWORKS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Quarters and Nine Months EndedSeptember 30, 2013 and 2012

Note 1. Description of Business and Summary of Significant Accounting Policies

Description of Business. RealNetworks, Inc. and subsidiaries is a leading global provider of network-delivered digital media applications and services that make it easy to manage, play and share digital media. The Company also develops and markets software products and services that enable the creation, distribution and consumption of digital media, including audio and video.

Inherent in our business are various risks and uncertainties, including a limited history of certain of our product and service offerings. RealNetworks' success will depend on the acceptance of our technology, products and services and the ability to generate related revenue.

In this Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 (10-Q or Report), RealNetworks, Inc. and Subsidiaries is referred to as “RealNetworks”, the “Company”, “we”, “us”, or “our”.

Basis of Presentation. The unaudited condensed consolidated financial statements include the accounts of RealNetworks and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal, recurring adjustments that, in the opinion of the Company’s management, are necessary for a fair presentation of the results of operations for the periods presented. Operating results for the quarter and nine months endedSeptember 30, 2013 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ending December 31, 2013. Certain information and disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012 (the 10-K).

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In addition, current economic conditions may require the use of additional estimates, and certain estimates we make are subject to a greater degree of uncertainty as a result of the current economic conditions.

Reportable Segments. In the first quarter of 2013 we reorganized the management of our businesses and as a result, we changed our reportable segments. See Note 18, Segment Information, for details.

Accumulated Other Comprehensive Income (Loss). The components of accumulated other comprehensive income (loss), net of any applicable tax, were as follows (in thousands):

	September 30, 2013			December 31, 2012
Unrealized gains on investments, net of tax effects of $(716) and $(846) at September 30, 2013 and December 31, 2012, respectively	$	26,657		$	26,685
Foreign currency translation adjustments	(53,616		)	(53,225		)
Accumulated other comprehensive income (loss)	$	(26,959	)	$	(26,540	)

In the quarter and nine months ended September 30, 2012 we liquidated the investment in certain of our foreign entities and recorded net pre-tax gains of $0.4 million and $2.0 million, respectively, in Other income (expense), net, in the consolidated statement of operations upon the reclassification of the same amount of cumulative foreign exchange translation adjustment from accumulated other comprehensive income (loss) on the balance sheet. The reclassification adjustments had no related income tax expense or benefit.

There were no material reclassification adjustments or related tax effects related to foreign exchange translation amounts in the nine months ended September 30, 2013.

6

In the quarter and nine months ended September 30, 2012 we realized pre-tax gains of $2.2 million and $4.3 million, respectively, in the consolidated statement of operations, within Gain (loss) on sale of equity and other investments, net, related to the sale of a portion of the equity shares we hold in LoEn Entertainment, Inc., with the same amounts reclassified from accumulated other comprehensive income (loss) on the balance sheet. The reclassification adjustment had no related income tax expense or benefit.

There were no reclassification adjustments or related tax effects related to unrealized gains on investments in the nine months ended September 30, 2013.

For the three months ended September 30, 2013 we recorded income tax expense of $0.6 million and for the nine months ended September 30, 2013 we recorded an income tax benefit of $0.1 million related to unrealized gains (losses) on investment securities, and recognized the corresponding amount as an increase or decrease to accumulated other comprehensive income.

2012 Sale of Patents and Other Technology Assets to Intel Corporation. In the second quarter of 2012, we completed the sale of certain patents, patent applications and related rights held by us, and certain of our assets relating to our next generation video codec technologies to Intel Corporation (Intel). The entire $120.0 million of cash proceeds we received, net of certain direct costs incurred, was recorded as a gain on our statement of operations in the quarter ending June 30, 2012, since the patent assets and other technology had a net book value of zero. The gain recognized of $116.4 million in the nine months ended September 30, 2012 was net of related direct costs for the sale transaction totaling $3.6 million incurred in the first and second quarters of 2012.

Note 2. Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the nine months endedSeptember 30, 2013 to be implemented that are of significance or potential significance to RealNetworks.

Note 3. Acquisitions

In the quarter ended June 30, 2013, we acquired 100% of the voting interests in Slingo, Inc., a social casino games company based in the U.S., for total cash consideration of $15.6 million. The tangible and intangible assets and liabilities recognized are reported within the Games segment. The identifiable intangible assets associated with the acquisition totaled $8.0 million. Of this total, $4.5 million is related to tradenames and trademarks determined to have indefinite useful lives and will be evaluated annually in our fourth quarter for impairment, or more frequently, if circumstances indicate an impairment may exist. The remaining $3.5 million includes developed game technology and existing customer relationships with finite lives, and will be amortized over their useful lives. We recorded a net deferred tax liability of $2.7 million related to the intangible assets acquired. Goodwill totaling $9.8 million was recorded, representing the intangible assets that do not qualify for separate recognition for accounting purposes, primarily related to the assembled workforce and expected synergies in the rapidly growing social casino games market. The goodwill is not deductible for income tax purposes. For the nine months ended September 30, 2013, the amount of revenue and income (loss) before income taxes from this acquired business was not significant.

In the quarter ended September 30, 2013, we acquired 100% of the voting interests in Muzicall Limited, a ringback tone company based in London, for total cash consideration of $6.7 million. The tangible and intangible assets and liabilities recognized are reported in the Mobile Entertainment segment. The identifiable intangible assets associated with the acquisition totaled $5.4 million, and include tradenames and trademarks, developed technology, user base and carrier relationships. All identifiable intangible assets from this acquisition have finite lives, and will be amortized over their useful lives. We recorded a net deferred tax asset of $3.4 million related to the assets acquired, and a full valuation allowance. Goodwill totaling $1.3 million was recorded, representing the intangible assets that do not qualify for separate recognition for accounting purposes, primarily related to the assembled workforce and expected synergies in the ringback tone industry. The goodwill is not deductible for income tax purposes. For the nine months ended September 30, 2013, the amount of revenue and income (loss) before income taxes from this acquired business was not significant. This acquisition is intended to accelerate our growth initiatives within the Mobile Entertainment segment.

Note 4. Stock-Based Compensation

Total stock-based compensation expense recognized in our consolidated statements of operations includes amounts related to stock options, restricted stock units, and employee stock purchase plans and was as follows (in thousands):

7

	Quarters Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Total stock-based compensation expense	$	1,613	$	2,354	$	5,671	$	6,419

The fair value of options granted determined using the Black-Scholes model used the following weighted-average assumptions:

	Quarters Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Expected dividend yield	0	%	0	%	0	%	0	%
Risk-free interest rate	0.96	%	0.48	%	0.82	%	0.51	%
Expected life (years)	3.8		4.1		4.0		4.1
Volatility	48	%	58	%	48	%	58	%

The total stock-based compensation amounts for 2013 and 2012 disclosed above are recorded in their respective line items within operating expenses in the consolidated statement of operations. No stock-based compensation was capitalized as part of the cost of an asset as of September 30, 2013 or December 31, 2012. As of September 30, 2013, we had $8.1 millionof total unrecognized compensation cost, net of estimated forfeitures, related to stock awards. The unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 3years.

Note 5. Rhapsody Joint Venture

RealNetworks initially formed in 2007 a joint venture with MTV Networks, a division of Viacom International Inc. (MTVN), to own and operate a business-to-consumer digital audio music service known as Rhapsody. Prior to March 31, 2010, we held a 51% interest in Rhapsody and MTVN owned the remaining 49%. On March 31, 2010, restructuring transactions involving Rhapsody were completed, and as a result, effective March 31, 2010 RealNetworks owned approximately 47% of Rhapsody. Subsequent to the restructuring transaction, we account for our investment in Rhapsody using the equity method of accounting for investments.

As of September 30, 2013 we owned approximately 45% of the issued and outstanding stock of Rhapsody.

RealNetworks continues to provide certain operational transition services to Rhapsody. These transition services are expected to be completed in 2013, and are discussed further in Footnote 19, Related Party Transactions.

We recorded our share of losses of Rhapsody of $2.6 million and $6.2 million for the quarter and nine months ended September 30, 2013, respectively. Our share of losses of Rhapsody for the quarter and nine months endedSeptember 30, 2012 were $1.6 million and $4.1 million, respectively.

The carrying value of our Rhapsody investment was $12.7 million as of September 30, 2013.

Summarized financial information for Rhapsody, which represents 100% of their financial information (in thousands):

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net revenue	$	35,190		$	36,389		$	103,831		$	109,368
Gross profit	7,800			9,266			24,412			28,757
Net loss	(5,621		)	(3,424		)	(14,812		)	(9,031		)

Note 6. Fair Value Measurements

We measure certain financial assets at fair value on a recurring basis, including cash equivalents, short-term investments, and equity investments of publicly traded companies. The fair value of these financial assets was determined based on three levels of inputs:

• Level 1: Quoted prices in active markets for identical assets or liabilities

8

• Level 2: Directly or indirectly observed inputs for the asset or liability, including quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active

• Level 3: Significant unobservable inputs that reflect our own estimates of assumptions that market participants would use

Items Measured at Fair Value on a Recurring Basis

The following table presents information about our financial assets that have been measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012, and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands).

	Fair Value Measurements as of
	September 30, 2013
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	23,038	$	2	$	23,036	$	—
Corporate notes and bonds	72,493		—		72,493		—
Short-term investments:
Corporate notes and bonds	60,041		—		60,041		—
U.S. government agency securities	23,486		22,658		828		—
Restricted cash equivalents and investments	5,000		—		5,000		—
Equity investments in publicly traded securities	34,485		34,485		—		—
Total	$	218,543	$	57,145	$	161,398	$	—

	Fair Value Measurements as of
	December 31, 2012
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	10,680	$	—	$	10,680	$	—
Corporate notes and bonds	81,235		—		81,235		—
Short-term investments:
Corporate notes and bonds	65,502		—		65,502		—
U.S. government agency securities	42,714		42,113		601		—
Restricted cash equivalents and investments	10,000		—		10,000		—
Equity investments in publicly traded securities	34,334		34,334		—		—
Total	$	244,465	$	76,447	$	168,018	$	—

Our equity investments in publicly traded companies consist of J-Stream Inc., a Japanese media services company, and LoEn Entertainment, Inc., a Korean digital music distribution company. These equity investments are accounted for as available for sale. The aggregate cost basis of these securities totaled $8.6 million as of September 30, 2013 and $8.6 million at December 31, 2012.

Items Measured at Fair Value on a Non-recurring Basis

Certain of our assets and liabilities are measured at estimated fair value on a non-recurring basis, using Level 3 inputs. These instruments are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). During the nine months endedSeptember 30, 2013 and 2012, we did not record any impairments on those assets required to be measured at fair value on a non-recurring basis.

Note 7. Cash, Cash Equivalents, Short-Term Investments, Restricted Cash Equivalents and Investments

Cash and cash equivalents, short-term investments, and restricted cash equivalents and investments as of September 30, 2013, consisted of the following (in thousands):

9

	Amortized Cost		Estimated Fair Value
Cash and cash equivalents:
Cash	$	39,348	$	39,348
Money market mutual funds	23,038		23,038
Corporate notes and bonds	72,494		72,493
Total cash and cash equivalents	134,880		134,879
Short-term investments:
Corporate notes and bonds	60,005		60,041
U.S. government agency securities	23,478		23,486
Total short-term investments	83,483		83,527
Total cash, cash equivalents and short-term investments	$	218,363	$	218,406
Restricted cash equivalents and investments	$	5,000	$	5,000

Cash and cash equivalents, short-term investments, and restricted cash equivalents and investments as of December 31, 2012 consisted of the following (in thousands):

	Amortized Cost		Estimated Fair Value
Cash and cash equivalents:
Cash	$	71,283	$	71,283
Money market mutual funds	10,680		10,680
Corporate notes and bonds	81,237		81,235
Total cash and cash equivalents	163,200		163,198

Short-term investments:
Corporate notes and bonds	65,426		65,502
U.S. Government agency securities	42,693		42,714
Total short-term investments	108,119		108,216
Total cash, cash equivalents, and short-term investments	$	271,319	$	271,414
Restricted cash equivalents and investments	$	10,000	$	10,000

Restricted cash equivalents and investments amounts as of September 30, 2013, and December 31, 2012 relate to cash and investments pledged as collateral against letters of credit in connection with lease agreements.

Realized gains or losses on sales of short-term investment securities for the quarters and nine months ended September 30, 2013 and 2012 were not significant. Gross unrealized gains and gross unrealized losses on short-term investment securities as of September 30, 2013 and December 31, 2012 were not significant.

Investments with remaining contractual maturities of five years or less are classified as short-term because the investments are marketable and highly liquid and we have the ability to utilize them for current operations. Contractual maturities of short-term investments as of September 30, 2013 (in thousands):

	Estimated Fair Value
Within one year	$	57,321
Between one year and five years	26,206
Total short-term investments	$	83,527

Note 8. Allowance for Doubtful Accounts Receivable and Sales Returns

Activity in the allowance for doubtful accounts receivable and sales returns (in thousands):

10

	Allowance For
	Doubtful Accounts Receivable			Sales Returns
Balances, December 31, 2012	$	1,010		$	653
Addition (reduction) to allowance	210			(47		)
Amounts written off	(61		)	(21		)
Foreign currency translation	20			—
Balances, September 30, 2013	$	1,179		$	585

One customer accounted for 13% of trade accounts receivable and one other customer accounted for 12% of trade accounts receivable, as of September 30, 2013. No one customer accounted for more than 10% of trade accounts receivable as of December 31, 2012.

One customer accounted for approximately 12%, or $6.0 million, and 14% or $21.1 million, of consolidated revenue during the quarter and nine months ended September 30, 2013, respectively. The revenue from this customer is reflected in our RealPlayer Group and Games segments. One other customer accounted for approximately 14%, or $6.8 million, and 11% or $17.3 million, of consolidated revenue during the quarter and nine months ended September 30, 2013, respectively, in our Mobile Entertainment segment. One customer accounted for 11%, or $6.4 million, of revenue during the quarter ended September 30, 2012. No one customer accounted for more than 10% of consolidated revenue during the nine months endedSeptember 30, 2012.

Note 9. Other Intangible Assets

Other intangible assets (in thousands):

		Gross Amount		Accumulated Amortization		Net
Amortizing intangible assets:
	Customer relationships	$	34,753	$	30,168	$	4,585
	Developed technology	28,949		24,554		4,395
	Patents, trademarks and tradenames	3,965		3,558		407
	Service contracts and other	5,637		5,473		164
		$	73,304	$	63,753	$	9,551
Non-amortizing intangible assets:
	Trademarks and tradenames					$	4,500
	Total other intangible assets, September 30, 2013					$	14,051

For current year increases in other intangible assets, see Note 3, Acquisitions, for details on our acquisitions of Slingo, a social casino games business, in the quarter ended June 30, 2013, and Muzicall, a ringback tone business, in the quarter ended September 30, 2013.

Note 10. Goodwill

Changes in goodwill (in thousands):

Balance, December 31, 2012	$	6,309
Increases due to current year acquisitions	11,352
Effects of foreign currency translation	(143		)
Balance, September 30, 2013	$	17,518

Goodwill by segment (in thousands):

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	September 30, 2013
RealPlayer Group	$	580
Mobile Entertainment	2,115
Games	14,823
Total goodwill	$	17,518

For current year increases in goodwill, see Note 3, Acquisitions, for details on our acquisitions of Slingo, a social casino games business, in the quarter ended June 30, 2013, and Muzicall, a ringback tone business, in the quarter ended September 30, 2013.

Note 11. Accrued and Other Current Liabilities

Accrued and other current liabilities (in thousands):

	September 30, 2013		December 31, 2012
Royalties and other fulfillment costs	$	16,648	$	19,435
Employee compensation, commissions and benefits	11,821		13,368
Accrued legal settlements	11,525		—
Sales, VAT and other taxes payable	8,449		10,959
Deferred tax liabilities—current	453		3,894
Accrued lease exit and related charges	591		2,463
Other	8,537		7,411
Total accrued and other current liabilities	$	58,024	$	57,530

Note 12. Restructuring Charges

Restructuring and other charges in 2013 and 2012 consist of costs associated with the ongoing reorganization of our business operations and focus on aligning our operating expenses with our revenue profile. The expense amounts in both years relate primarily to severance costs due to workforce reductions.

In the third quarter of 2012 we announced we would be eliminating approximately 160 positions worldwide. This action has been concluded as of the end of the second quarter of 2013. In the third quarter of 2013, we incurred restructuring charges as a result of reduced headcount from the termination of certain SaaS contracts. We expect this action to be completed within the first half of 2014. For the quarter and nine months ended September 30, 2013 we recorded $1.1 million and $2.9 million, respectively, of restructuring charges for employee separation costs related to these actions and for other actions taken in 2013.

In the second and third quarter of 2013 we also incurred restructuring charges related to the relocation of our Seattle headquarters. For the quarter and nine months ended September 30, 2013, we recorded $0.8 million and $1.2 million, respectively, of restructuring charges related to this action, which are classified as Asset Related and Other Costs in the table below.

Details of restructuring charges for the nine months endedSeptember 30, 2013 and 2012 are in the table below. The amount accrued at September 30, 2013 for employee separation includes costs for those employees who were separated in the quarter ended September 30, 2013 and are expected to be paid out in the quarter ended December 31, 2013. The amount accrued for contract assignment is expected to be paid out by the end of 2013.

For details on costs associated with the termination of our Seattle headquarters lease see Note 13, Lease exit and related charges.

Restructuring charges by type of cost (in thousands):

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	Employee Separation Costs		Contract Assignment Costs	Asset Related and Other Costs	Total
Costs incurred and charged to expense for the nine months ended September 30, 2013	$	2,891	—	1,184	$	4,075
Costs incurred and charged to expense for the nine months ended September 30, 2012	$	8,099	3,629	2,144	$	13,872

Changes to the accrued restructuring cost liability (in thousands):

	By Type of Cost
	Employee Separation Costs			Contract Assignment Costs		Total
Accrued liability as of December 31, 2012	$	731		$	1,700	$	2,431
Costs incurred and charged to expense for the nine months ended September 30, 2013	2,891			—		2,891
Cash payments	(2,806		)	—		(2,806		)
Accrued liability as of September 30, 2013	$	816		$	1,700	$	2,516

Note 13. Lease Exit and Related Charges

As a result of the reduction in use of RealNetworks' office space, primarily in our former corporate headquarters in Seattle, Washington, and certain other locations, losses have been recognized representing rent and contractual operating expenses over the remaining life of the leases, and related write-downs of leasehold improvements to their estimated fair value.

In the second quarter of 2013, we entered into a new lease in a new location for our Seattle headquarters and concurrently entered into an amendment to our then-current headquarters office lease that provided for an early termination of such lease.

The new Seattle building lease is for an initial term of 11 years and commenced on August 15, 2013. We have the option to extend the lease for two additional five-year terms, with certain increases in base rent.

The amendment to our former headquarters office lease provided for an early termination of such lease effective in three stages, with the termination of a majority of the premises on August 31, 2013, and the final stage being complete by December 31, 2013. Prior to the execution of the amendment, the lease had been scheduled to expire in September 2014. In connection with the early termination of the lease, we agreed to pay the landlord termination fees totaling approximately $6.6 million in 2013. In the quarter and nine months endedSeptember 30, 2013, we paid the landlord $3.1 million and $6.3 million, respectively, in termination fees. The initial payment of $3.2 million was expensed and paid within the second quarter of 2013, and is therefore not included in the rollforward below. The second payment of $3.1 million was accrued in the second quarter of 2013 and subsequently paid in the third quarter of 2013, and is included in the rollforward of the accrued loss below.

Changes to accrued lease exit and related charges (in thousands):

Accrued loss December 31, 2012	$	4,213
Additions and adjustments to the lease exit charges accrual, including sublease income estimate revision	1,331
Less amounts paid, net of sublease amounts	(4,953		)
Accrued loss September 30, 2013 (included in Accrued and other current liabilities)	$	591

Note 14. Income Taxes

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As of September 30, 2013, there have been no material changes to RealNetworks’ uncertain tax positions disclosures as provided in Note 14 of the 10-K. We do not anticipate that our total unrecognized tax benefits will significantly change within the next twelve months.

We file numerous consolidated and separate income tax returns in the U.S including federal, state and local, as well as foreign jurisdictions. With few exceptions, we are no longer subject to U.S federal income tax examinations for tax years before 2008 or state, local, or foreign income tax examinations for years before 1993. We are currently under audit by various states and foreign jurisdictions for certain tax years subsequent to 1993.

Note 15. Earnings (Loss) Per Share

Basic net income (loss) per share (EPS) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the weighted average number of common and dilutive potential common shares outstanding during the period. Basic and diluted EPS (in thousands, except per share amounts):

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net income (loss) available to common shareholders	$	(31,375	)	$	(22,214	)	$	(61,520	)	$	41,768
Weighted average common shares outstanding used to compute basic EPS	35,670			34,998			35,490			34,747
Dilutive effect of stock based awards	—			—			—			253
Weighted average common shares outstanding used to compute diluted EPS	35,670			34,998			35,490			35,000
Basic EPS	$	(0.88	)	$	(0.63	)	$	(1.73	)	$	1.20
Diluted EPS	$	(0.88	)	$	(0.63	)	$	(1.73	)	$	1.19

During the quarter and nine months endedSeptember 30, 2013, respectively, 4.6 million and 4.4 million of potentially issuable shares from stock awards were excluded from the calculation of diluted EPS because of their antidilutive effect.

During the quarter and nine months endedSeptember 30, 2012, respectively, 4.3 million and 5.3 million of potentially issuable shares from stock awards were excluded from the calculation of diluted EPS because of their antidilutive effect.

Note 16. Commitments and Contingencies

Commitments. See Note 13, Lease exit and related charges, for details on office lease commitments.

Litigation. In October 2013, we executed settlement agreements relating to certain of our outstanding litigation matters; specifically, the matters brought against us by VoiceAge Corporation and Callertone Innovations, Inc., which are more fully described below. During the fourth quarter of 2013 we paid an aggregate of $11.5 million, representing our total obligation under these settlements. This amount was accrued as of September 30, 2013, and is identified in our Condensed Consolidated Statements of Operations as "Loss on litigation settlements."

On July 3, 2012, a lawsuit was filed against us by VoiceAge Corporation in the Supreme Court of the State of New York, wherein VoiceAge asserted that we had breached our payment obligations under the terms of a patent license agreement between us and VoiceAge in respect of distribution of specified codec technology, and sought a material amount of damages. We removed the proceedings to New York federal court, and discovery took place from January 4 to May 15, 2013. In June 2013, VoiceAge submitted a motion for summary judgment, which was denied by the Supreme Court of the State of New York on August 5, 2013. On October 24, 2013, we executed a settlement agreement with VoiceAge to settle and dismiss with prejudice all outstanding claims in the lawsuit.

On October 28, 2011 and November 1, 2011, respectively, two lawsuits were filed by Callertone Innovations, LLC in the U.S. District Court for the District of Delaware. The first lawsuit was against T-Mobile USA, Inc. and the second lawsuit was against MetroPCS Wireless, Inc. and MetroPCS Communications, Inc., which we collectively refer to as MetroPCS. The lawsuits alleged that T-Mobile and MetroPCS, respectively, infringed Callertone's patents by providing ringback tone services. We agreed to indemnify each of T-Mobile and MetroPCS against the claims based on an indemnity that was claimed to be owed by us. The respective complaint was served on T-Mobile on January 16, 2012 and on MetroPCS on January 14, 2012. We filed our answers to each complaint on April 9, 2012. In each matter, we disputed the plaintiff's allegations regarding both the validity of its patents and its claims of infringement against T-Mobile and MetroPCS, respectively. A claims construction

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hearing was held on September 6, 2013. On October 21, 2013, we executed a settlement agreement with Callertone to settle and dismiss with prejudice all outstanding claims in each of the lawsuits.

On April 25, 2007, a lawsuit was filed by Greenville Communications, LLC in Greenville, Mississippi against a number of cell phone carriers, including our partners T-Mobile USA, Inc. and Alltel Corporation, alleging that they infringed Greenville's patents by providing ringback tone services. We agreed to indemnify T-Mobile and Alltel against the claims based on an indemnity that was claimed to be owed by us. On August 27, 2007, our motion to transfer this matter to the U.S. District Court for the District of New Jersey was granted. The parties briefed claims construction, but the case was subsequently stayed pending reexamination of the patents at issue. On December 10, 2009, the U.S. Patent and Trademark Office issued notice of its intent to issue reexamination certificates for the patents in the suit. The District Court lifted the stay on the litigation on January 29, 2010 and discovery resumed. On September 28, 2011, the District Court held a claims construction hearing, and on May 10, 2012, the District Court issued a non-infringement judgment that was favorable to us and the other defendants. On December 4, 2012, Greenville appealed the claims construction order and the judgment, and the defendants filed a reply brief on January 28, 2013. On May 17, 2013, the U.S. Court of Appeals for the Federal Circuit affirmed the judgment of non-infringement of the District Court. Greenville has filed a petition for re-hearing with the U.S. Court of Appeals. Due to the uncertainties inherent in this matter, we are unable to estimate the range of possible loss that could result from this litigation.

Although the matters described above have been either settled, as in the lawsuits filed by VoiceAge and Callertone, or the appeals process has been nearly exhausted, as in the Greenville matter, we could in the future become subject to legal proceedings, governmental investigations and claims in the ordinary course of business, including employment claims, contract-related claims, and claims of alleged infringement of third-party patents, trademarks and other intellectual property rights. Such claims, even if not meritorious, could force us to expend significant financial and managerial resources. In addition, given the broad distribution of some of our consumer products, any individual claim related to those products could give rise to liabilities that may be material to us. In the event of a determination adverse to us, we could incur substantial monetary liability, and/or be required to change our business practices. Either of these could have a material adverse effect on our consolidated financial statements.

Note 17. Guarantees

In the ordinary course of business, RealNetworks is subject to potential obligations for standard warranty and indemnification provisions that are contained within many of our customer license and service agreements. Our warranty provisions are consistent with those prevalent in our industry, and we do not have a history of incurring losses on warranties; therefore, we do not maintain accruals for warranty-related obligations. With regard to indemnification provisions, nearly all of our carrier contracts obligate us to indemnify our carrier customers for certain liabilities that may be incurred by them. We have in the past received claims for indemnification from some of our carrier customers. See Note 16, Commitments and Contingencies, for a discussion of current indemnification claims.

As discussed in Note 1, Description of Business and Summary of Significant Accounting Policies, we sold certain patents and other technology assets to Intel in the second quarter of 2012. We have specific obligations to indemnify Intel for breaches of the representations and warranties that we made and covenants that we agreed to in the asset purchase agreement executed in connection with the transaction, and for certain potential future intellectual property infringement claims brought by third parties against Intel. The amount of any potential liabilities related to our indemnification obligations to Intel will not be determined until a claim has been made, but we are obligated to indemnify Intel up to the amount of the gross purchase price that we received in the sale.

Note 18. Segment Information

In the first quarter of 2013 we reorganized the management of our businesses and as a result, we now report the following three segments: (1) RealPlayer Group, which includes sales of our RealPlayer media player software and related products, such as the distribution of third party software products, advertising on RealPlayer websites, and sales of RealPlayer Plus software licenses to consumers, sales of intellectual property licenses, and consumer subscriptions such as SuperPass and our recently launched RealPlayer Cloud service; (2) Mobile Entertainment, which includes our SaaS services, systems integration, and professional services to mobile carriers, and sales of technology licenses of our software products such as Helix; and (3) Games, which includes all our games-related businesses, including sales of games licenses, online games subscription services, advertising on games sites and social network sites, microtransactions from online and social games, and sales of mobile games.

In addition, we now also allocate certain corporate expenses which are directly attributable to supporting the business to our reportable segments, rather than retaining those expenses in our corporate segment. These corporate expenses include but are not limited to a portion of finance, legal, human resources and headquarters facilities. Remaining expenses, which are not directly attributable to supporting the business, are retained in aggregate in our corporate segment. All restructuring, lease exit and related charges, and, for 2013, the loss on litigation settlements, are included in the corporate segment. In 2012, the sale of

15

patent and other technology assets, net of costs, was included in the corporate segment. The historical financial information presented has been recast to reflect the new segments and the new corporate expense presentation.

RealNetworks reports three reportable segments based on factors such as how we manage our operations and how our Chief Operating Decision Maker reviews results. Our Chief Operating Decision Maker is considered to be the CEO Staff (CEOS), which includes the interim Chief Executive Officer, Chief Financial Officer, President, Executive Vice President, General Counsel and certain Senior Vice Presidents. The CEOS reviews financial information presented on both a consolidated basis and on a business segment basis, accompanied by certain disaggregated information about products and services, geographical regions and corporate expenses for purposes of making decisions and assessing financial performance. The accounting policies used to derive segment results are the same as those described in Note 1, Description of Business and Summary of Significant Accounting Policies, in the 10-K.

Segment results for the quarters and nine months endedSeptember 30, 2013 and 2012 (in thousands):

RealPlayer Group

	Quarters Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013		2012
Revenue	$	17,641		$	21,392	$	58,407	$	65,631
Cost of revenue	3,264			6,735		12,984		16,026
Gross profit	14,377			14,657		45,423		49,605
Operating expenses	14,449			13,082		44,656		41,849
Operating income (loss)	$	(72	)	$	1,575	$	767	$	7,756

Mobile Entertainment

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenue	$	19,948		$	22,820		$	59,035		$	74,600
Cost of revenue	11,972			12,740			33,974			43,093
Gross profit	7,976			10,080			25,061			31,507
Operating expenses	9,453			11,936			26,976			40,591
Operating income (loss)	$	(1,477	)	$	(1,856	)	$	(1,915	)	$	(9,084	)

Games

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenue	$	11,369		$	14,876		$	38,159		$	51,347
Cost of revenue	3,216			4,989			10,397			17,332
Gross profit	8,153			9,887			27,762			34,015
Operating expenses	11,513			12,023			35,120			39,962
Operating income (loss)	$	(3,360	)	$	(2,136	)	$	(7,358	)	$	(5,947	)

Corporate

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	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Cost of revenue	$	538		$	780		$	1,660		$	2,182
Sale of patents and other technology assets, net of costs	—			—			—			116,353
Operating expenses	22,990			19,978			46,201			44,445
Operating income (loss)	$	(23,528	)	$	(20,758	)	$	(47,861	)	$	69,726

Our customers consist primarily of consumers and corporations located in the U.S., Europe and various foreign countries. Revenue by geographic region (in thousands):

	Quarters Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
United States	$	21,039	$	29,101	$	70,525	$	89,529
Europe	8,750		12,470		29,278		43,021
Rest of the world	19,169		17,517		55,798		59,028
Total net revenue	$	48,958	$	59,088	$	155,601	$	191,578

Long-lived assets, consisting of equipment, software, leasehold improvements, other intangible assets, and goodwill by geographic region (in thousands):

	September 30, 2013		December 31, 2012
United States	$	41,634	$	27,915
Europe	8,830		2,350
Rest of the world	5,570		8,635
Total long-lived assets	$	56,034	$	38,900

Note 19. Related Party Transactions

Transactions with Rhapsody. See Note 5, Rhapsody Joint Venture, for details on the 2010 restructuring transaction involving Rhapsody. Subsequent to the restructuring transaction, we are obligated to provide Rhapsody with certain support services. These support services are expected to be completed in 2013. The support services include information technology and limited operational support provided directly to Rhapsody. The amount of these and other support service costs were based on various measures depending on the service provided, including vendor fees, an allocation of fixed costs and time employees spend on providing services to Rhapsody. RealNetworks allocates the cost of providing these support services and records such allocation as a reduction to the related expense in the period for which it was incurred. During the quarter and nine months endedSeptember 30, 2013, we charged Rhapsody $0.2 million and $0.6 million, respectively, for the support services. During the quarter and nine months endedSeptember 30, 2012, we charged Rhapsody $0.2 million and $0.7 million, respectively, for the support services.

Transactions with LoEn Entertainment, Inc. In 2008 RealNetworks acquired at market prices common shares of LoEn Entertainment, Inc., whose shares are traded on the Korean Securities Dealers Automated Quotations. As of September 30, 2013 we owned approximately 9% of the outstanding shares of LoEn. Our investment in LoEn is treated as an available for sale investment and is marked-to-market each period with resulting unrealized gains or losses recognized in accumulated other comprehensive income/loss. During the quarter and nine months endedSeptember 30, 2013, we recorded revenue from LoEn of $6.8 million and $17.3 million, respectively. During the quarter and nine months endedSeptember 30, 2012, we recorded revenue from LoEn of $4.0 million and $12.0 million, respectively. Revenue consisted primarily of sales of application service provider services, which include sales of ringback tones, music on demand, video on demand, and intercarrier messaging services. Associated with these transactions, we also recorded accounts receivable of $3.4 million as of September 30, 2013. Accounts payable and cost of revenue amounts associated with LoEn as of and for the periods ended September 30, 2013 and 2012 were nominal.

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

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about RealNetworks’ industry, products, management’s beliefs, and certain assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. All statements contained in this report that do not relate to matters of historical fact should be considered forward-looking statements. Forward-looking statements include statements with respect to:

• future revenues, operating expenses, income and other taxes, tax benefits, net income (loss) per diluted share available to common shareholders, acquisition costs and related amortization, and other measures of results of operations;

• the effects of our past acquisitions and expectations for future acquisitions and divestitures;

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

• the prospects for creation and growth of strategic partnerships and the resulting financial benefits from such partnerships;

• the expected financial position, performance, growth and profitability of, and investment in, our businesses and the availability of resources;

• our involvement in potential claims, legal proceedings and government investigations, the expected course and costs of existing claims, legal proceedings and government investigations, and the potential outcomes and effects of both existing and potential claims, legal proceedings and governmental investigations on our business, prospects, financial condition or results of operations;

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

• our expected introduction of new and enhanced products, services and technologies across our businesses;

• the effects of legislation, regulations, administrative proceedings, court rulings, settlement negotiations and other factors that may impact our businesses;

• the continuation and expected nature of certain customer relationships;

• impacts of competition and certain customer relationships on the future financial performance and growth of our businesses;

• the effects of U.S. and foreign income and other taxes on our business, prospects, financial condition or results of operations; and

• the effect of economic and market conditions on our business, prospects, financial condition or results of operations.

These statements are not guarantees of future performance and actual actions or results may differ materially. These statements are subject to certain risks, uncertainties and assumptions that are difficult to predict, including those noted in the documents incorporated herein by reference. Particular attention should also be paid to the cautionary language in Item 1A of Part II entitled “Risk Factors.” RealNetworks undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise, unless required by law. Readers should, however, carefully review the risk factors included in other reports or documents filed by RealNetworks from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

Overview

In the first quarter of 2013 we reorganized the management of our businesses and as a result, we now report the following three segments: (1) RealPlayer Group, (2) Mobile Entertainment, and (3) Games. Within our RealPlayer Group, revenue is derived from the sale of our RealPlayer media player software and related products, such as the distribution of third party software products, advertising on RealPlayer websites, and sales of RealPlayer Plus software licenses to consumers, sales of intellectual property licenses, and consumer subscriptions such as SuperPass and our recently launched RealPlayer Cloud service. The Mobile Entertainment business primarily includes revenue from SaaS services, systems integration, and professional services to mobile carriers, and sales of technology licenses of our software products such as Helix. The Games business primarily includes revenue from sales of games licenses, online games subscription services, advertising on games sites and social network sites, microtransactions from online and social games, and sales of mobile games.

In addition, we now also allocate certain corporate expenses which are directly attributable to supporting the business, including but not limited to a portion of finance, legal, human resources and headquarters facilities, to our reportable segments rather than retaining those expenses in our corporate segment. The allocation of these costs to the business units will increase accountability for financial and operational performance within each of our reportable segments. RealNetworks' most significant expenses relate to cost of revenue, compensating employees, and selling and marketing our products and services. The historical financial information presented has been recast to reflect the new segments and the new corporate expense presentation.

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In the quarter and nine months endedSeptember 30, 2013, our consolidated revenue declined by $10.1 million and $36.0 million, respectively, compared to the same periods in 2012, with each of our three segments suffering revenue declines. For the quarter, revenue fell by $3.8 million in our RealPlayer Group, $3.5 million in Games, and $2.9 million in Mobile Entertainment. For the year to date period, the overall decline was due to a $15.6 million decrease in Mobile Entertainment revenue, a $13.2 million decrease in Games revenue, and a $7.2 million decrease in RealPlayer Group revenue.

Revenue from our legacy products continues to decline as a result of certain changes in our businesses and market-driven factors. Our SaaS business within Mobile Entertainment continues to be negatively impacted by the proliferation of smartphone applications and services, some of which do not depend on our carrier customers for distribution to consumers. In addition, we are still experiencing pricing pressure from carriers for our intercarrier messaging services. In our Games segment, our business continues to be challenged as consumer game play continues to shift from downloadable PC games to social networks and mobile devices. Since 2011, we have been focusing on developing social and mobile games and monetizing those game play experiences.

Over the past twelve months we have developed a growth plan, implemented strategic initiatives, and executed certain restructuring efforts, all in an effort to grow our businesses, move towards profitability, and streamline our operations. In line with our growth plan, we continue to invest in each of our three business units. From an organic growth perspective, we have invested in the internal development of major new products, including the August 2013 launch from our Games business of GameHouse Casino Plus with the Golden Dreams Sweepstakes feature, and the September 2013 launch from our RealPlayer Group of our RealPlayer Cloud integrated video player and cloud service. Complementing these internal development efforts, we have made certain targeted acquisitions including the second quarter 2013 acquisition of U.S.-based Slingo, Inc., creator of a highly popular social casino game that combines bingo and slots, for total cash consideration of $15.6 million. We expect this acquisition to enhance our footprint in the social casino games arena. In addition, during the third quarter, we acquired U.K.-based Muzicall Limited, a provider of services for mobile carriers and media companies in Europe, for total cash consideration of $6.7 million. This acquisition is intended to accelerate our growth initiatives within the Mobile Entertainment segment. We expect to continue to invest in our growth initiatives.

One of our key strategic initiatives is to better align our operating expenses with our revenue profile. In line with this, during the third quarter of 2012 we initiated a restructuring that eliminated approximately 160 positions worldwide. During the third quarter of 2013, we moved our Seattle headquarters, which required certain one-time lease termination and move costs, but which will allow us to meaningfully reduce our future annual facilities cost. These and other restructuring efforts have contributed to an overall decline in our operating expenses. During the quarter and nine months endedSeptember 30, 2013, our total operating expenses saw a $1.4 million increase and $13.9 million decrease, respectively, compared to the same periods in 2012. Excluding the impact of restructuring, lease exit and related charges, and the loss on litigation settlements discussed below, total operating expenses declined $1.0 million and $18.4 million in the quarter and nine months endedSeptember 30, 2013, respectively, compared with the year-earlier periods.

In October 2013, we executed settlement agreements relating to our most significant outstanding litigation matters, as described in Note 16, Commitments and Contingencies. The settlements resulted in an aggregate payment during the fourth quarter of 2013 of $11.5 million, which was accrued and recorded in our financial statements in the third quarter of 2013.

Condensed consolidated results of operations were as follows (dollars in thousands):

	Quarters Ended September 30,											Nine months ended September 30,
	2013			2012			$ Change			% Change		2013			2012			$ Change			% Change
Total revenue	$	48,958		$	59,088		$	(10,130	)	(17	)%	$	155,601		$	191,578		$	(35,977	)	(19	)%
Cost of revenue	18,990			25,244			(6,254		)	(25	)%	59,015			78,633			(19,618		)	(25	)%
Gross profit	29,968			33,844			(3,876		)	(11	)%	96,586			112,945			(16,359		)	(14	)%
Gross margin	61		%	57		%						62		%	59		%
Sale of patent assets and other technology assets, net of costs	—			—			—			—	%	—			116,353			(116,353		)	(100	)%
Operating expenses	58,405			57,019			1,386			2	%	152,953			166,847			(13,894		)	(8	)%
Operating income (loss)	$	(28,437	)	$	(23,175	)	$	(5,262	)	(23	)%	$	(56,367	)	$	62,451		$	(118,818	)	(190	)%

In the third quarter of 2013, our total consolidated revenue declined by $10.1 million, compared with the year-earlier period. The reduction in revenue resulted from a decline of $3.8 million in our RealPlayer Group segment, a decline of $3.5

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million in our Games segment, and a $2.9 million decline in our Mobile Entertainment segment, due to the factors described above. Gross margin increased to 61% from 57% for the year earlier quarter as a result of lower personnel and related costs in the third quarter of 2013 that resulted from our ongoing expense alignment efforts. Operating expenses increased by $1.4 million in the quarter ended September 30, 2013, compared with the prior year. Excluding the impact of restructuring, lease exit and related charges, and the loss on litigation settlements, operating expenses decreased by $1.0 million in the quarter ended September 30, 2013, compared to the same period of the prior year.

For the nine months endedSeptember 30, 2013, our total consolidated revenue declined by $36.0 million, compared with the year-earlier period. The reduction in revenue resulted from a decline of $15.6 million in our Mobile Entertainment segment, a decline of $13.2 million in our Games segment, and a decline of $7.2 million in our RealPlayer Group segment, due to the factors described above. Gross margin increased to 62% from 59% for the year earlier quarter, primarily as a result of lower personnel and related costs in the first nine months of 2013 that resulted from our ongoing expense alignment efforts. Operating expenses decreased by $13.9 million in the nine months endedSeptember 30, 2013, compared with the prior year, primarily due to reductions in personnel and related costs that resulted from our ongoing expense alignment efforts. Excluding the impact of restructuring, lease exit and related charges, and the loss on litigation settlements, operating expenses decreased by $18.4 million in the nine months endedSeptember 30, 2013, compared to the same period of the prior year.

The 2012 gain from the sale of patents and other technology assets to Intel is net of certain direct expenses incurred for the sale transaction.

See “Segment Operating Results” below for more information and discussion regarding changes in the operating results for each of our reporting segments.

Segment Operating Results

RealPlayer Group

The RealPlayer Group segment primarily generates revenue and incurs costs from sales of RealPlayer and its related products, such as the distribution of third party software products, advertising on RealPlayer websites, and sales of RealPlayer Plus software licenses to consumers, sales of intellectual property licenses, and consumer subscriptions such as SuperPass. In addition, late in the third quarter, we launched RealPlayer Cloud, an integrated video player and cloud service which offers additional storage via subscription plans.

RealPlayer Group segment results of operations were as follows (dollars in thousands):

	Quarters Ended September 30,											Nine months ended September 30,
	2013			2012			$ Change			% Change		2013			2012			$ Change			% Change
Revenue	$	17,641		$	21,392		$	(3,751	)	(18	)%	$	58,407		$	65,631		$	(7,224	)	(11	)%
Cost of revenue	3,264			6,735			(3,471		)	(52	)%	12,984			16,026			(3,042		)	(19	)%
Gross profit	14,377			14,657			(280		)	(2	)%	45,423			49,605			(4,182		)	(8	)%
Gross margin	81		%	69		%						78		%	76		%
Operating expenses	14,449			13,082			1,367			10	%	44,656			41,849			2,807			7	%
Operating income (loss)	$	(72	)	$	1,575		$	(1,647	)	(105	)%	$	767		$	7,756		$	(6,989	)	(90	)%

Total RealPlayer Group revenue decreased by $3.8 million in the quarter ended September 30, 2013, compared with the year-earlier period. This decrease was primarily a result of lower subscriptions revenue of $3.4 million due to fewer subscribers, primarily attributable to our SuperPass product.

Total RealPlayer Group revenue decreased by $7.2 million for the nine months endedSeptember 30, 2013, compared with the year-earlier period. This decrease was primarily a result of lower subscriptions revenue of $8.7 million due to fewer subscribers, primarily attributable to our SuperPass product. Partially offsetting this decrease was an increase in revenue of $2.5 million from distribution of third party software.

Gross margin during the quarter ended September 30, 2013 increased by 12 percentage points, due primarily to a higher proportion of lower margin revenue in the prior year.

Operating expenses increased by $1.4 million for the quarter ended September 30, 2013, compared with the year-earlier period. Personnel and related costs increased $1.3 million during the quarter ended September 30, 2013, primarily due to investment in our new RealPlayer Cloud service. Further contributing to the increase was an expense benefit of $1.1 million in

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the third quarter of 2012 related to the investigation by the Washington State Attorney General's office, as disclosed in the 2012 10-K. Partially offsetting the increases during the quarter was a decrease of $2.1 million in marketing expense.

Operating expenses increased by $2.8 million for the nine months endedSeptember 30, 2013, compared with the year-earlier period. Personnel and related costs increased $4.1 million, primarily due to investment in our new RealPlayer Cloud service. Further contributing to the increase was increased depreciation of $0.8 million. Partially offsetting these increases was a decrease of $1.3 million related to the expense in 2012 for the final settlement of the Washington State Attorney General's office matter, as disclosed in the 2012 10-K. Further offsetting the increases for the nine months endedSeptember 30, 2013 was a decrease in marketing expense of $1.4 million.

Mobile Entertainment

The Mobile Entertainment segment primarily generates revenue and incurs costs from the sales of SaaS services, such as ringback tones, intercarrier messages, music on demand and video on demand; professional services and systems integration services to mobile carriers and mobile handset companies; and Helix software.

Mobile Entertainment segment results of operations were as follows (dollars in thousands):

	Quarters Ended September 30,											Nine months ended September 30,
	2013			2012			$ Change			% Change		2013			2012			$ Change			% Change
Revenue	$	19,948		$	22,820		$	(2,872	)	(13	)%	$	59,035		$	74,600		$	(15,565	)	(21	)%
Cost of revenue	11,972			12,740			(768		)	(6	)%	33,974			43,093			(9,119		)	(21	)%
Gross profit	7,976			10,080			(2,104		)	(21	)%	25,061			31,507			(6,446		)	(20	)%
Gross margin	40		%	44		%						42		%	42		%
Operating expenses	9,453			11,936			(2,483		)	(21	)%	26,976			40,591			(13,615		)	(34	)%
Operating income (loss)	$	(1,477	)	$	(1,856	)	$	379		20	%	$	(1,915	)	$	(9,084	)	$	7,169		79	%

In the quarter ended September 30, 2013, we acquired Muzicall, a ringback tone company based in London, for total cash consideration of $6.7 million. This acquisition is intended to accelerate our growth initiatives within the Mobile Entertainment segment.

Total Mobile Entertainment revenue decreased by $2.9 million in the quarter ended September 30, 2013, compared with the year-earlier period. The decline during the quarter was primarily due to reduced revenue from our SaaS offerings of $2.5 million, resulting from lost revenue upon the termination of certain SaaS contracts totaling $3.8 million over the last five quarters. Slightly offsetting this decrease was our purchase of Muzicall, which resulted in an increase of $1.1 million in ringback tones revenue.

Total Mobile Entertainment revenue decreased by $15.6 million in the nine months ended September 30, 2013, compared with the year-earlier period. The decline during the nine months ended September 30, 2013 was primarily due to reduced revenue from our SaaS offerings of $13.6 million. The decline in SaaS revenue was due to $10.2 million of lost revenue upon the termination of certain SaaS contracts over the last five quarters, $4.6 million lower revenue due to fewer subscribers on existing contracts, and pricing pressures from carriers across our tones business, intercarrier messaging, and other carrier services, during the nine months ended September 30, 2013. Slightly offsetting these decreases was an increase in ringback tones revenue of $1.1 million, resulting from our purchase of Muzicall.

Gross margin during the quarter ended September 30, 2013 declined by 4 percentage points, due primarily to a higher proportion of lower margin revenue in the current year.

Operating expenses declined by $2.5 million and $13.6 million for the quarter and nine months ended September 30, 2013, compared with the year-earlier periods, primarily due to reductions in personnel and related costs of $3.9 million and $13.7 million during the quarter and nine months ended September 30, 2013, respectively, that resulted from our ongoing expense alignment efforts. Partially offsetting these declines was an increase in total operating expense of $1.2 million during the quarter and nine months ended September 30, 2013, as a result of the acquisition of Muzicall during the quarter.

Games

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The Games segment primarily generates revenue and incurs costs from the creation, distribution and sales of games licenses, online games subscription services, advertising on game sites and social network sites, games syndication services, and microtransactions from online and social games, and sales of mobile games.

Games segment results of operations were as follows (dollars in thousands):

	Quarters Ended September 30,											Nine months ended September 30,
	2013			2012			$ Change			% Change		2013			2012			$ Change			% Change
Revenue	$	11,369		$	14,876		$	(3,507	)	(24	)%	$	38,159		$	51,347		$	(13,188	)	(26	)%
Cost of revenue	3,216			4,989			(1,773		)	(36	)%	10,397			17,332			(6,935		)	(40	)%
Gross profit	8,153			9,887			(1,734		)	(18	)%	27,762			34,015			(6,253		)	(18	)%
Gross margin	72		%	66		%						73		%	66		%
Operating expenses	11,513			12,023			(510		)	(4	)%	35,120			39,962			(4,842		)	(12	)%
Operating income (loss)	$	(3,360	)	$	(2,136	)	$	(1,224	)	(57	)%	$	(7,358	)	$	(5,947	)	$	(1,411	)	(24	)%

In the quarter ended June 30, 2013, we acquired Slingo, a social casino games company based in the U.S., for total cash consideration of $15.6 million. This acquisition is intended to enhance our footprint in the social casino games arena. Associated with this will be incremental costs for investment in new products over the next year, which will directly impact our operating income (loss) before taxes.

Total Games revenue decreased by $3.5 million in the quarter ended September 30, 2013, compared with the year-earlier period. Lower revenue from license sales, our subscription products, and advertising contributed $1.9 million, $1.2 million, and $1.0 million respectively, to the decline during the period. Slightly offsetting these decreases was an increase of $0.7 million in games revenue as a result of the acquisition of Slingo.

Total Games revenue decreased by $13.2 million during the nine months ended September 30, 2013, compared with the year-earlier period. Lower revenue from license sales, subscription products, and advertising contributed $6.4 million, $4.6 million, and $2.7 million, respectively, to the decline during the period. Slightly offsetting these decreases was an increase of $1.4 million in games revenue as a result of the acquisition of Slingo.

Cost of revenue decreased by $1.8 million and $6.9 million during the quarter and nine months endedSeptember 30, 2013, respectively, compared with the year-earlier periods. The decreases were due to the decrease in partner royalties expense, which has a direct correlation with the decrease in Games revenue. Gross margins increased during the quarter and nine months endedSeptember 30, 2013 due to lower margin projects that occurred in the prior year periods.

Operating expenses declined by $0.5 million and $4.8 million during the quarter and nine months endedSeptember 30, 2013, respectively, compared with the year-earlier period. During the quarter-ended September 30, 2013, the decrease was mainly due to reductions in personnel and related costs of $1.6 million, resulting from our ongoing expense alignment efforts. Partially offsetting this decline was an increase in total operating expense of $1.3 million as a result of the acquisition of Slingo during the quarter. During the nine months ended September 30, 2013, the decrease was primarily due to reductions in personnel and related costs of $4.4 million, and reductions in marketing expense of $1.8 million. Partially offsetting these declines was an increase in total operating expense of $2.1 million as a result of the acquisition of Slingo.

Corporate

We allocate certain corporate expenses which are directly attributable to supporting the business to our reportable segments, rather than retaining those expenses in our corporate segment. These allocated corporate expenses include but are not limited to a portion of finance, legal, human resources and headquarters facilities. Remaining expenses, which are not directly attributable to supporting the business, are retained in aggregate in our corporate segment. All restructuring, lease exit and related charges, and, for 2013, the loss on litigation settlements, are included in the corporate segment.

Corporate segment results of operations were as follows (dollars in thousands):

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	Quarters Ended September 30,											Nine months ended September 30,
	2013			2012			$ Change			% Change		2013			2012		$ Change			% Change
Cost of revenue	$	538		$	780		$	(242	)	(31	)%	$	1,660		$	2,182	$	(522	)	(24	)%
Sale of patent and other technology assets, net of costs	—			—			—			N/A		—			116,353		(116,353		)	(100	)%
Operating expenses	22,990			19,978			3,012			15	%	46,201			44,445		1,756			4	%
Operating income (loss)	$	(23,528	)	$	(20,758	)	$	(2,770	)	(13	)%	$	(47,861	)	$	69,726	$	(117,587	)	(169	)%

The 2012 gain from the sale of patents and other technology assets to Intel Corporation of $116.4 million in the nine months endedSeptember 30, 2012 reflects the cash proceeds of $120.0 million less $3.6 million of direct transaction expenses incurred during the first and second quarters.

Operating expenses increased by $3.0 million during the quarter ended September 30, 2013, compared with the year-earlier period. The increase during the quarter was primarily due to the litigation settlements of $11.5 million that were accrued during the quarter ended September 30, 2013, as discussed above. Partially offsetting this increase was a decrease in restructuring and lease exit and related costs of $9.1 million.

Operating expenses increased $1.8 million during the nine months endedSeptember 30, 2013, compared with the year-earlier period. The increase during the nine months ended was primarily due to the litigation settlements of $11.5 million that were accrued during the quarter ended September 30, 2013, as discussed above. Partially offsetting this increase was a decrease in restructuring and lease exit and related costs of $7.0 million, in addition to reductions in personnel and related costs of $4.2 million, resulting from our ongoing expense alignment efforts.

Consolidated Operating Expenses

Our operating expenses consist primarily of salaries and related personnel costs including stock based compensation, consulting fees associated with product development, sales commissions, amortization of certain intangible assets capitalized in our acquisitions, professional service fees, advertising costs, and restructuring charges. Operating expenses were as follows (dollars in thousands):

	Quarters Ended September 30,									Nine months ended September 30,
	2013		2012		$ Change			% Change		2013		2012		$ Change			% Change
Research and development	$	15,707	$	15,321	$	386		3	%	$	45,951	$	49,167	$	(3,216	)	(7	)%
Sales and marketing	19,427		21,972		(2,545		)	(12	)%	59,830		68,462		(8,632		)	(13	)%
General and administrative	9,869		8,759		1,110			13	%	28,506		35,103		(6,597		)	(19	)%
Restructuring and other charges	1,877		10,724		(8,847		)	(82	)%	4,075		13,872		(9,797		)	(71	)%
Lease exit and related charges	—		243		(243		)	(100	)%	3,066		243		2,823			NM
Loss on litigation settlements	11,525		—		11,525			100	%	11,525		—		11,525			100	%
Total consolidated operating expenses	$	58,405	$	57,019	$	1,386		2	%	$	152,953	$	166,847	$	(13,894	)	(8	)%

Research and development expenses increased by $0.4 million in the quarter ended September 30, 2013, compared with the year-earlier period, primarily due to investment in new products that were launched during the quarter.

Research and development expenses decreased by $3.2 million in the nine months ended September 30, 2013, compared with the year-earlier period. While we are investing in new products, we saw an overall decrease in the nine months ended September 30, 2013 due to a decrease in personnel and related costs of $4.3 million, resulting from our ongoing expense alignment efforts.

Sales and marketing expenses decreased by $2.5 million in the quarter ended September 30, 2013, compared with the year-earlier period. The decline was primarily due to a decrease in personnel and related costs of $1.4 million resulting from our ongoing expense alignment efforts, and to lower marketing expense of $1.4 million.

Sales and marketing expenses decreased by $8.6 million in the nine months ended September 30, 2013, compared with the year-earlier period. The decline was primarily due to a decrease in personnel and related costs of $6.2 million resulting from our ongoing expense alignment efforts.

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General and administrative expenses increased by $1.1 million in the quarter ended September 30, 2013, compared with the year-earlier period. The increase was due to an expense benefit of $1.1 million in the third quarter of 2012 related to the investigation by the Washington State Attorney General's office, as disclosed in the 2012 10-K.

General and administrative expenses decreased by $6.6 million in the nine months ended September 30, 2013, compared with the year-earlier period. Contributing to the decrease for the period was a decrease in personnel and related costs of $4.4 million, and to $1.3 million related to the expense in 2012 for the final settlement of the Washington State Attorney General's office matter, as disclosed in the 2012 10-K.

Restructuring and other charges and Lease exit and related charges consist of costs associated with the ongoing reorganization of our business operations and our ongoing expense alignment efforts. The restructuring expense amounts in both years primarily relate to severance costs due to workforce reductions. We recorded expenses for Lease exit and related charges in the nine months ended September 30, 2013 of $3.1 million. For additional details on these charges see Note 12, Restructuring Charges and Note 13, Lease Exit and Related Charges.

Loss on litigation settlements recorded during the quarter ended September 30, 2013 relates to settlement agreements executed in October 2013, for which we paid in full an aggregate amount of $11.5 million during the fourth quarter of 2013, as discussed in Note 16, Commitments and Contingencies.

Other Income (Expenses)

Other income (expenses), net was as follows (dollars in thousands):

	Quarters Ended September 30,											Nine months ended September 30,
	2013			2012			$ Change			% Change		2013			2012			$ Change			% Change
Interest income, net	$	166		$	164		$	2		1	%	$	992		$	1,033		$	(41	)	(4	)%
Gain (loss) on sale of equity investments, net	—			2,210			(2,210		)	(100	)%	—			5,288			(5,288		)	(100	)%
Equity in net loss of Rhapsody	(2,629		)	(1,613		)	(1,016		)	(63	)%	(6,209		)	(4,095		)	(2,114		)	(52	)%
Other income (expense), net	(118		)	248			(366		)	(148	)%	(146		)	1,674			(1,820		)	(109	)%
Total other income (expense), net	$	(2,581	)	$	1,009		$	(3,590	)	(356	)%	$	(5,363	)	$	3,900		$	(9,263	)	(238	)%

The decrease in Other income (expense), net, of $3.6 million for the quarter ended September 30, 2013 was primarily due to the gain on sale of certain equity and other investments of $2.2 million in the prior year.

The decrease in Other income (expense), net, of $9.3 million for the nine months ended September 30, 2013 was primarily due to the gain on sale of certain equity and other investments of $5.3 million in the prior year and to non-cash gains in the nine months endedSeptember 30, 2012, due to the release of a $2.0 million cumulative foreign exchange translation gain from accumulated other comprehensive loss on the balance sheet related to the liquidations of investments in certain of our foreign entities.

We account for our investment in Rhapsody under the equity method of accounting for investments. The net carrying value of our investment in Rhapsody is not necessarily indicative of the underlying fair value of our investment.

Income Taxes

During the quarters ended September 30, 2013 and 2012, we recognized income tax expense of $357 thousand and $48 thousand, respectively, related to U.S. and foreign income taxes. During the nine months ended September 30, 2013 and 2012, we recognized an income tax benefit of $0.2 million and income tax expense of $24.6 million, respectively, related to U.S. and foreign income taxes. The change in income tax expense and the change in income tax expense as a percentage of pre-tax income/loss during the quarter and nine months ended September 30, 2013, was largely the result of the gain on sale of patents and other assets to Intel Corporation recognized in the second quarter ending June 30, 2012 and changes in our jurisdictional income mix.

As of September 30, 2013, there have been no material changes to RealNetworks’ uncertain tax positions as provided in Note 14 of the 10-K. We do not anticipate that our total unrecognized tax benefits will significantly change within the next twelve months.

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The majority of our tax expense is recognized due to income in our foreign jurisdictions as we have not benefitted from the losses in the U.S. in the third quarter of 2013.We generate income in a number of foreign jurisdictions, some of which have higher tax rates and some of which have lower tax rates relative to the U.S. federal statutory rate. Our tax expense could fluctuate significantly on a quarterly basis to the extent income is lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated in countries where we have higher statutory tax rates. For the quarter ended September 30, 2013, decreases in tax expense from income generated in foreign jurisdictions with lower tax rates in comparison to the U.S. federal statutory rate was offset by increases in tax expense from income generated in foreign jurisdictions having comparable, or higher tax rates in comparison to the U.S. federal statutory rate. As such, the effect of differences in foreign tax rates on tax expense for the third quarter of 2013 was minimal.

As of September 30, 2013, we have not provided for U.S. federal and state income taxes on certain undistributed earnings of our foreign subsidiaries, since such earnings are considered indefinitely reinvested outside the U.S. If these amounts were distributed to the U.S. in the future, in the form of dividends or otherwise, we could be subject to additional U.S. income taxes. It is not practicable to determine the U.S. federal income tax liability or benefit on such earnings due to the timing of such future distributions, the availability of foreign tax credits, other tax attributes, and the complexity of the computation if such earnings were not deemed to be permanently reinvested. If future events, including material changes in estimates of cash, working capital, and long-term investment requirements necessitate that these earnings be distributed, an additional provision for U.S. income and foreign withholding taxes, net of foreign tax credits, may be necessary.

We file numerous consolidated and separate income tax returns in the U.S., including federal, state and local returns, as well as in foreign jurisdictions. With few exceptions, we are no longer subject to United States federal income tax examinations for tax years prior to 2008 or state, local or foreign income tax examinations for years prior to 1993. We are currently under audit by various states and foreign jurisdictions for certain tax years subsequent to 1993.

Geographic Revenue

Revenue by geographic region was as follows (dollars in thousands):

	Quarters Ended September 30,									Nine months ended September 30,
	2013		2012		$ Change			% Change		2013		2012		$ Change			% Change
United States	$	21,039	$	29,101	$	(8,062	)	(28	)%	$	70,525	$	89,529	$	(19,004	)	(21	)%
Europe	8,750		12,470		(3,720		)	(30	)%	29,278		43,021		(13,743		)	(32	)%
Rest of world	19,169		17,517		1,652			9	%	55,798		59,028		(3,230		)	(5	)%
Total net revenue	$	48,958	$	59,088	$	(10,130	)	(17	)%	$	155,601	$	191,578	$	(35,977	)	(19	)%

Revenue in the United States declined by $8.1 million in the quarter ended September 30, 2013, compared with the year-earlier period. The decline was due primarily to reductions in revenue generated from our SaaS offerings of $3.3 million, and lower sales of subscriptions products of $3.3 million.

Revenue in the United States declined by $19.0 million in the nine months ended September 30, 2013, compared with the year-earlier period. The decline was due primarily to reductions in revenue generated from our SaaS offerings of $10.2 million, in addition to lower sales of subscriptions products of $8.2 million.

Revenue in Europe declined by $3.7 million in the quarter ended September 30, 2013, compared with the year-earlier period. The decrease was primarily due to lower revenue from our Games business of $2.0 million, lower music on demand revenue of $1.3 million due to terminated contracts, and lower revenue from our RealPlayer Group of $0.9 million. These decreases were partially offset by an increase in ringback tones revenue of $1.1 million from the acquisition of Muzicall in the quarter ended September 30, 2013.

Revenue in Europe declined by $13.7 million in the nine months ended September 30, 2013, compared with the year-earlier period. The decrease was primarily due to lower revenue from our Games business of $6.8 million, lower revenue from our RealPlayer Group of $4.0 million, and lower music on demand revenue of $2.9 million.

Revenue in the rest of world increased by $1.7 million in the quarter ended September 30, 2013, compared with the year-earlier period. The increase was primarily due to higher revenue from our SaaS offerings of $1.5 million, and increased revenue from our RealPlayer Group of $0.7 million. Partially offsetting these increases was lower revenue from our Games subscriptions products of $0.3 million.

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Revenue in the rest of world decreased by $3.2 million in the nine months ended September 30, 2013, compared with the year-earlier period. The decrease was primarily due to lower revenue from our subscriptions products of $2.4 million, and lower revenue from our SaaS offerings of $0.8 million.

New Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the nine months endedSeptember 30, 2013 to be implemented that are of significance or potential significance to RealNetworks.

Liquidity and Capital Resources

The following summarizes working capital, cash, cash equivalents, short-term investments, and restricted cash (in thousands):

	September 30, 2013		December 31, 2012
Working capital	$	176,426	$	237,646
Cash, cash equivalents, and short-term investments	218,406		271,414
Restricted cash equivalents and investments	5,000		10,000

The following summarizes cash flow activity (in thousands):

	Nine Months Ended September 30,
	2013			2012
Cash provided by (used in) operating activities	$	(28,303	)	$	(30,750	)
Cash provided by (used in) investing activities	1,411			92,916
Cash provided by (used in) financing activities	(1,331		)	2,276

Cash used in operating activities consisted of net income (loss) adjusted for certain non-cash items such as depreciation and amortization, and the effect of changes in certain operating assets and liabilities.

Cash used in operating activities was $2.4 million less in the nine months ended September 30, 2013, as compared to the same period in 2012. This was primarily due to a net increase in cash of $7.5 million for the nine months ended September 30, 2013 related to changes in certain operating assets and liabilities, compared with a net increase in cash of $3.7 million for the nine months ended September 30, 2012 related to changes in certain operating assets and liabilities.

For the nine months ended September 30, 2013, cash provided by investing activities of $1.4 million was primarily due to net cash received of $24.7 million from the sales, maturity and purchases of short-term investments. Partially offsetting these net cash proceeds was a cash outlay of $22.5 million for the acquisitions of businesses, net of cash acquired.

For the nine months endedSeptember 30, 2012, cash provided by investing activities of $92.9 million was due to the net cash proceeds of $116.4 million received from the sale of certain patents and other technology assets to Intel Corporation in the second quarter, and cash proceeds of $7.2 million related to the sale of certain equity and other investments, offset in part by purchases of equipment, software and leasehold improvements totaling $6.5 million, and purchases, net of sales and maturities, of short-term investments of $24.3 million.

Financing activities for the nine months ended September 30, 2013 used cash totaling $1.3 million primarily from tax payments from shares withheld upon the vesting of employee restricted stock of $0.9 million, in addition to the payment of the principal amount of contingent consideration of $0.8 million related to an earlier period business acquisition.

Financing activities for the nine months endedSeptember 30, 2012 provided cash of $2.3 million from the proceeds from the exercise of employee stock options and proceeds from sales of common stock under the employee stock purchase plan, offset partially by tax payments from shares withheld upon the vesting of employee restricted stock.

Except for certain expenditures related to our new leased Seattle headquarters building, we currently have no planned significant capital expenditures for the remainder of 2013 other than those in the ordinary course of business. Details of the new lease are provided below.

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In the future, we may seek to raise additional funds through public or private equity financing, or through other sources such as credit facilities. The sale of additional equity securities could result in dilution to our shareholders. In addition, in the future, we may enter into cash or stock acquisition transactions or other strategic transactions that could reduce cash available to fund our operations or result in dilution to shareholders.

Our principal future cash commitments include office leases. We believe that our current cash, cash equivalents, and short-term investments will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months.

In connection with the litigation settlement agreements we executed in October 2013, as described in Note 16, Commitments and Contingencies, we paid in full an aggregate amount of $11.5 million during the fourth quarter of 2013.

On May 2, 2013, we entered into a new lease in a new location for our Seattle headquarters and concurrently entered into an amendment to our then-current headquarters office lease that provides for the early termination of such lease.

The new Seattle building lease is for an initial term of 11 years and commenced on August 15, 2013. We will pay approximately $3.5 million in annual rent, which includes our pro rata share of certain property operating expenses. We have the option to extend the lease for two additional five-year terms, with certain increases in base rent. The amendment to our former headquarters office lease provided for an early termination of such lease effective in three stages, with the termination of a majority of the premises taking place on August 31, 2013. In connection with the early termination of the lease, we will pay the landlord termination payments totaling approximately $6.6 million in 2013, of which $3.2 million was paid during the quarter ended June 30, 2013, and $3.1 million was paid during the quarter ended September 30, 2013. Prior to the execution of the amendment, the lease had been scheduled to expire in September 2014.

As a result of our entry into the new lease and the termination of our old lease, we expect to save approximately $7 million in annual facilities costs.

In our 10-K we disclosed that we had future contractual obligations, nearly all of which related to office leases, that totaled $26.3 million at December 31, 2012. As a result of the leasing transactions described above we estimate that our future contractual obligations now total approximately $56.0 million.

The declaration and payment of any future dividends, as well as the amount thereof, are subject to the discretion of our board of directors and will depend upon our results of operations, financial condition, capital levels, cash requirements, future prospects and other factors deemed relevant by our board of directors. Accordingly, there can be no assurance that we will declare and pay any dividends in the future.

Our cash equivalents and short-term investments consist of investment grade securities, as specified in our investment policy guidelines. The policy limits the amount of credit exposure to any one non-U.S. Government or non-U.S. Agency issue or issuer to a maximum of 5% of the total portfolio. These securities are subject to interest rate risk and will decrease in value if interest rates increase. Because we have historically had the ability to hold our fixed income investments until maturity, we do not expect our operating results or cash flows to be significantly affected by a sudden change in market interest rates in our securities portfolio.

We conduct our operations primarily in five functional currencies: the U.S. dollar, the Korean won, the Japanese yen, the British pound and the euro. We currently do not hedge the majority of our foreign currency exposures and are therefore subject to the risk of exchange rate fluctuations. We invoice our international customers primarily in U.S. dollars, except for certain countries where we invoice our customers primarily in the respective foreign currencies. We are exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation. Our exposure to foreign exchange rate fluctuations also arises from intercompany payables and receivables to and from our foreign subsidiaries.

As of September 30, 2013, approximately $37.5 million of the $218.4 million of cash, cash equivalents, and short-term investments was held by our foreign subsidiaries. If these funds are needed for our operations in the U.S., we may be required to accrue and pay U.S. taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations. Additionally, the Company currently has significant net operating losses and other tax attributes that could be used to offset most potential U.S. income tax that could result if these amounts were distributed to the U.S. We utilize a variety of tax planning and financing strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. We do not expect restrictions or potential taxes on repatriation of amounts held outside of the U.S to have a material effect on our overall liquidity, financial condition or results of operations.

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As of September 30, 2013, we have not provided for U.S. federal and state income taxes on certain undistributed earnings of our foreign subsidiaries, since such earnings are considered indefinitely reinvested outside the U.S. If these amounts were distributed to the U.S. in the future, in the form of dividends or otherwise, we could be subject to additional U.S. income taxes. It is not practicable to determine the U.S. federal income tax liability or benefit on such earnings due to the timing of such future distributions, the availability of foreign tax credits, other tax attributes, and the complexity of the computation if such earnings were not deemed to be permanently reinvested. If future events, including material changes in estimates of cash, working capital, and long-term investment requirements necessitate that these earnings be repatriated, an additional provision for U.S. income and foreign withholding taxes, net of foreign tax credits, may be necessary.

Off-Balance Sheet Arrangements

We have operating lease obligations for office facility leases with future cash commitments that are not required to be recorded on our consolidated balance sheet. Accordingly, these operating lease obligations constitute off-balance sheet arrangements. In addition, since we do not maintain accruals associated with certain guarantees, as discussed in Note 17, Guarantees, those guarantee obligations also constitute off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Our critical accounting policies and estimates are as follows:

• Revenue recognition;

• Estimating music publishing rights and music royalty accruals;

• Estimating recoverability of deferred costs;

• Estimating allowances for doubtful accounts and sales returns;

• Estimating lease exit and related charges;

• Valuation of equity method investments;

• Valuation of long-lived assets;

• Valuation of goodwill;

• Stock-based compensation; and

• Accounting for income taxes.

Revenue Recognition. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable. Physical products are considered delivered to the customer once they have been shipped and title and risk of loss have been transferred. For online sales, the products or services are considered delivered at the time the product or services are made available, digitally, to the end user.

We recognize revenue on a gross or net basis. In most arrangements, we contract directly with end user customers, and are the primary obligor. In such arrangements, we recognize revenue on a gross basis. In some cases, we utilize third-party distributors who are the primary obligor to sell products or services directly to end user customers. In such instances, we recognize revenue on a net basis.

In our direct to consumer business segments, we derive revenue through (1) subscriptions of SuperPass within our RealPlayer Group segment and subscriptions sold by our Games segment, (2) sales of content downloads, software and licenses offered by our RealPlayer Group, Mobile Entertainment, and Games segments and (3) the sale of advertising and the distribution of third-party products on our websites and in our games.

Consumer subscription products are paid in advance, typically for monthly, quarterly or annual duration. Subscription revenue is recognized ratably over the related subscription time period. Revenue from sales of content downloads, software and licenses is recognized at the time the product is made available, digitally, to the end user. Revenue generated from advertising on our websites and from advertising and the distribution of third-party products included in our products is recognized as revenue at the time of delivery.

We also generate revenue through business-to-business channels by providing services within our Mobile Entertainment segment enabling mobile carriers to deliver audio and video content to their customers and by selling software licenses and products and related support and other services. Revenue generated from services provided to mobile carriers that enable the delivery of audio and video content to their customers is recognized as the services are provided. Setup fees to build these services are recognized ratably upon launch of the service over the remaining expected term of the service.

Non-software revenue arrangements containing multiple elements are divided into separate units of accounting, after being evaluated for specific criteria. If the criteria for separation are met, revenue is allocated to the individual units using the relative price method. If the criteria are not met, the elements are treated as one unit of accounting and revenue recognition is delayed until all elements have been delivered. In the case of revenue arrangements containing software, elements are divided

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into separate units of accounting only when vendor-specific objective evidence has been established. In cases where vendor-specific objective evidence has not been established, undelivered elements are combined into one unit of accounting and are not recognized in revenue until all elements have been delivered.

Estimating Music Publishing Rights and Music Royalty Accruals. We must make estimates of amounts owed related to our music publishing rights and music royalties for our domestic and international music services primarily incurred by Rhapsody which was separated from our operating results beginning April 1, 2010. Unsettled obligations incurred prior to April 1, 2010 remain our liability. Material differences may impact the amount and timing of our expense for any period if management made different judgments or utilized different estimates. Under copyright law, we may be required to pay licensing fees for digital sound recordings and compositions we deliver. Copyright law generally does not specify the rate and terms of the licenses, which are determined by voluntary negotiations among the parties or, for certain compulsory licenses where voluntary negotiations are unsuccessful, by arbitration. There are certain geographies and agencies for which we have not yet completed negotiations with regard to the royalty rate to be applied to the current or historic sales of our digital music offerings. Our estimates are based on contracted or statutory rates, when established, or management’s best estimates based on facts and circumstances regarding the specific music services and agreements in similar geographies or with similar agencies. While we base our estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances, actual results may differ materially from these estimates under different assumptions or conditions.

Estimating Recoverability of Deferred Costs. We defer costs on projects for service revenue and system sales. Deferred costs consist primarily of direct and incremental costs to customize and install systems, as defined in individual customer contracts, including costs to acquire hardware and software from third parties and payroll costs for our employees and other third parties. We recognize such costs as a component of cost of revenue, the timing of which is dependent upon the revenue recognition policy by contract. For revenue recognized under the completed contract method, costs are deferred until the products are delivered, or upon completion of services or, where applicable, customer acceptance. For revenue recognized under the percentage of completion method, costs are recognized as products are delivered or services are provided in accordance with the percentage of completion calculation. For revenue recognized ratably over the term of the contract, costs are recognized ratably over the term of the contract, commencing on the date of revenue recognition. At each balance sheet date, we review deferred costs to ensure they are ultimately recoverable. Any anticipated losses on uncompleted contracts are recognized when evidence indicates the estimated total cost of a contract exceeds its estimated total revenue.

Assessing the recoverability of deferred project costs is based on significant assumptions and estimates, including future revenue and cost of sales. Significant or sustained decreases in revenue or increases in cost of sales in future periods could result in additional impairments of deferred project costs. We cannot accurately predict the amount and timing of such impairments. Should the value of deferred project costs become impaired, we would record the appropriate charge, which could have a material adverse effect on our financial condition or results of operations.

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

Lease exit and related charges. Included in Lease exit and related charges are estimates we make in determining the appropriate amount of accrued loss on excess office facilities. If actual results differ from our estimates, this expense could be significantly different from that recorded, which could have a material impact on our operating results.

Valuation of Equity Method Investments. We use the equity method of accounting for investments in circumstances where we have the ability to exert significant influence, but not control, over an investee or joint venture. We initially record our investment based on a fair value analysis of the investment. Prior to 2010, most of our equity method investments were purchased with cash which was determined to be fair value. For the investment in Rhapsody as of March 31, 2010, we used multiple valuation models that were based on assumptions of future results, including operating and cash flow projections, to calculate the fair value since we contributed both cash and non-cash items in exchange for our interest. These models were based upon estimates and assumptions relating to future revenue, cash flows, operating expenses, costs of capital and capital purchases. These estimates and assumptions are complex and subject to a significant degree of judgment with respect to certain

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factors including, but not limited to, the cash flows of long-term operating plans, market and interest rate risk, and risk-commensurate discount rates and cost of capital.

We evaluate impairment of an investment valued under the equity method only if events and circumstances warrant. An impairment charge would be recorded whenever a decline in value of an equity investment below its carrying amount is determined to be other than temporary. In determining if a decline is other than temporary, we consider factors such as the length of time and extent to which the fair value of the investment has been less than the carrying amount of the investee or joint venture, the near-term and longer-term operating and financial prospects of the investee or joint venture and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery.

Valuation of Long-Lived Assets. Long-lived assets consist primarily of property, plant and equipment, as well as amortizable intangible assets acquired in business combinations. Long-lived assets are amortized on a straight line basis over their estimated useful lives. We review long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amount to future undiscounted cash flows the assets are expected to generate. If long-lived assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds their fair market value. The impairment analysis of long-lived assets is based upon estimates and assumptions relating to our future revenue, cash flows, operating expenses, costs of capital and capital purchases. These estimates and assumptions are complex and subject to a significant degree of judgment with respect to certain factors including, but not limited to, the cash flows of our long-term operating plans, market and interest rate risk, and risk-commensurate discount rates and cost of capital. Significant or sustained declines in future revenue or cash flows, or adverse changes in our business climate, among other factors, and their resulting impact on the estimates and assumptions relating to the value of our long-lived assets could result in the need to perform an impairment analysis in future interim periods which could result in a significant impairment. While we believe our estimates and assumptions are reasonable, due to their complexity and subjectivity, these estimates and assumptions could vary from period to period.

Valuation of Goodwill.  We test goodwill for impairment on an annual basis, in our fourth quarter, or more frequently if circumstances indicate reporting unit carrying values may exceed their fair values. Circumstances that may indicate a reporting unit's carrying value exceeds its fair value include, but are not limited to: poor economic performance relative to historical or projected future operating results; significant negative industry, economic or company specific trends; changes in the manner of our use of the assets or the plans for our business; and loss of key personnel. Due to the ongoing difficult economic environment and the decline in revenues in our businesses, we continue to monitor whether there could be potential impairment of goodwill.

When evaluating goodwill for impairment, based upon our annual test or due to changes in circumstances described above, we first perform a qualitative assessment to determine if the fair value of a reporting unit is more likely than not less than the reporting unit's carrying amount including goodwill. If this assessment indicates it is more likely than not, we then compare the carrying value of the reporting unit to the estimated fair value of the reporting unit. If the carrying value of the reporting unit exceeds the estimated fair value, we then calculate the implied estimated fair value of goodwill for the reporting unit and compare it to the carrying amount of goodwill for the reporting unit. If the carrying amount of goodwill exceeds the implied estimated fair value, an impairment charge to current operations is recorded to reduce the carrying value to implied estimated value.

Significant judgments and estimates are required in determining the reporting units and assessing the fair value of the reporting units. These estimates and assumptions are complex and subject to a significant degree of judgment with respect to certain factors including, but not limited to, the cash flows of long-term operating plans, market and interest rate risk, and risk-commensurate discount rates and cost of capital.

Stock-Based Compensation. Stock-based compensation cost is measured at the grant date based on the award’s fair value and is recognized as expense over the requisite service period, which is the vesting period. We use the Black-Scholes option-pricing model or other appropriate valuation models to determine the fair value of stock-based option awards. The fair value of restricted stock awards is based on the closing market price of our common stock on the award date. For performance-based stock awards, expense is recognized when it is probable the performance goal will be achieved. The valuation models require various highly judgmental assumptions including volatility in our common stock price and expected option life. If any of the assumptions used in the valuation models change significantly, stock-based compensation expense may differ materially in the future from the amounts recorded in our consolidated statement of operations. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

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Accounting for Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities and operating loss and tax credit carryforwards are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and operating loss and tax credit carryforwards are expected to be recovered or settled. We must make assumptions, judgments and estimates to determine the current provision for income taxes, deferred tax assets and liabilities and any valuation allowance to be recorded against deferred tax assets. Our judgments, assumptions, and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws and possible outcomes of future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.

Each reporting period we must periodically assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not more likely than not, a valuation allowance must be established. The establishment of a valuation allowance and changes to such an allowance result in either increases to income tax expense or reduction of income tax benefit in the statement of operations and comprehensive income. Factors we consider in making such an assessment include, but are not limited to, past performance and our expectation of future taxable income, macroeconomic conditions and issues facing our industry, existing contracts, our ability to project future results and any appreciation of our investments and other assets.

As of September 30, 2013, $37.5 million of the $218.4 million of cash, cash equivalents, and short-term investments was held by our foreign subsidiaries.

As of September 30, 2013, we have not provided for U.S. federal and state income taxes on certain undistributed earnings of our foreign subsidiaries, since such earnings are considered indefinitely reinvested outside the U.S. If these amounts were distributed to the U.S., in the form of dividends or otherwise, we could be subject to additional U.S. income taxes. It is not practicable to determine the U.S. federal income tax liability or benefit on such earnings due to the timing of such future distributions, the availability of foreign tax credits, other tax attributes, and the complexity of the computation if such earnings were not deemed to be permanently reinvested. If future events, including material changes in estimates of cash, working capital, and long-term investment requirements necessitate that these earnings be repatriated, an additional provision for U.S. income and foreign withholding taxes, net of foreign tax credits, may be necessary.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The following discussion about our market risk involves forward-looking statements. All statements that do not relate to matters of historical fact should be considered forward-looking statements. Actual results could differ materially from those projected in any forward-looking statements.

Interest Rate Risk. Our exposure to interest rate risk from changes in market interest rates relates primarily to our short-term investment portfolio. Our short-term investments consist of investment grade debt securities as specified in our investment policy. Investments in both fixed and floating rate instruments carry a degree of interest rate risk. The fair value of fixed rate securities may be adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Additionally, a declining rate environment creates reinvestment risk because as securities mature the proceeds are reinvested at a lower rate, generating less interest income. See Note 7, Cash, Cash Equivalents, Short-Term Investments, Restricted Cash Equivalents and Investments for additional information. Due in part to these factors, our future interest income may be adversely impacted due to changes in interest rates. In addition, we may incur losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates. Because we have historically had the ability to hold our short-term investments until maturity, we would not expect our operating results or cash flows to be significantly impacted by a sudden change in market interest rates. There have been no material changes in our investment methodology regarding our cash equivalents and short-term investments during the quarter ended September 30, 2013. Based on our cash, cash equivalents, short-term investments, and restricted cash equivalents as of September 30, 2013, a hypothetical 10% increase/decrease in interest rates would not increase/decrease our annual interest income or cash flows by more than a nominal amount.

Investment Risk. As of September 30, 2013, we had investments in voting capital stock of both publicly traded and privately held technology companies for business and strategic purposes. See Note 1, Description of Business and Summary of Significant Accounting Policies - Valuation of Equity Method Investments, and Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates (Valuation of equity method investments) in our 10-K for details on our accounting treatment for these investments, including the analysis of other-than-temporary impairments.

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Foreign Currency Risk. We conduct business internationally in several currencies and thus are exposed to adverse movements in foreign currency exchange rates.

Our exposure to foreign exchange rate fluctuations arise in part from: (1) translation of the financial results of foreign subsidiaries into U.S. dollars in consolidation; (2) the remeasurement of non-functional currency assets, liabilities and intercompany balances into U.S. dollars for financial reporting purposes; and (3) non-U.S. dollar denominated sales to foreign customers. We manage a portion of these risks through the use of financial derivatives, but fluctuations could impact our results of operations and financial position.

Generally, our practice is to manage foreign currency risk for the majority of material short-term intercompany balances through the use of foreign currency forward contracts. These contracts require us to exchange currencies at rates agreed upon at the contract’s inception. Because the impact of movements in currency exchange rates on forward contracts offsets the related impact on the short-term intercompany balances, these financial instruments help alleviate the risk that might otherwise result from certain changes in currency exchange rates. We do not designate our foreign exchange forward contracts related to short-term intercompany accounts as hedges and, accordingly, we adjust these instruments to fair value through results of operations. However, we may periodically hedge a portion of our foreign exchange exposures associated with material firmly committed transactions, long-term investments, highly predictable anticipated exposures and net investments in foreign subsidiaries. Some of our unhedged exposures are recorded in our statement of operations on a mark-to-market basis each quarter, so to the extent we continue to experience adverse economic conditions, we may record losses related to such unhedged exposures in future periods that may have a material adverse effect on our financial condition and results of operations.

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

We have cash balances denominated in foreign currencies which are subject to foreign currency fluctuation risk. The majority of our foreign currency denominated cash is held in Korean won and euros. A hypothetical 10% increase or decrease in the Korean won and euro relative to the U.S. dollar as of September 30, 2013 would not result in more than a nominal amount of unrealized gain or loss.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2013. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2013, our disclosure controls and procedures were effective.

(b) Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the third quarter of 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 16, Commitments and Contingencies, to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for information regarding legal proceedings.

Item 1A. Risk Factors

You should carefully consider the risks described below together with all of the other information included in this Form 10-Q. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the following risks actually occurs, our business, financial condition or operating results, and the trading price of our common stock, could be materially harmed.

Our business and financial results will be materially adversely impacted if we are unable to successfully implement our growth plan, strategic initiatives, and restructuring efforts.

We have developed a growth plan that involves the launch of at least one major new product in each of our three business units. In tandem with our growth plan, we have embarked upon strategic initiatives intended to simplify and accelerate our operations, and restructuring efforts intended to streamline costs and bring more focus to our businesses. The simultaneous execution of all of these measures is ambitious and we have not attempted to pursue this level of transition in our history. We can provide no assurance that we will be successful in implementing our growth plan, strategic initiatives, and restructuring efforts, and our failure to do so would have a material adverse impact on our business and financial results.

We need to successfully introduce new products and services to sustain and grow our businesses.

In order to sustain our current business and to implement our growth plan, we must successfully introduce new products and services. The process of developing new, and enhancing existing, products and services is complex, costly and uncertain, and is subject to a number of risks. Providing products and services that are attractive and useful to subscribers and consumers is in part subject to unpredictable and volatile factors beyond our control, including end-user preferences and competing products and services. Any failure by us to timely respond to or accurately anticipate consumers’ changing needs, emerging technological trends or important changes in the market or competition for products and services we plan to introduce could significantly harm our current market share or result in the loss of market opportunities. In addition, we must make long-term investments, develop or obtain appropriate intellectual property and commit significant resources before knowing whether the products and services that we are developing will meet the needs of a large enough group of consumers, which may result in no return or a loss on our investments.

Our products and services have historically been provided through desktop computers and feature phones, but the number of people who access similar products and services through smartphones and tablets has increased dramatically in the past few years. There are many challenges involved in developing and marketing products and services for users of smartphones and tablets. There is no guarantee that we will be able to create and effectively monetize popular and successful products for smartphones and tablets.

In addition, our consumer-based products and services have historically been distributed through desktop operating platforms. As new operating systems are introduced or updated for these platforms, we could face difficulties reaching our traditional customer base and other unknown distribution challenges. If we are unable to successfully develop and introduce new products and services, or have difficulty transitioning product and version releases that can easily be distributed through these new or updated operating systems and devices, then our business could be significantly harmed.

Furthermore, new products and services may be subject to legal challenge. Responding to these potential claims may require us to enter into royalty and licensing agreements on unfavorable terms, require us to stop distributing or selling, or to redesign our products or services, or to pay damages, any of which could materially harm our operating results.

Our restructuring efforts may not yield the anticipated benefits to our shareholders.

During 2012, we took steps to restructure and simplify our business and operations. In September 2012, we announced plans to divisionalize our business, which we implemented during the first quarter of 2013, and to significantly reduce

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operating expenses, in part through a reduction in our workforce that was concluded as of the end of the second quarter of 2013. There can be no assurance that our efforts will be successful. Our business and operations may be harmed to the extent there is customer or employee uncertainty surrounding the future direction of our product and service offerings and strategy for our businesses. Our restructuring activities have included implementing cost-cutting initiatives, which may not lead to future profitability and which could materially impact our ability to compete in future periods. If we are unable to effectively re-align the cost structure of our businesses or streamline and simplify our operations, our stock price may be adversely affected, and we and our shareholders will not realize the anticipated financial, operational and other benefits from such initiatives.

The mobile entertainment market is highly competitive and evolving rapidly.

The market for mobile entertainment services, including our ring back tones, music on demand and video on demand solutions, is highly competitive and evolving rapidly, particularly with the growth in the use of smartphones. Increased use of smartphones has resulted in a proliferation of applications and services that compete with our SaaS services and, in many cases, are not dependent upon our carrier customers to make them available to subscribers. To maintain or enhance our competitive position, we need to develop new SaaS services that enable our carrier customers to compete with the broad range of applications and other services available in the market. We face competition, and may face future competition, from major media companies, Internet portal companies, content aggregators, wireless software providers and other pure-play wireless entertainment publishers, some of which have greater financial resources than we do. Furthermore, while most of our carrier customers do not offer internally developed services that compete with ours, if our carrier customers begin developing these services internally, we could be forced to lower our prices or increase the amount of service we provide in order to maintain our business with those carrier customers. Increased competition has in the past resulted in pricing pressure, forcing us to lower the selling price of our services. If we are unable to develop or provide services that compete effectively in the mobile entertainment market, our operating results and financial condition may be materially harmed.

Our non-SaaS businesses also face substantial competitive challenges that may prevent us from being successful in those businesses, and may negatively impact future growth in those businesses.

Many of our current and potential competitors in our businesses have longer operating histories, greater name recognition, more employees and significantly greater resources than we do. To effectively compete in the markets for our products and services, we may experience the following consequences, any of which would adversely affect our operating results and the trading price of our stock:

• reduced prices or margins,

• loss of current and potential customers, or partners and potential partners who provide content we distribute to our customers,

• changes to our products, services, technologies, licenses or business practices or strategies,

• lengthened sales cycles,

• industry-wide changes in content distribution to customers or in trends in consumer consumption of digital media products and services,

• pressure to prematurely release products or product enhancements, or

• degradation in our stature or reputation in the market.

Our legacy RealPlayer software services compete with alternative streaming media playback technologies and audio and video formats including Microsoft Windows Media Player and Adobe Flash and their related file formats, each of which has obtained very broad market penetration. In addition, our overall ability to sell subscription services depends in part on the use of our formats on the Internet, and declines in the use of our formats have negatively affected, and are expected to continue to negatively affect, our subscription revenue and increase costs of obtaining new subscribers. Our SuperPass subscription service, within our RealPlayer business unit, faces competition from a broad variety of entertainment sources, including traditional media outlets and emerging Internet media sources. We expect this competition to continue to be intense as the market and business models for Internet video content mature and more competitors enter these new markets. If we are unable to compete successfully, including through the introduction of compelling new products and services, our RealPlayer business could continue to decline.

The branded services in our Games business compete with other online aggregators and distributors of online, downloadable and social casual PC games. Some of these competitors have high volume distribution channels and greater financial resources than we do. Our Games business also competes with many other smaller companies that may be able to adjust to market conditions, including responding effectively to the growing popularity of casual games on social networks, faster than us. We also face significant price competition in the casual games market, and some of our competitors may be able to lower prices more aggressively than us. We expect competition to continue to intensify in this market from these and other competitors. We cannot provide assurance that we will be able to achieve growth in our revenue, particularly as we continue to invest in social and mobile games as the market for these games continues to rapidly evolve. Our games development studios

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compete primarily with other developers of online, downloadable, mobile and social casual PC games and must continue to develop popular and high-quality game titles. Our Games business must also continue to execute on opportunities to expand the play of our games on a variety of non-PC platforms, including social networks, in order to maintain our competitive position and to grow the business.

Contracts with our carrier customers subject us to significant risks that could negatively impact our revenue or otherwise harm our operating results.

We derive a material portion of our revenue from the SaaS offerings we provide to carriers. Many of our SaaS contracts with carriers provide for revenue sharing arrangements, but we have little control over the pricing decisions of our carrier customers. Furthermore, most of these contracts do not provide for guaranteed minimum payments or usage levels. Because most of our carrier customer contracts are nonexclusive, it is possible that our mobile carrier customers could purchase similar services from third parties and cease to use our services in the future. As a result, our revenue derived under these agreements could be substantially reduced depending on the pricing and usage decisions of our carrier customers. In addition, some of our SaaS contracts require us to incur significant set-up costs prior to the launch of services with a carrier customer. For example, in the fourth quarter of 2011, we reduced our forecast for profitability associated with certain carrier customer contracts for which the total costs exceeded the total revenue we expect to recognize from these contracts, and as a result, we recorded impairment of deferred costs totaling $20.0 million. There can be no assurance that we will not record additional impairments or other charges in future periods related to our carrier customer contracts, which would negatively impact our results of operations.

In addition, none of our SaaS contracts with carriers obligates our carrier customers to market or distribute any of our SaaS offerings. Despite the lack of marketing commitments, revenue related to our SaaS offerings is, to a large extent, dependent upon the marketing and promotion activities of our carrier customers. In addition, many of our carrier contracts are short term and allow for early termination by the carrier with or without cause. These contracts are therefore subject to renegotiation of pricing or other key terms that could be adverse to our interests and leave us vulnerable to non-renewal by the carriers. The loss of carrier customers, a reduction in marketing or promotion of our SaaS offerings, or the termination, non-renewal or renegotiation of contract terms that are less favorable to us would likely result in the loss of future revenues from our SaaS offerings.

Finally, nearly all of our carrier contracts obligate us to indemnify the carrier customer for certain liabilities and losses incurred by them, including liabilities resulting from third party claims for damages that arise out of the use of our technology. These indemnification terms provide us with certain procedural safeguards, including the right to control the defense of the indemnified party. Pursuant to these indemnifications obligations, we have in the past agreed to control the defense on behalf of certain of our carrier customers related to patent infringement proceedings. We have recently settled one such litigation matter, and continue to vigorously defend another. See Note 16, Commitments and Contingencies, to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for information regarding these matters. Future claims against which we may be obligated to defend our carrier customers could result in payments that could materially harm our business or our consolidated financial statements.

A majority of the revenue that we generate in our Mobile Entertainment business segment is dependent upon our relationship with a few customers, and any deterioration of these relationships could materially harm our business.

We generate a significant portion of our revenue from sales of our mobile entertainment services to a few of our mobile carrier customers. In the near term, we expect that we will continue to generate a significant portion of our total revenue from these customers. If these customers fail to market or distribute our services or terminate their business contracts with us, or if our relationships with these customers deteriorate in any significant way, we may be unable to replace the affected business arrangements with acceptable alternatives. Failure to maintain our relationships with these customers could have a material negative impact on our revenue and operating results.

We may not be successful in maintaining and growing our distribution of digital media products.

Maintaining and growing the distribution of digital media products through our websites and our other distribution channels is important to our future prospects, including future growth through the introduction of new products and services distributed through these channels. We cannot predict whether consumers will continue to download and use our digital media products consistent with past usage, which may reduce our ability to generate revenue from those products as well as result in lower than expected adoption of newly introduced products and services. Our inability to maintain continued high volume distribution of our digital media products could also hold back the growth and development of related revenue streams from these market segments, including the distribution of third-party products and sales of our subscription services, and therefore could harm our business and our prospects. Our revenue from the distribution of third-party products will also be negatively

35

impacted if those products are not widely downloaded by consumers, including due to the relative market saturation of such products. In addition, our revenue from the distribution of third party products is currently significantly dependent on a single customer contract. If that contract is not renewed or is terminated and cannot be replaced by another similar customer contract, our financial results would be harmed.

Our operating results are difficult to predict and may fluctuate, which may contribute to volatility in our stock price.

The trading price for our common stock has a history of volatility. Our stock price ranged from $6.80 to $8.57 per share during the 52-week period ended September 30, 2013. As a result of the rapidly changing markets in which we compete, our operating results may fluctuate from period to period, which may contribute to the continued volatility of our stock price. In past periods, our operating results have been affected by personnel reductions and related restructuring charges, lease exit and related charges, and impairment charges for certain of our equity investments, goodwill and other long-lived assets. Our operating results may be adversely affected by similar or other charges or events in future periods, including, but not limited to:

• impairments of long-lived assets,

• integrating and operating newly acquired businesses and assets, and

• the general difficulty in forecasting our operating results and metrics, which could result in actual results that differ significantly from expected results.

Certain of our product and service investment decisions (for example, research and development and sales and marketing efforts) are based on predictions regarding business and the markets in which we compete. Fluctuations in our operating results, particularly when experienced beyond what we expected, could cause the trading price of our stock to continue to fluctuate.

Continued loss of revenue from some of our subscription services may harm our operating results.

Our operating results have been and could continue to be adversely impacted by the loss of subscription revenue. Subscribers may cancel their subscriptions to our services for many reasons, including a perception that they do not use the services sufficiently or that the service does not provide enough value, a lack of attractive or exclusive content generally or as compared with competitive service offerings, or because customer service issues are not satisfactorily resolved. Revenue from our SuperPass subscription service has declined in recent periods due in part to our focus on other products and services we offer, and we expect this trend to continue. For the subscription services we offer, we must continue to obtain compelling digital media content for our video and games services in order to maintain and increase usage and overall customer satisfaction for these products. Our operating results may be negatively impacted if we cannot obtain content for our subscription services on commercially reasonable terms.

Government regulation of the Internet is evolving, and unfavorable developments could have an adverse affect on our operating results.

We are subject to regulations and laws specific to the marketing, sale and delivery of goods and services over the Internet. These laws and regulations, which continue to evolve, cover taxation, user privacy, data collection and protection, copyrights, electronic contracts, sales procedures, automatic subscription renewals, credit card processing procedures, consumer protections, digital games distribution, broadband Internet access and content restrictions. We cannot guarantee that we have been or will be fully compliant in every jurisdiction, as it is not entirely clear how existing laws and regulations governing issues such as privacy, taxation and consumer protection apply or will be enforced with respect to the products and services we sell through the Internet. Moreover, as Internet commerce continues to evolve, increasing regulation and/or enforcement efforts by federal, state and foreign agencies and the prospects for private litigation claims related to our data collection, privacy policies or other e-commerce practices become more likely. In addition, the adoption of any laws or regulations or the imposition of other legal requirements that adversely affect our ability to market, sell, and deliver our products and services could decrease our ability to offer or customer demand for our service offerings, resulting in lower revenue. Future regulations, or changes in laws and regulations or their existing interpretations or applications, could also require us to change our business practices, raise compliance costs or other costs of doing business and result in additional historical or future liabilities for us, resulting in adverse impacts on our business and our operating results.

As a consumer-facing business, we receive complaints from our customers regarding our consumer marketing efforts and our customer service practices. Some of these customers may also complain to government agencies, and from time to time, those agencies have made inquiries to us about these practices. In addition, we may receive complaints or inquiries directly from governmental agencies that have not been prompted by consumers. On May 24, 2012, we resolved an investigation and complaint filed against us by the Washington State Office of the Attorney General, or Washington AG, relating to our consumer marketing practices through the entry of a consent decree filed in King County, Washington Superior Court. For details on this action and the related costs we incurred in 2012, see Note 16, Commitments and Contingencies, in our 2012 10-K. While we have resolved this matter, we cannot provide assurances that the Washington AG or other governmental agencies will not bring future claims regarding our marketing, or consumer services or other practices.

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Uncertainty and adverse conditions in the economy could have a material adverse impact on our business, financial condition and results of operations.

The ongoing weakness in the national and global economy has resulted in declines in overall consumer and corporate spending, declines in consumer and corporate access to credit, fluctuations in foreign exchange rates, declines in the value of assets and increased liquidity risks, all of which could materially impact our business, financial condition and results of operations. We provide digital entertainment services to consumers directly and indirectly through our carrier customers. Consumers may consider the purchase of our products and services to be a discretionary expenditure. As a result, consumers considering whether to purchase our products or services may be influenced by macroeconomic factors that affect consumer spending such as unemployment, conditions in the residential real estate and mortgage markets and access to credit when making a determination whether to commence, continue, or stop subscribing to or otherwise purchasing our products and services. In addition, businesses may reduce their advertising spending during adverse macroeconomic conditions, which would negatively impact the revenue we generate through sales of advertising on our websites and other properties. We have recorded material asset impairment charges in recent years due in part to weakness in the global economy, and if the ongoing significant weakness and uncertainty in the global economy continues, we may need to record additional impairments to our assets in future periods. If any of these risks are realized, we may experience a material adverse impact on our financial condition and results of operations.

Rhapsody could continue to recognize losses, which would negatively impact our results of operations and financial condition.

On March 31, 2010, we completed the restructuring of our digital audio music service joint venture, Rhapsody America LLC. As a result of the restructuring, we no longer have operational control over Rhapsody and Rhapsody’s operating performance is no longer consolidated with our consolidated financial statements. Rhapsody has generated accounting losses since its inception and we have recognized losses on our investment in Rhapsody since the restructuring. If Rhapsody continues to incur losses, or if it otherwise experiences a significant decline in its business, we may incur further losses on our investment, which could have an adverse effect on our financial condition and results of operations.

Given the current proportion of the outstanding equity of Rhapsody that we hold, we need to receive Rhapsody’s unaudited quarterly financial statements and related information in order to timely prepare our quarterly consolidated financial statements and also to report certain of Rhapsody’s financial results, as may be required, in our quarterly reports on Form 10-Q. In addition, we may be required to include Rhapsody’s annual audited financial statements in our annual report on Form 10-K in future periods. As we no longer exert operational control over Rhapsody, we cannot guarantee that Rhapsody will deliver its financial statements and related information to us in a timely manner, or at all, or that the unaudited financial statement information provided by Rhapsody will not contain inaccuracies that are material to our reported results. Any failure to timely obtain Rhapsody’s quarterly financial statements or to include its audited financial statements in our future annual reports on Form 10-K, if required, could cause our reports to be filed in an untimely manner, which would preclude us from utilizing certain registration statements and could negatively impact our stock price.

The loss of key personnel, or difficulty recruiting and retaining them, could significantly harm our business or jeopardize our ability to meet our growth objectives.

Our success depends substantially on the contributions and abilities of certain key executives and employees. We have experienced a significant amount of executive-level turnover in the past several years, which has had and could continue to have a negative impact on our ability to retain key employees. In July 2012, Rob Glaser, our founder, Chairman and initial chief executive officer, was appointed as interim chief executive officer, having stepped down as chief executive officer in 2010. We cannot provide assurance that we will effectively manage this or any other executive-level transition, which may impact our ability to retain our remaining key executives and employees and which could harm our business and operations to the extent there is customer or employee uncertainty arising from such transitions.

Our success is also substantially dependent upon our ability to identify, attract and retain highly skilled management, technical and sales personnel. Qualified individuals are in high demand and competition for such qualified personnel in our industry, particularly engineering talent, is intense, and we may incur significant costs to attract or retain them. Our ability to attract and retain personnel may also be made more difficult by the uncertainty created by our recent executive-level turnover and by our restructuring efforts, which involved a reduction in our workforce. There can be no assurance that we will be able to attract and retain the key personnel necessary to sustain our business or support future growth.

Acquisitions and divestitures involve costs and risks that could harm our business and impair our ability to realize potential benefits from these transactions.

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As part of our business strategy, we have acquired and sold technologies and businesses in the past and expect that we will continue to do so in the future. The failure to adequately manage transaction costs and address the financial, legal and operational risks raised by acquisitions and divestitures of technology and businesses could harm our business and prevent us from realizing the benefits of these transactions. In addition, we may identify and acquire target companies, but those companies may not be complementary to our current operations and may not leverage our existing infrastructure or operational experience, which may increase the risks associated with completing acquisitions.

Transaction-related costs and financial risks related to completed and potential future purchase or sale transactions may harm our financial position, reported operating results, or stock price. Previous acquisitions have resulted in significant expenses, including amortization of purchased technology, amortization of acquired identifiable intangible assets and the incurrence of charges for the impairment of goodwill and other intangible assets, which are reflected in our operating expenses. New acquisitions and any potential additional future impairment of the value of purchased assets, including goodwill, could have a significant negative impact on our future operating results.

Purchase and sale transactions also involve operational risks that could harm our existing operations or prevent realization of anticipated benefits from a transaction. These operational risks include:

• difficulties and expenses in assimilating the operations, products, technology, information systems, and/or personnel of the acquired company;

• retaining key management or employees of the acquired company;

• entrance into unfamiliar markets, industry segments, or types of businesses;

• operating, managing and integrating acquired businesses in remote locations or in countries in which we have little or no prior experience;

• diversion of management time and other resources from existing operations;

• impairment of relationships with employees, affiliates, advertisers or content providers of our business or acquired business; and

• assumption of known and unknown liabilities of the acquired company, including intellectual property claims.

We may be unable to adequately protect our proprietary rights or leverage our technology assets, and may face risks associated with third-party claims relating to intellectual property rights associated with our products and services.

Our ability to compete across our businesses partly depends on the superiority, uniqueness and value of our technology, including both internally developed technology and technology licensed from third parties. To protect our proprietary rights, we rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual provisions. Our efforts to protect our intellectual property rights may not assure our ownership rights in our intellectual property, protect or enhance the competitive position of our products and services or effectively prevent misappropriation of our technology. We also routinely receive challenges to our trademarks and other proprietary intellectual property that we are using in our business activities in China. Disputes regarding the validity and scope of patents or the ownership of technologies and rights associated with streaming media, digital distribution, and online businesses are common and likely to arise in the future. While we sold to Intel Corporation in 2012 most of our patents, including patents that covered streaming media, we agreed to indemnify Intel for certain third-party infringement claims against these patents up to the purchase price we received in the sale. We may also be forced to litigate to enforce or defend our patents and other intellectual property rights or to determine the validity and scope of other parties’ proprietary rights, enter into royalty or licensing agreements on unfavorable terms or redesign our product features and services. Any such dispute would likely be costly and distract our management, and the outcome of any such dispute could fail to improve our business prospects or otherwise harm our business.

From time to time we receive claims and inquiries from third parties alleging that our technology may infringe the third parties’ proprietary rights, especially patents. Third parties have also asserted and most likely will continue to assert claims against us alleging contract breaches, infringement of copyrights, trademark rights, trade secret rights or other proprietary rights, or alleging unfair competition or violations of privacy rights. These claims, even if not meritorious, could force us to spend significant financial and managerial resources. Given the broad distribution of some of our consumer products, any individual claim related to those products could give rise to liabilities that may be material to us. On July 3, 2012, VoiceAge Corporation brought a lawsuit against us alleging breach of our obligation to pay them licensing fees under our patent license agreement with VoiceAge and seeking a material amount in damages. While we have settled the dispute with VoiceAge, similar future lawsuits could result in significant legal expenses, monetary damages, penalties or injunctive relief against us that could have a material adverse impact on our future consolidated financial statements. The VoiceAge matter and certain other claims are described in Note 16, Commitments and Contingencies, in this 10-Q. In addition, in 2012 we sold substantially all of our patent assets to Intel. We believe that our patent portfolio may have in the past discouraged third parties from bringing infringement or other claims against us relating to the use of our technologies in our business. Accordingly, we cannot predict

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whether the sale of these patent assets to Intel will result in additional infringement or other claims against us from third parties.

Our business and operating results will suffer if our systems or networks fail, become unavailable, unsecured or perform poorly so that current or potential users do not have adequate access to our products, services and websites.

Our ability to provide our products and services to our customers and operate our business depends on the continued operation and security of our information systems and networks. A significant or repeated reduction in the performance, reliability, security or availability of our information systems and network infrastructure could harm our ability to conduct our business, and harm our reputation and ability to attract and retain users, customers, advertisers and content providers. We have on occasion experienced system errors and failures that caused interruption in availability of products or content or an increase in response time. Problems with our systems and networks could result from our failure to adequately maintain and enhance these systems and networks, natural disasters and similar events, power failures, HVAC failures, intentional actions to disrupt our systems and networks and many other causes. The vulnerability of a large portion of our computer and communications infrastructure is enhanced because much of it is located at two leased facilities in Seattle, Washington, an area that is at heightened risk of earthquake, flood, and volcanic events. Many of our services do not currently have fully redundant systems or a formal disaster recovery plan, and we may not have adequate business interruption insurance to compensate us for losses that may occur from a system outage.

The growth of our business is dependent in part on successfully managing our international operations.

Our international operations involve risks inherent in doing business globally, including difficulties in managing operations due to distance, language, and cultural differences, local economic conditions, different or conflicting laws and regulations, taxes, and exchange rate fluctuations. The functional currency of our foreign subsidiaries is the local currency of the country in which each subsidiary operates. We translate our subsidiaries’ revenues into U.S. dollars in our financial statements, and continued volatility in foreign exchange rates, particularly if the U.S. dollar strengthens against the euro or the Korean won, may result in lower reported revenue or net assets in future periods. Our foreign currency exchange risk management program reduces, but does not eliminate, the impact of currency exchange rate movements. If we do not effectively manage any of the risks inherent in running our international businesses, our operating results and financial condition could be harmed.

We may be subject to market risk and legal liability in connection with our data collection and data security capabilities.

Many of our products are interactive Internet applications that by their very nature require communication between a client and server to operate. For example, to provide better consumer experiences and to operate effectively, our products send information, including personally identifiable information, to our servers. In addition, we sell many of our products and services through online sales transactions directly with consumers, through which we collect and store credit card information. In connection with our direct sales to consumers, we may be the victim of fraudulent transactions, including credit card fraud, which presents a risk to our revenue and potentially disrupts service to our consumers. While we take measures to protect our consumer data, we have experienced unauthorized access to our consumer data in the past, and it is possible that our security controls over consumer data may not prevent future improper access or disclosure of credit card information or personally identifiable information. We have an extensive privacy policy concerning the collection, use and disclosure of user data involved in interactions between our client and server products. A security breach that leads to disclosure of consumer account information (including personally identifiable information) or any failure by us to comply with our posted privacy policy or existing or new legislation regarding privacy issues could harm our reputation, impact the market for our products and services, subject us to litigation, and require us to expend significant resources to mitigate the breach of security, comply with breach notification laws or address related matters. In addition, we will also need to maintain compliance with the Payment Card Industry, or PCI, compliance standard for data security, which we recently achieved, in connection with our use of credit card services for payment. If we fail to maintain the PCI compliance standards we may be subject to substantial monetary penalties and we could lose the ability to accept credit card payments for transactions with our customers. Any of these consequences could materially harm our business or our consolidated financial statements.

Changes in regulations applicable to the Internet and e-commerce that increase the taxes on the services we provide could materially harm our business and operating results.

As Internet commerce continues to evolve, increasing taxation by state, local or foreign tax authorities becomes more likely. For example, taxation of electronically delivered products and services or other charges imposed by government agencies may also be imposed. We believe we collect transactional taxes and are compliant and current in all jurisdictions where we believe we have a collection obligation for transaction taxes. Any regulation imposing greater taxes or other fees for products and services could result in a decline in the sale of products and services and the viability of those products and services, harming our business and operating results. A successful assertion by one or more states or foreign tax authorities that

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we should collect and remit sales or other taxes on the sale of our products or services could result in substantial liability for past sales.

In those countries where we have taxable presence, we collect value added tax, or VAT, on sales of “electronically supplied services” provided to European Union residents. The collection and remittance of VAT subjects us to additional currency fluctuation risks.

We may be subject to additional income tax assessments.

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes, income taxes payable, and net deferred tax assets. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different than that which is reflected in our historical financial statements. An audit or litigation can result in significant additional income taxes payable in the U.S. or foreign jurisdictions which could have a material adverse effect on our financial condition and results of operations.

Our Chairman of the Board and interim Chief Executive Officer beneficially owns approximately 36% of our stock, which gives him significant control over certain major decisions on which our shareholders may vote or may discourage an acquisition of us.

Robert Glaser, our Chairman of the Board and interim Chief Executive Officer, beneficially owns approximately 36% of our common stock. As a result, Mr. Glaser and his affiliates will have significant influence to:

• elect or defeat the election of our directors;

• amend or prevent amendment of our articles of incorporation or bylaws;

• effect or prevent a merger, sale of assets or other corporate transaction; and

• control the outcome of any other matter submitted to the shareholders for vote.

The stock ownership of Mr. Glaser and his affiliates may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of RealNetworks, which in turn could reduce our stock price or prevent our shareholders from realizing a premium over our stock price.

Provisions of our charter documents, shareholder rights plan, and Washington law could discourage our acquisition by a third party.

Our articles of incorporation provide for a strategic transactions committee of the board of directors. Without the prior approval of this committee, and subject to certain limited exceptions, the board of directors does not have the authority to:

• adopt a plan of merger;

• authorize the sale, lease, exchange or mortgage of assets representing more than 50% of the book value of our assets prior to the transaction or on which our long-term business strategy is substantially dependent;

• authorize our voluntary dissolution; or

• take any action that has the effect of any of the above.

Mr. Glaser has special rights under our articles of incorporation to appoint or remove members of the strategic transactions committee at his discretion that could make it more difficult for RealNetworks to be sold or to complete another change of control transaction without Mr. Glaser’s consent. RealNetworks has also entered into an agreement providing Mr. Glaser with certain contractual rights relating to the enforcement of our charter documents and Mr. Glaser’s roles and authority within RealNetworks. These rights and his role as Chairman of the Board of Directors, together with Mr. Glaser’s significant beneficial ownership, create unique potential for concentrated influence of Mr. Glaser over potentially material transactions involving RealNetworks and decisions regarding the future strategy and leadership of RealNetworks.

We have adopted a shareholder rights plan, which was amended and restated in December 2008, which provides that shares of our common stock have associated preferred stock purchase rights. The exercise of these rights would make the acquisition of RealNetworks by a third party more expensive to that party and has the effect of discouraging third parties from acquiring RealNetworks without the approval of our board of directors, which has the power to redeem these rights and prevent their exercise.

Washington law imposes restrictions on some transactions between a corporation and certain significant shareholders. The foregoing provisions of our charter documents, shareholder rights plan, our agreement with Mr. Glaser, and Washington law, as well as our charter provisions that provide for a classified board of directors and the availability of “blank check” preferred stock, could have the effect of making it more difficult or more expensive for a third party to acquire, or of

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discouraging a third party from attempting to acquire, control of us. These provisions may therefore have the effect of limiting the price that investors might be willing to pay in the future for our common stock.

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

(a) Not applicable

(b) Not applicable

(c) Not applicable

Item 3. Default Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits

See Index to Exhibits below.

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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, thereunto duly authorized, on November 7, 2013.

REALNETWORKS, INC.
By:	/s/    Tim M. Wan
	Tim M. Wan
Title:	Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

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INDEX TO EXHIBITS

Exhibit Number	Description
31.1	Certification of Robert Glaser, Chairman and interim Chief Executive Officer of RealNetworks, Inc., Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Tim M. Wan, Chief Financial Officer and Treasurer of RealNetworks, Inc., Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Robert Glaser, Chairman and interim Chief Executive Officer of RealNetworks, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Tim M. Wan, Chief Financial Officer and Treasurer of RealNetworks, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

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EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert Glaser, certify that:

1. I have reviewed this report on Form 10-Q of RealNetworks, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 7, 2013
/s/ Robert Glaser
Robert Glaser
Title:	Chairman and interim Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Tim M. Wan, certify that:

1. I have reviewed this report on Form 10-Q of RealNetworks, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 7, 2013
/s/ Tim M. Wan
Tim M. Wan
Title:	Chief Financial Officer and Treasurer
	(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Robert Glaser, Chairman of the Board of Directors and interim Chief Executive Officer of RealNetworks, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of RealNetworks, Inc. on Form 10-Q for the fiscal quarter ended September 30, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of RealNetworks, Inc.

Date:	November 7, 2013
By:	/s/ Robert Glaser
	Name:	Robert Glaser
	Title:	Chairman and interim Chief Executive Officer
		(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to RealNetworks, Inc. and will be retained by RealNetworks, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Tim M. Wan, Chief Financial Officer and Treasurer of RealNetworks, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of RealNetworks, Inc. on Form 10-Q for the fiscal quarter ended September 30, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of RealNetworks, Inc.

Date:	November 7, 2013
By:	/s/ Tim M. Wan
	Name:	Tim M. Wan
	Title:	Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to RealNetworks, Inc. and will be retained by RealNetworks, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Accrued and Other Liabilities

9 Months Ended

Sep. 30, 2013

Payables and Accruals [Abstract]

Accrued and Other Liabilities

Accrued and Other Current Liabilities

Accrued and other current liabilities (in thousands):

	September 30, 2013		December 31, 2012
Royalties and other fulfillment costs	$	16,648	$	19,435
Employee compensation, commissions and benefits	11,821		13,368
Accrued legal settlements	11,525		—
Sales, VAT and other taxes payable	8,449		10,959
Deferred tax liabilities—current	453		3,894
Accrued lease exit and related charges	591		2,463
Other	8,537		7,411
Total accrued and other current liabilities	$	58,024	$	57,530

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Allowance for Doubtful Accounts Receivable and Sales Returns (Additional Information) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013
Accounts Receivable
Concentration Risk [Line Items]
Number of major customers	1	1
Accounts Receivable | Company A
Concentration Risk [Line Items]
Percentage by major customer			13.00%
Accounts Receivable | Company B
Concentration Risk [Line Items]
Percentage by major customer			12.00%
Revenue by Segment
Concentration Risk [Line Items]
Percentage by major customer	12.00%	11.00%	14.00%
RealPlayer Group
Concentration Risk [Line Items]
Significant customer revenue	$ 6.0	$ 6.4	$ 21.1
Mobile Entertainment
Concentration Risk [Line Items]
Significant customer revenue	$ 6.8		$ 17.3
Mobile Entertainment | Revenue by Segment
Concentration Risk [Line Items]
Percentage by major customer	14.00%		11.00%

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2013		Sep. 30, 2012		Sep. 30, 2013		Sep. 30, 2012
Net revenue	$ 48,958	[1]	$ 59,088	[1]	$ 155,601	[1]	$ 191,578	[1]
Cost of revenue	18,990	[2]	25,244	[2]	59,015	[2]	78,633	[2]
Gross profit	29,968		33,844		96,586		112,945
Sale of patents and other technology assets, net of costs (See Note 1)	0		0		0		116,353
Operating expenses:
Research and development	15,707		15,321		45,951		49,167
Sales and marketing	19,427		21,972		59,830		68,462
General and administrative	9,869		8,759		28,506		35,103
Restructuring and other charges	1,877		10,724		4,075		13,872
Lease exit and related charges	0		243		3,066		243
Loss Related to Litigation Settlement	11,525		0		11,525		0
Total operating expenses	58,405		57,019		152,953		166,847
Operating income (loss)	(28,437)		(23,175)		(56,367)		62,451
Other income (expenses):
Interest income, net	166		164		992		1,033
Gain (loss) on sale of equity and other investments, net	0		2,210		0		5,288
Equity in net loss of Rhapsody investment	(2,629)		(1,613)		(6,209)		(4,095)
Other income (expense), net	(118)		248		(146)		1,674
Total other income (expenses), net	(2,581)		1,009		(5,363)		3,900
Income (loss) before income taxes	(31,018)		(22,166)		(61,730)		66,351
Income tax benefit (expense)	(357)		(48)		210		(24,583)
Net income (loss)	(31,375)		(22,214)		(61,520)		41,768
Basic net income (loss) per share	$ (0.88)		$ (0.63)		$ (1.73)		$ 1.20
Diluted net income (loss) per share	$ (0.88)		$ (0.63)		$ (1.73)		$ 1.19
Shares used to compute basic net income (loss) per share	35,670		34,998		35,490		34,747
Shares used to compute diluted net income (loss) per share	35,670		34,998		35,490		35,000
Comprehensive income (loss):
Unrealized investment holding gains (losses), net of tax	(1,043)		5,407		(28)		1,840
Foreign currency translation gains (losses)	1,235		506		(391)		(1,730)
Total other comprehensive income (loss)	192		5,913		(419)		110
Net income (loss)	(31,375)		(22,214)		(61,520)		41,768
Comprehensive income (loss)	$ (31,183)		$ (16,301)		$ (61,939)		$ 41,878

[1] quartersytd September 30, 2013 September 30, 2012September 30, 2013September 30, 2012Components of Revenue License Fees10,503 11,957$33,49441,137Service Revenue38,455 47,131122,107150,441Net Revenue48,958 59,088$155,601191,578

[2] Components of Cost of RevenueSeptember 30, 2013 September 30, 2012 September 30, 2013 September 30, 2012License Fees2,062 3,226 6,377 9,143Service Revenue16,928 22,018 52,638 69,490Net Revenue Costs18,990 25,244 59,015 78,633

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Stock-Based Compensation

Total stock-based compensation expense recognized in our consolidated statements of operations includes amounts related to stock options, restricted stock units, and employee stock purchase plans and was as follows (in thousands):

	Quarters Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Total stock-based compensation expense	$	1,613	$	2,354	$	5,671	$	6,419

The fair value of options granted determined using the Black-Scholes model used the following weighted-average assumptions:

	Quarters Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Expected dividend yield	0	%	0	%	0	%	0	%
Risk-free interest rate	0.96	%	0.48	%	0.82	%	0.51	%
Expected life (years)	3.8		4.1		4.0		4.1
Volatility	48	%	58	%	48	%	58	%

The total stock-based compensation amounts for 2013 and 2012 disclosed above are recorded in their respective line items within operating expenses in the consolidated statement of operations. No stock-based compensation was capitalized as part of the cost of an asset as of September 30, 2013 or December 31, 2012. As of September 30, 2013, we had $8.1 millionof total unrecognized compensation cost, net of estimated forfeitures, related to stock awards. The unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 3years.

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Segment Information

9 Months Ended

Sep. 30, 2013

Segment Reporting [Abstract]

Segment Information

ote 18. Segment Information

In the first quarter of 2013 we reorganized the management of our businesses and as a result, we now report the following three segments: (1) RealPlayer Group, which includes sales of our RealPlayer media player software and related products, such as the distribution of third party software products, advertising on RealPlayer websites, and sales of RealPlayer Plus software licenses to consumers, sales of intellectual property licenses, and consumer subscriptions such as SuperPass and our recently launched RealPlayer Cloud service; (2) Mobile Entertainment, which includes our SaaS services, systems integration, and professional services to mobile carriers, and sales of technology licenses of our software products such as Helix; and (3) Games, which includes all our games-related businesses, including sales of games licenses, online games subscription services, advertising on games sites and social network sites, microtransactions from online and social games, and sales of mobile games.

In addition, we now also allocate certain corporate expenses which are directly attributable to supporting the business to our reportable segments, rather than retaining those expenses in our corporate segment. These corporate expenses include but are not limited to a portion of finance, legal, human resources and headquarters facilities. Remaining expenses, which are not directly attributable to supporting the business, are retained in aggregate in our corporate segment. All restructuring, lease exit and related charges, and, for 2013, the loss on litigation settlements, are included in the corporate segment. In 2012, the sale of patent and other technology assets, net of costs, was included in the corporate segment. The historical financial information presented has been recast to reflect the new segments and the new corporate expense presentation.

RealNetworks reports three reportable segments based on factors such as how we manage our operations and how our Chief Operating Decision Maker reviews results. Our Chief Operating Decision Maker is considered to be the CEO Staff (CEOS), which includes the interim Chief Executive Officer, Chief Financial Officer, President, Executive Vice President, General Counsel and certain Senior Vice Presidents. The CEOS reviews financial information presented on both a consolidated basis and on a business segment basis, accompanied by certain disaggregated information about products and services, geographical regions and corporate expenses for purposes of making decisions and assessing financial performance. The accounting policies used to derive segment results are the same as those described in Note 1, Description of Business and Summary of Significant Accounting Policies, in the 10-K.

Segment results for the quarters and nine months endedSeptember 30, 2013 and 2012 (in thousands):

RealPlayer Group

	Quarters Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013		2012
Revenue	$	17,641		$	21,392	$	58,407	$	65,631
Cost of revenue	3,264			6,735		12,984		16,026
Gross profit	14,377			14,657		45,423		49,605
Operating expenses	14,449			13,082		44,656		41,849
Operating income (loss)	$	(72	)	$	1,575	$	767	$	7,756

Mobile Entertainment

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenue	$	19,948		$	22,820		$	59,035		$	74,600
Cost of revenue	11,972			12,740			33,974			43,093
Gross profit	7,976			10,080			25,061			31,507
Operating expenses	9,453			11,936			26,976			40,591
Operating income (loss)	$	(1,477	)	$	(1,856	)	$	(1,915	)	$	(9,084	)

Games

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenue	$	11,369		$	14,876		$	38,159		$	51,347
Cost of revenue	3,216			4,989			10,397			17,332
Gross profit	8,153			9,887			27,762			34,015
Operating expenses	11,513			12,023			35,120			39,962
Operating income (loss)	$	(3,360	)	$	(2,136	)	$	(7,358	)	$	(5,947	)

Corporate

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Cost of revenue	$	538		$	780		$	1,660		$	2,182
Sale of patents and other technology assets, net of costs	—			—			—			116,353
Operating expenses	22,990			19,978			46,201			44,445
Operating income (loss)	$	(23,528	)	$	(20,758	)	$	(47,861	)	$	69,726

Our customers consist primarily of consumers and corporations located in the U.S., Europe and various foreign countries. Revenue by geographic region (in thousands):

	Quarters Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
United States	$	21,039	$	29,101	$	70,525	$	89,529
Europe	8,750		12,470		29,278		43,021
Rest of the world	19,169		17,517		55,798		59,028
Total net revenue	$	48,958	$	59,088	$	155,601	$	191,578

Long-lived assets, consisting of equipment, software, leasehold improvements, other intangible assets, and goodwill by geographic region (in thousands):

	September 30, 2013		December 31, 2012
United States	$	41,634	$	27,915
Europe	8,830		2,350
Rest of the world	5,570		8,635
Total long-lived assets	$	56,034	$	38,900

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Related Party Transactions - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
LoEn Entertainment, Inc
Related Party Transaction [Line Items]
Revenue from related party	$ 6.8	$ 4.0	$ 17.3	$ 12.0
Percentage of acquire outstanding shares of LoEn Entertainment, Inc.	9.00%		9.00%
Accounts receivable recorded	3.4		3.4
Rhapsody America LLC
Related Party Transaction [Line Items]
Revenue from related party	$ 0.2	$ 0.2	$ 0.6	$ 0.7

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Goodwill (Goodwill by Segments) (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Goodwill [Line Items]
Goodwill	$ 17,518	$ 6,309
RealPlayer Group
Goodwill [Line Items]
Goodwill	580
Mobile Entertainment
Goodwill [Line Items]
Goodwill	2,115
Games
Goodwill [Line Items]
Goodwill	$ 14,823

XML

Restructuring Charges

9 Months Ended

Sep. 30, 2013

Restructuring and Related Activities [Abstract]

Restructuring Charges

Restructuring Charges

Restructuring and other charges in 2013 and 2012 consist of costs associated with the ongoing reorganization of our business operations and focus on aligning our operating expenses with our revenue profile. The expense amounts in both years relate primarily to severance costs due to workforce reductions.

In the third quarter of 2012 we announced we would be eliminating approximately 160 positions worldwide. This action has been concluded as of the end of the second quarter of 2013. In the third quarter of 2013, we incurred restructuring charges as a result of reduced headcount from the termination of certain SaaS contracts. We expect this action to be completed within the first half of 2014. For the quarter and nine months ended September 30, 2013 we recorded $1.1 million and $2.9 million, respectively, of restructuring charges for employee separation costs related to these actions and for other actions taken in 2013.

In the second and third quarter of 2013 we also incurred restructuring charges related to the relocation of our Seattle headquarters. For the quarter and nine months ended September 30, 2013, we recorded $0.8 million and $1.2 million, respectively, of restructuring charges related to this action, which are classified as Asset Related and Other Costs in the table below.

Details of restructuring charges for the nine months endedSeptember 30, 2013 and 2012 are in the table below. The amount accrued at September 30, 2013 for employee separation includes costs for those employees who were separated in the quarter ended September 30, 2013 and are expected to be paid out in the quarter ended December 31, 2013. The amount accrued for contract assignment is expected to be paid out by the end of 2013.

For details on costs associated with the termination of our Seattle headquarters lease see Note 13, Lease exit and related charges.

Restructuring charges by type of cost (in thousands):

	Employee Separation Costs		Contract Assignment Costs	Asset Related and Other Costs	Total
Costs incurred and charged to expense for the nine months ended September 30, 2013	$	2,891	—	1,184	$	4,075
Costs incurred and charged to expense for the nine months ended September 30, 2012	$	8,099	3,629	2,144	$	13,872

Changes to the accrued restructuring cost liability (in thousands):

	By Type of Cost
	Employee Separation Costs			Contract Assignment Costs		Total
Accrued liability as of December 31, 2012	$	731		$	1,700	$	2,431
Costs incurred and charged to expense for the nine months ended September 30, 2013	2,891			—		2,891
Cash payments	(2,806		)	—		(2,806		)
Accrued liability as of September 30, 2013	$	816		$	1,700	$	2,516

XML

Fair Value Measurements (Financial Assets Measured at Fair Value on a Recurring Basis) (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	$ 218,543	$ 244,465
Cash Equivalents | Money market funds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	23,038	10,680
Cash Equivalents | Corporate notes and bonds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	72,493	81,235
Short-term Investments | Corporate notes and bonds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	60,041	65,502
Short-term Investments | U.S. government agency securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	23,486	42,714
Short-term Investments | Restricted cash equivalents and investments
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	5,000	10,000
Available-for-sale Securities | Publicly Traded Investments
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	34,485	34,334
Level 1
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	57,145	76,447
Level 1 | Restricted cash equivalents and investments
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 1 | Cash Equivalents | Money market funds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	2	0
Level 1 | Cash Equivalents | Corporate notes and bonds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 1 | Short-term Investments | Corporate notes and bonds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 1 | Short-term Investments | U.S. government agency securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	22,658	42,113
Level 1 | Available-for-sale Securities | Publicly Traded Investments
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	34,485	34,334
Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	161,398	168,018
Level 2 | Restricted cash equivalents and investments
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	5,000	10,000
Level 2 | Cash Equivalents | Money market funds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	23,036	10,680
Level 2 | Cash Equivalents | Corporate notes and bonds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	72,493	81,235
Level 2 | Short-term Investments | Corporate notes and bonds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	60,041	65,502
Level 2 | Short-term Investments | U.S. government agency securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	828	601
Level 2 | Available-for-sale Securities | Publicly Traded Investments
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 3
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 3 | Restricted cash equivalents and investments
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 3 | Cash Equivalents | Money market funds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 3 | Cash Equivalents | Corporate notes and bonds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 3 | Short-term Investments | Corporate notes and bonds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 3 | Short-term Investments | U.S. government agency securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 3 | Available-for-sale Securities | Publicly Traded Investments
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	$ 0	$ 0

XML

Accrued and Other Liabilities (Detail) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Payables and Accruals [Abstract]
Royalties and other fulfillment costs	$ 16,648,000	$ 19,435,000
Employee compensation, commissions and benefits	11,821,000	13,368,000
Loss Contingency, Period of Occurrence	11,525,000.000
Loss Contingency, Settlement Agreement, Consideration		0
Sales, VAT and other taxes payable	8,449,000	10,959,000
Deferred tax liabilities-current	453,000	3,894,000
Accrued loss on excess office facilities, current portion	591,000	2,463,000
Other	8,537,000	7,411,000
Total accrued and other liabilities	$ 58,024,000	$ 57,530,000

XML

Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2013

Earnings Per Share [Abstract]

Calculation of Basic and Diluted Earnings Per Share

Basic and diluted EPS (in thousands, except per share amounts):

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net income (loss) available to common shareholders	$	(31,375	)	$	(22,214	)	$	(61,520	)	$	41,768
Weighted average common shares outstanding used to compute basic EPS	35,670			34,998			35,490			34,747
Dilutive effect of stock based awards	—			—			—			253
Weighted average common shares outstanding used to compute diluted EPS	35,670			34,998			35,490			35,000
Basic EPS	$	(0.88	)	$	(0.63	)	$	(1.73	)	$	1.20
Diluted EPS	$	(0.88	)	$	(0.63	)	$	(1.73	)	$	1.19

XML

Description of Business and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Components of Accumulated Other Comprehensive Income Loss

The components of accumulated other comprehensive income (loss), net of any applicable tax, were as follows (in thousands):

	September 30, 2013			December 31, 2012
Unrealized gains on investments, net of tax effects of $(716) and $(846) at September 30, 2013 and December 31, 2012, respectively	$	26,657		$	26,685
Foreign currency translation adjustments	(53,616		)	(53,225		)
Accumulated other comprehensive income (loss)	$	(26,959	)	$	(26,540	)

XML

Description of Business and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2013

Sep. 30, 2012

Accounting Policies [Abstract]

Description of Business

Description of Business. RealNetworks, Inc. and subsidiaries is a leading global provider of network-delivered digital media applications and services that make it easy to manage, play and share digital media. The Company also develops and markets software products and services that enable the creation, distribution and consumption of digital media, including audio and video.

Inherent in our business are various risks and uncertainties, including a limited history of certain of our product and service offerings. RealNetworks' success will depend on the acceptance of our technology, products and services and the ability to generate related revenue.

In this Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 (10-Q or Report), RealNetworks, Inc. and Subsidiaries is referred to as “RealNetworks”, the “Company”, “we”, “us”, or “our”.

Basis of Presentation

Basis of Presentation. The unaudited condensed consolidated financial statements include the accounts of RealNetworks and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal, recurring adjustments that, in the opinion of the Company’s management, are necessary for a fair presentation of the results of operations for the periods presented. Operating results for the quarter and nine months endedSeptember 30, 2013 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ending December 31, 2013. Certain information and disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012 (the 10-K).

Use of Estimates

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In addition, current economic conditions may require the use of additional estimates, and certain estimates we make are subject to a greater degree of uncertainty as a result of the current economic conditions.

Segment Reporting, Policy [Policy Text Block]

Reportable Segments. In the first quarter of 2013 we reorganized the management of our businesses and as a result, we changed our reportable segments. See Note 18, Segment Information, for details.

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss). The components of accumulated other comprehensive income (loss), net of any applicable tax, were as follows (in thousands):

	September 30, 2013			December 31, 2012
Unrealized gains on investments, net of tax effects of $(716) and $(846) at September 30, 2013 and December 31, 2012, respectively	$	26,657		$	26,685
Foreign currency translation adjustments	(53,616		)	(53,225		)
Accumulated other comprehensive income (loss)	$	(26,959	)	$	(26,540	)

In the quarter and nine months ended September 30, 2012 we liquidated the investment in certain of our foreign entities and recorded net pre-tax gains of $0.4 million and $2.0 million, respectively, in Other income (expense), net, in the consolidated statement of operations upon the reclassification of the same amount of cumulative foreign exchange translation adjustment from accumulated other comprehensive income (loss) on the balance sheet. The reclassification adjustments had no related income tax expense or benefit.

There were no material reclassification adjustments or related tax effects related to foreign exchange translation amounts in the nine months ended September 30, 2013.

In the quarter and nine months ended September 30, 2012 we realized pre-tax gains of $2.2 million and $4.3 million, respectively, in the consolidated statement of operations, within Gain (loss) on sale of equity and other investments, net, related to the sale of a portion of the equity shares we hold in LoEn Entertainment, Inc., with the same amounts reclassified from accumulated other comprehensive income (loss) on the balance sheet. The reclassification adjustment had no related income tax expense or benefit.

There were no reclassification adjustments or related tax effects related to unrealized gains on investments in the nine months ended September 30, 2013.

For the three months ended September 30, 2013 we recorded income tax expense of $0.6 million and for the nine months ended September 30, 2013 we recorded an income tax benefit of $0.1 million related to unrealized gains (losses) on investment securities, and recognized the corresponding amount as an increase or decrease to accumulated other comprehensive income.

Sale of Patents and Other Technology Assets to Intel Corporation

Sale of Patents and Other Technology Assets to Intel Corporation. In the second quarter of 2012, we completed the sale of certain patents, patent applications and related rights held by us, and certain of our assets relating to our next generation video codec technologies to Intel Corporation (Intel). The entire $120.0 million of cash proceeds we received, net of certain direct costs incurred, was recorded as a gain on our statement of operations in the quarter ending June 30, 2012, since the patent assets and other technology had a net book value of zero. The gain recognized of $116.4 million in the nine months ended September 30, 2012 was net of related direct costs for the sale transaction totaling $3.6 million incurred in the first and second quarters of 2012.

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Rhapsody Joint Venture (Additional Information) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended			3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Sep. 30, 2013 Rhapsody America LLC	Sep. 30, 2012 Rhapsody America LLC	Sep. 30, 2013 Rhapsody America LLC	Sep. 30, 2012 Rhapsody America LLC	Mar. 31, 2010 Rhapsody America LLC	Mar. 31, 2010 Before Capital Restructuring Rhapsody America LLC	Mar. 31, 2010 MTV Networks Before Capital Restructuring Rhapsody America LLC
Schedule of Equity Method Investments [Line Items]
Percentage of ownership interest in Rhapsody											51.00%	49.00%
Percentage of ownership interest in Rhapsody						45.00%		45.00%		47.00%
Losses recorded in the operations of Rhapsody	$ 2,629	$ 1,613	$ 6,209	$ 4,095		$ 2,600	$ 1,600	$ 6,200	$ 4,100
Carrying value of Rhapsody investment	$ 12,656		$ 12,656		$ 19,204

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Goodwill (Tables)

9 Months Ended

Sep. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in Goodwill

Changes in goodwill (in thousands):

Balance, December 31, 2012	$	6,309
Increases due to current year acquisitions	11,352
Effects of foreign currency translation	(143		)
Balance, September 30, 2013	$	17,518

Goodwill Assigned by Segments

Goodwill by segment (in thousands):

	September 30, 2013
RealPlayer Group	$	580
Mobile Entertainment	2,115
Games	14,823
Total goodwill	$	17,518

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Description of Business and Summary of Significant Accounting Policies (Components of Accumulated Other Comprehensive Income Loss) (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Accounting Policies [Abstract]
Unrealized gains on investments, net of taxes	$ 26,657	$ 26,685
Foreign currency translation adjustments	(53,616)	(53,225)
Accumulated other comprehensive income (loss)	(26,959)	(26,540)
Tax affect of available-for-sale securities	$ (716)	$ (846)

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Fair Value Measurements - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Fair Value Disclosures [Abstract]
Equity investments accounted for as available for sale	$ 8.6	$ 8.6

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Cash, Cash Equivalents, Short-Term Investments, Restricted Cash Equivalents and Investments (Tables)

9 Months Ended

Sep. 30, 2013

Cash and Cash Equivalents [Abstract]

Cash Cash Equivalents Short-Term Investments and Restricted Cash Equivalents and Investments

Cash and cash equivalents, short-term investments, and restricted cash equivalents and investments as of September 30, 2013, consisted of the following (in thousands):

	Amortized Cost		Estimated Fair Value
Cash and cash equivalents:
Cash	$	39,348	$	39,348
Money market mutual funds	23,038		23,038
Corporate notes and bonds	72,494		72,493
Total cash and cash equivalents	134,880		134,879
Short-term investments:
Corporate notes and bonds	60,005		60,041
U.S. government agency securities	23,478		23,486
Total short-term investments	83,483		83,527
Total cash, cash equivalents and short-term investments	$	218,363	$	218,406
Restricted cash equivalents and investments	$	5,000	$	5,000

Cash and cash equivalents, short-term investments, and restricted cash equivalents and investments as of December 31, 2012 consisted of the following (in thousands):

	Amortized Cost		Estimated Fair Value
Cash and cash equivalents:
Cash	$	71,283	$	71,283
Money market mutual funds	10,680		10,680
Corporate notes and bonds	81,237		81,235
Total cash and cash equivalents	163,200		163,198

Short-term investments:
Corporate notes and bonds	65,426		65,502
U.S. Government agency securities	42,693		42,714
Total short-term investments	108,119		108,216
Total cash, cash equivalents, and short-term investments	$	271,319	$	271,414
Restricted cash equivalents and investments	$	10,000	$	10,000

Contractual Maturities of Short-Term Investments

ontractual maturities of short-term investments as of September 30, 2013 (in thousands):

	Estimated Fair Value
Within one year	$	57,321
Between one year and five years	26,206
Total short-term investments	$	83,527

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Segment Information (Segment Results) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2013		Sep. 30, 2012		Sep. 30, 2013		Sep. 30, 2012
Segment Reporting Information [Line Items]
Revenue	$ 48,958	[1]	$ 59,088	[1]	$ 155,601	[1]	$ 191,578	[1]
Cost of revenue	18,990	[2]	25,244	[2]	59,015	[2]	78,633	[2]
Gain on sale of patent and other technology assets, net of costs	0		0		0		116,353
Gross profit	29,968		33,844		96,586		112,945
Operating expenses	58,405		57,019		152,953		166,847
Operating income (loss)	(28,437)		(23,175)		(56,367)		62,451
RealPlayer Group
Segment Reporting Information [Line Items]
Revenue	17,641		21,392		58,407		65,631
Cost of revenue	3,264		6,735		12,984		16,026
Gross profit	14,377		14,657		45,423		49,605
Operating expenses	14,449		13,082		44,656		41,849
Operating income (loss)	(72)		1,575		767		7,756
Mobile Entertainment
Segment Reporting Information [Line Items]
Revenue	19,948		22,820		59,035		74,600
Cost of revenue	11,972		12,740		33,974		43,093
Gross profit	7,976		10,080		25,061		31,507
Operating expenses	9,453		11,936		26,976		40,591
Operating income (loss)	(1,477)		(1,856)		(1,915)		(9,084)
Games
Segment Reporting Information [Line Items]
Revenue	11,369		14,876		38,159		51,347
Cost of revenue	3,216		4,989		10,397		17,332
Gross profit	8,153		9,887		27,762		34,015
Operating expenses	11,513		12,023		35,120		39,962
Operating income (loss)	(3,360)		(2,136)		(7,358)		(5,947)
Corporate
Segment Reporting Information [Line Items]
Cost of revenue	538		780		1,660		2,182
Gain on sale of patent and other technology assets, net of costs	0		0		0		116,353
Operating expenses	22,990		19,978		46,201		44,445
Operating income (loss)	$ (23,528)		$ (20,758)		$ (47,861)		$ 69,726

[1] quartersytd September 30, 2013 September 30, 2012September 30, 2013September 30, 2012Components of Revenue License Fees10,503 11,957$33,49441,137Service Revenue38,455 47,131122,107150,441Net Revenue48,958 59,088$155,601191,578

[2] Components of Cost of RevenueSeptember 30, 2013 September 30, 2012 September 30, 2013 September 30, 2012License Fees2,062 3,226 6,377 9,143Service Revenue16,928 22,018 52,638 69,490Net Revenue Costs18,990 25,244 59,015 78,633

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Segment Information (Additional Information) (Detail)	9 Months Ended
	Sep. 30, 2013 Segment
Segment Reporting [Abstract]
Number of reporting segments	3

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Stock-Based Compensation (Recognized Stock-Based Compensation Expense) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Total stock-based compensation expense	$ 1,613	$ 2,354	$ 5,671	$ 6,419

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Related Party Transactions

9 Months Ended

Sep. 30, 2013

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

Transactions with Rhapsody. See Note 5, Rhapsody Joint Venture, for details on the 2010 restructuring transaction involving Rhapsody. Subsequent to the restructuring transaction, we are obligated to provide Rhapsody with certain support services. These support services are expected to be completed in 2013. The support services include information technology and limited operational support provided directly to Rhapsody. The amount of these and other support service costs were based on various measures depending on the service provided, including vendor fees, an allocation of fixed costs and time employees spend on providing services to Rhapsody. RealNetworks allocates the cost of providing these support services and records such allocation as a reduction to the related expense in the period for which it was incurred. During the quarter and nine months endedSeptember 30, 2013, we charged Rhapsody $0.2 million and $0.6 million, respectively, for the support services. During the quarter and nine months endedSeptember 30, 2012, we charged Rhapsody $0.2 million and $0.7 million, respectively, for the support services.

Transactions with LoEn Entertainment, Inc. In 2008 RealNetworks acquired at market prices common shares of LoEn Entertainment, Inc., whose shares are traded on the Korean Securities Dealers Automated Quotations. As of September 30, 2013 we owned approximately 9% of the outstanding shares of LoEn. Our investment in LoEn is treated as an available for sale investment and is marked-to-market each period with resulting unrealized gains or losses recognized in accumulated other comprehensive income/loss. During the quarter and nine months endedSeptember 30, 2013, we recorded revenue from LoEn of $6.8 million and $17.3 million, respectively. During the quarter and nine months endedSeptember 30, 2012, we recorded revenue from LoEn of $4.0 million and $12.0 million, respectively. Revenue consisted primarily of sales of application service provider services, which include sales of ringback tones, music on demand, video on demand, and intercarrier messaging services. Associated with these transactions, we also recorded accounts receivable of $3.4 million as of September 30, 2013. Accounts payable and cost of revenue amounts associated with LoEn as of and for the periods ended September 30, 2013 and 2012 were nominal.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Cash flows from operating activities:
Net income (loss)	$ (61,520)	$ 41,768
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	15,045	12,478
Stock-based compensation	5,671	6,419
Loss (gain) on equipment, software, and leasehold improvements	0	1,965
Equity in net loss of Rhapsody	6,209	4,095
Deferred income taxes, net	(1,238)	22,399
Gain on sale of patent and other technology assets, net of costs	0	(116,353)
Gain on sale of equity and other investments, net	0	(5,288)
Realized translation gain	(35)	(1,968)
Other	51	0
Net change in certain operating assets and liabilities:
Trade accounts receivable	6,466	5,848
Prepaid expenses and other assets	4,772	(2,956)
Accounts payable	26	3,683
Accrued and other liabilities	(3,750)	(2,840)
Net cash provided by (used in) operating activities	(28,303)	(30,750)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements	(5,798)	(6,478)
Proceeds from Sale of Intangible Assets	0	116,353
Proceeds from sale of equity and other investments	0	7,244
Purchases of short-term investments	(85,670)	(76,191)
Proceeds from sales and maturities of short-term investments	110,359	51,885
Decrease (increase) in restricted cash equivalents and investments, net	5,000	103
Payment of acquisition costs, net of cash acquired	(22,480)	0
Net cash provided by (used in) investing activities	1,411	92,916
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options and stock purchase plan)	408	3,240
Tax payments from shares withheld upon vesting of restricted stock	(911)	(964)
Payment of contingent consideration	(828)	0
Net cash provided by (used in) financing activities	(1,331)	2,276
Effect of exchange rate changes on cash and cash equivalents	(96)	(73)
Net increase (decrease) in cash and cash equivalents	(28,319)	64,369
Cash and cash equivalents, beginning of period	163,198	106,333
Cash and cash equivalents, end of period	134,879	170,702
Supplemental disclosure of cash flow information:
Cash received from income tax refunds	8,354	247
Cash paid for income taxes	2,988	2,015
Non-cash investing activities:
Increase (decrease) in accrued purchases of equipment, software, and leasehold improvements	$ 1,096	$ 116

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2013

Accounting Changes and Error Corrections [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the nine months endedSeptember 30, 2013 to be implemented that are of significance or potential significance to RealNetworks.

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Rhapsody Joint Venture

9 Months Ended

Sep. 30, 2013

Equity Method Investments and Joint Ventures [Abstract]

Rhapsody Joint Venture

Rhapsody Joint Venture

RealNetworks initially formed in 2007 a joint venture with MTV Networks, a division of Viacom International Inc. (MTVN), to own and operate a business-to-consumer digital audio music service known as Rhapsody. Prior to March 31, 2010, we held a 51% interest in Rhapsody and MTVN owned the remaining 49%. On March 31, 2010, restructuring transactions involving Rhapsody were completed, and as a result, effective March 31, 2010 RealNetworks owned approximately 47% of Rhapsody. Subsequent to the restructuring transaction, we account for our investment in Rhapsody using the equity method of accounting for investments.

As of September 30, 2013 we owned approximately 45% of the issued and outstanding stock of Rhapsody.

RealNetworks continues to provide certain operational transition services to Rhapsody. These transition services are expected to be completed in 2013, and are discussed further in Footnote 19, Related Party Transactions.

We recorded our share of losses of Rhapsody of $2.6 million and $6.2 million for the quarter and nine months ended September 30, 2013, respectively. Our share of losses of Rhapsody for the quarter and nine months endedSeptember 30, 2012 were $1.6 million and $4.1 million, respectively.

The carrying value of our Rhapsody investment was $12.7 million as of September 30, 2013.

Summarized financial information for Rhapsody, which represents 100% of their financial information (in thousands):

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net revenue	$	35,190		$	36,389		$	103,831		$	109,368
Gross profit	7,800			9,266			24,412			28,757
Net loss	(5,621		)	(3,424		)	(14,812		)	(9,031		)

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Acquisitions Acquisitions

9 Months Ended

Sep. 30, 2013

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Acquisitions

In the quarter ended June 30, 2013, we acquired 100% of the voting interests in Slingo, Inc., a social casino games company based in the U.S., for total cash consideration of $15.6 million. The tangible and intangible assets and liabilities recognized are reported within the Games segment. The identifiable intangible assets associated with the acquisition totaled $8.0 million. Of this total, $4.5 million is related to tradenames and trademarks determined to have indefinite useful lives and will be evaluated annually in our fourth quarter for impairment, or more frequently, if circumstances indicate an impairment may exist. The remaining $3.5 million includes developed game technology and existing customer relationships with finite lives, and will be amortized over their useful lives. We recorded a net deferred tax liability of $2.7 million related to the intangible assets acquired. Goodwill totaling $9.8 million was recorded, representing the intangible assets that do not qualify for separate recognition for accounting purposes, primarily related to the assembled workforce and expected synergies in the rapidly growing social casino games market. The goodwill is not deductible for income tax purposes. For the nine months ended September 30, 2013, the amount of revenue and income (loss) before income taxes from this acquired business was not significant.

In the quarter ended September 30, 2013, we acquired 100% of the voting interests in Muzicall Limited, a ringback tone company based in London, for total cash consideration of $6.7 million. The tangible and intangible assets and liabilities recognized are reported in the Mobile Entertainment segment. The identifiable intangible assets associated with the acquisition totaled $5.4 million, and include tradenames and trademarks, developed technology, user base and carrier relationships. All identifiable intangible assets from this acquisition have finite lives, and will be amortized over their useful lives. We recorded a net deferred tax asset of $3.4 million related to the assets acquired, and a full valuation allowance. Goodwill totaling $1.3 million was recorded, representing the intangible assets that do not qualify for separate recognition for accounting purposes, primarily related to the assembled workforce and expected synergies in the ringback tone industry. The goodwill is not deductible for income tax purposes. For the nine months ended September 30, 2013, the amount of revenue and income (loss) before income taxes from this acquired business was not significant. This acquisition is intended to accelerate our growth initiatives within the Mobile Entertainment segment.

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Description of Business and Summary of Significant Accounting Policies (Additional Information) (Detail) (USD $)	1 Months Ended	3 Months Ended		9 Months Ended
	Apr. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Realized Gain/(Loss) on sale of securities			$ 2,200,000		$ 4,300,000
Income tax benefit related to unrealized gains on securities		357,000	48,000	(210,000)	24,583,000
Proceeds from Sale of Productive Assets	120,000,000
Net carrying value of patents and rights sold			0		0
Sale of patents and other technology assets, net of costs		0	0	0	116,353,000
Sale of patents and other technology assets, direct costs					3,600,000
Unrealized gain on securities [Member]
Income tax benefit related to unrealized gains on securities		600,000		100,000
Other Income (Expense) [Member]
Gain on the liquidation of an investment in foreign entity			$ (400,000)		$ (2,000,000)

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation Expense

Total stock-based compensation expense recognized in our consolidated statements of operations includes amounts related to stock options, restricted stock units, and employee stock purchase plans and was as follows (in thousands):

	Quarters Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Total stock-based compensation expense	$	1,613	$	2,354	$	5,671	$	6,419

Weighted-Average Assumptions Used to Determine Fair Value of Options Granted

The fair value of options granted determined using the Black-Scholes model used the following weighted-average assumptions:

	Quarters Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Expected dividend yield	0	%	0	%	0	%	0	%
Risk-free interest rate	0.96	%	0.48	%	0.82	%	0.51	%
Expected life (years)	3.8		4.1		4.0		4.1
Volatility	48	%	58	%	48	%	58	%

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Allowance for Doubtful Accounts Receivable and Sales Returns (Tables)

9 Months Ended

Sep. 30, 2013

Receivables [Abstract]

Activity in Allowance for Doubtful Accounts Receivable and Sales Returns

Activity in the allowance for doubtful accounts receivable and sales returns (in thousands):

	Allowance For
	Doubtful Accounts Receivable			Sales Returns
Balances, December 31, 2012	$	1,010		$	653
Addition (reduction) to allowance	210			(47		)
Amounts written off	(61		)	(21		)
Foreign currency translation	20			—
Balances, September 30, 2013	$	1,179		$	585

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Lease Exit and Related Charges (Tables)

9 Months Ended

Sep. 30, 2013

Disclosure Changes To Accrued Loss On Excess Office Facilities [Abstract]

Changes to Accrued Loss on Excess Office Facilities

Changes to accrued lease exit and related charges (in thousands):

Accrued loss December 31, 2012	$	4,213
Additions and adjustments to the lease exit charges accrual, including sublease income estimate revision	1,331
Less amounts paid, net of sublease amounts	(4,953		)
Accrued loss September 30, 2013 (included in Accrued and other current liabilities)	$	591

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Goodwill (Changes in Goodwill) (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill, Acquired During Period	$ 11,352
Beginning Balance	6,309
Effects of foreign currency translation	(143)
Ending Balance	$ 17,518

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Cash Cash Equivalents Short-Term Investments and Restricted Cash Equivalents and Investments (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Cash and Cash Equivalents
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Amortized Cost	$ 134,880	$ 163,200
Estimated Fair Value	134,879	163,198
Cash and Cash Equivalents | Cash
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Amortized Cost	39,348	71,283
Estimated Fair Value	39,348	71,283
Cash and Cash Equivalents | Money market funds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Amortized Cost	23,038	10,680
Estimated Fair Value	23,038	10,680
Cash and Cash Equivalents | Corporate notes and bonds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Amortized Cost	72,494	81,237
Estimated Fair Value	72,493	81,235
Short-term Investments
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Amortized Cost	83,483	108,119
Estimated Fair Value	83,527	108,216
Short-term Investments | Corporate notes and bonds
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Amortized Cost	60,005	65,426
Estimated Fair Value	60,041	65,502
Short-term Investments | U.S. government agency securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Amortized Cost	23,478	42,693
Estimated Fair Value	23,486	42,714
Cash Cash Equivalents And Short Term Investments
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Amortized Cost	218,363	271,319
Estimated Fair Value	218,406	271,414
Restricted cash equivalents and investments
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Amortized Cost	5,000	10,000
Estimated Fair Value	$ 5,000	$ 10,000

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Stock-Based Compensation (Additional Information) (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Total unrecognized compensation cost	$ 8.1
Total unrecognized compensation cost, expected recognition period (in years)	3 years

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized	250,000	250,000
Common stock, issued	35,679	35,324
Common stock, outstanding	35,679	35,324
Preferred stock, Series A
Preferred stock, authorized	200	200
Preferred stock, Undesignated series
Preferred stock, authorized	59,800	59,800

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Allowance for Doubtful Accounts Receivable and Sales Returns

9 Months Ended

Sep. 30, 2013

Receivables [Abstract]

Allowance for Doubtful Accounts Receivable and Sales Returns

Allowance for Doubtful Accounts Receivable and Sales Returns

Activity in the allowance for doubtful accounts receivable and sales returns (in thousands):

	Allowance For
	Doubtful Accounts Receivable			Sales Returns
Balances, December 31, 2012	$	1,010		$	653
Addition (reduction) to allowance	210			(47		)
Amounts written off	(61		)	(21		)
Foreign currency translation	20			—
Balances, September 30, 2013	$	1,179		$	585

One customer accounted for 13% of trade accounts receivable and one other customer accounted for 12% of trade accounts receivable, as of September 30, 2013. No one customer accounted for more than 10% of trade accounts receivable as of December 31, 2012.

One customer accounted for approximately 12%, or $6.0 million, and 14% or $21.1 million, of consolidated revenue during the quarter and nine months ended September 30, 2013, respectively. The revenue from this customer is reflected in our RealPlayer Group and Games segments. One other customer accounted for approximately 14%, or $6.8 million, and 11% or $17.3 million, of consolidated revenue during the quarter and nine months ended September 30, 2013, respectively, in our Mobile Entertainment segment. One customer accounted for 11%, or $6.4 million, of revenue during the quarter ended September 30, 2012. No one customer accounted for more than 10% of consolidated revenue during the nine months endedSeptember 30, 2012.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2013		Sep. 30, 2012		Sep. 30, 2013		Sep. 30, 2012
Components of net revenue:
License fees	$ 10,503		$ 11,957		$ 33,494		$ 41,137
Service revenue	38,455		47,131		122,107		150,441
Net revenue	48,958	[1]	59,088	[1]	155,601	[1]	191,578	[1]
Components of cost of revenue:
License fees	2,062		3,226		6,377		9,143
Service revenue	16,928		22,018		52,638		69,490
Cost of revenue	$ 18,990	[2]	$ 25,244	[2]	$ 59,015	[2]	$ 78,633	[2]

[1] quartersytd September 30, 2013 September 30, 2012September 30, 2013September 30, 2012Components of Revenue License Fees10,503 11,957$33,49441,137Service Revenue38,455 47,131122,107150,441Net Revenue48,958 59,088$155,601191,578

[2] Components of Cost of RevenueSeptember 30, 2013 September 30, 2012 September 30, 2013 September 30, 2012License Fees2,062 3,226 6,377 9,143Service Revenue16,928 22,018 52,638 69,490Net Revenue Costs18,990 25,244 59,015 78,633

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Restructuring Charges Restructuring Charges (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2013 position	Sep. 30, 2013	Sep. 30, 2012
Restructuring Cost and Reserve [Line Items]
Number of positions eliminated	160
Costs incurred and charged to expense		$ 4,075	$ 13,872
Restructuring Reserve [Roll Forward]
Accrued liability beginning balance		2,431
Costs incurred and charged to expense, excluding non-cash charges		2,891
Cash payments		(2,806)
Accrued liability ending balance	2,516	2,516
Employee Separation Costs
Restructuring Cost and Reserve [Line Items]
Costs incurred and charged to expense	1,100	2,891	8,099
Restructuring Reserve [Roll Forward]
Accrued liability beginning balance		731
Costs incurred and charged to expense, excluding non-cash charges		2,891
Cash payments		(2,806)
Accrued liability ending balance	816	816
Contract Assignment Costs
Restructuring Cost and Reserve [Line Items]
Costs incurred and charged to expense	0		3,629
Restructuring Reserve [Roll Forward]
Accrued liability beginning balance		1,700
Costs incurred and charged to expense, excluding non-cash charges		0
Cash payments		0
Accrued liability ending balance	1,700	1,700
Asset Related and Other
Restructuring Cost and Reserve [Line Items]
Costs incurred and charged to expense	$ 800	$ 1,184	$ 2,144

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 134,879	$ 163,198
Short-term investments	83,527	108,216
Trade accounts receivable, net of allowances for doubtful accounts and sales returns	26,494	30,754
Deferred costs, current portion	1,622	825
Deferred Tax Assets, Net of Valuation Allowance, Current	3,942	2,869
Prepaid expenses and other current assets	12,152	17,002
Total current assets	262,616	322,864
Equipment, software, and leasehold improvements, at cost:
Equipment and software	94,054	98,041
Leasehold improvements	3,516	22,767
Total equipment, software, and leasehold improvements, at cost	97,570	120,808
Less accumulated depreciation and amortization	73,105	91,492
Net equipment, software, and leasehold improvements	24,465	29,316
Restricted cash equivalents and investments	5,000	10,000
Equity method investments	12,656	19,204
Available for sale securities	34,485	34,334
Other assets	2,844	3,153
Deferred costs, non-current portion	1,032	531
Deferred tax assets, net, non-current portion	1,576	4,911
Intangible Assets, Net (Excluding Goodwill)	14,051	3,275
Goodwill	17,518	6,309
Total assets	376,243	433,897
Current liabilities:
Accounts payable	20,562	19,013
Accrued and other liabilities	58,024	57,530
Deferred revenue, current portion	7,604	8,675
Total current liabilities	86,190	85,218
Deferred revenue, non-current portion	167	169
Deferred rent	613	2,250
Deferred tax liabilities, net, non-current portion	3,166	432
Other long-term liabilities	492	3,100
Total liabilities	90,628	91,169
Commitments and contingencies
Preferred stock, $0.001 par value, no shares issued and outstanding:
Common stock, $0.001 par value authorized 250,000 shares; issued and outstanding 35,198 shares in 2012 and 34,422 shares in 2011	36	35
Additional paid-in capital	608,595	603,770
Accumulated other comprehensive loss	(26,959)	(26,540)
Retained deficit	(296,057)	(234,537)
Total shareholders' equity	285,615	342,728
Total liabilities and shareholders' equity	376,243	433,897
Preferred stock, Series A
Preferred stock, $0.001 par value, no shares issued and outstanding:
Preferred stock	0	0
Preferred stock, Undesignated series
Preferred stock, $0.001 par value, no shares issued and outstanding:
Preferred stock	$ 0	$ 0

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Cash, Cash Equivalents, Short-Term Investments, Restricted Cash Equivalents and Investments (Contractual Maturities of Short-Term Investments) (Detail) (Short-term Investments, USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Investments Classified by Contractual Maturity Date [Line Items]
Estimated Fair Value	$ 83,527	$ 108,216
Within one year
Investments Classified by Contractual Maturity Date [Line Items]
Estimated Fair Value	57,321
Between one year and five years
Investments Classified by Contractual Maturity Date [Line Items]
Estimated Fair Value	$ 26,206

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Rhapsody Joint Venture (Tables)

9 Months Ended

Sep. 30, 2013

Equity Method Investments and Joint Ventures [Abstract]

Summarized Financial Operating Information for Rhapsody

Summarized financial information for Rhapsody, which represents 100% of their financial information (in thousands):

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net revenue	$	35,190		$	36,389		$	103,831		$	109,368
Gross profit	7,800			9,266			24,412			28,757
Net loss	(5,621		)	(3,424		)	(14,812		)	(9,031		)

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Guarantees

9 Months Ended

Sep. 30, 2013

Guarantees [Abstract]

Guarantees

Guarantees

In the ordinary course of business, RealNetworks is subject to potential obligations for standard warranty and indemnification provisions that are contained within many of our customer license and service agreements. Our warranty provisions are consistent with those prevalent in our industry, and we do not have a history of incurring losses on warranties; therefore, we do not maintain accruals for warranty-related obligations. With regard to indemnification provisions, nearly all of our carrier contracts obligate us to indemnify our carrier customers for certain liabilities that may be incurred by them. We have in the past received claims for indemnification from some of our carrier customers. See Note 16, Commitments and Contingencies, for a discussion of current indemnification claims.

As discussed in Note 1, Description of Business and Summary of Significant Accounting Policies, we sold certain patents and other technology assets to Intel in the second quarter of 2012. We have specific obligations to indemnify Intel for breaches of the representations and warranties that we made and covenants that we agreed to in the asset purchase agreement executed in connection with the transaction, and for certain potential future intellectual property infringement claims brought by third parties against Intel. The amount of any potential liabilities related to our indemnification obligations to Intel will not be determined until a claim has been made, but we are obligated to indemnify Intel up to the amount of the gross purchase price that we received in the sale.

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Stock-Based Compensation (Weighted-Average Assumptions Used to Determine Fair Value of Options Granted) (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Expected dividend yield	0.00%	0.00%	0.00%	0.00%
Risk-free interest rate	0.96%	0.48%	0.82%	0.51%
Expected life (years)	3 years 9 months	4 years 1 month	4 years 0 months	4 years 1 month
Volatility	48.00%	58.00%	48.00%	58.00%

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Other Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Finite-Lived Intangible Assets and Indefinite-Lived Assets [Line Items]
Gross Amount	$ 73,304
Accumulated Amortization	63,753
Net	9,551
Intangible Assets, Net (Excluding Goodwill)	14,051	3,275
Customer relationships
Finite-Lived Intangible Assets and Indefinite-Lived Assets [Line Items]
Gross Amount	34,753
Accumulated Amortization	30,168
Net	4,585
Developed technology
Finite-Lived Intangible Assets and Indefinite-Lived Assets [Line Items]
Gross Amount	28,949
Accumulated Amortization	24,554
Net	4,395
Patents, trademarks and tradenames
Finite-Lived Intangible Assets and Indefinite-Lived Assets [Line Items]
Gross Amount	3,965
Accumulated Amortization	3,558
Net	407
Servicing contracts and other
Finite-Lived Intangible Assets and Indefinite-Lived Assets [Line Items]
Gross Amount	5,637
Accumulated Amortization	5,473
Net	$ 164

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Segment Information (Revenue by Geographic Region) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2013		Sep. 30, 2012		Sep. 30, 2013		Sep. 30, 2012
Geographic Reporting Disclosure [Line Items]
Revenue	$ 48,958	[1]	$ 59,088	[1]	$ 155,601	[1]	$ 191,578	[1]
United States
Geographic Reporting Disclosure [Line Items]
Revenue	21,039		29,101		70,525		89,529
Europe
Geographic Reporting Disclosure [Line Items]
Revenue	8,750		12,470		29,278		43,021
Rest of World
Geographic Reporting Disclosure [Line Items]
Revenue	$ 19,169		$ 17,517		$ 55,798		$ 59,028

[1] quartersytd September 30, 2013 September 30, 2012September 30, 2013September 30, 2012Components of Revenue License Fees10,503 11,957$33,49441,137Service Revenue38,455 47,131122,107150,441Net Revenue48,958 59,088$155,601191,578

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2013

Segment Reporting [Abstract]

Segment Results

Segment results for the quarters and nine months endedSeptember 30, 2013 and 2012 (in thousands):

RealPlayer Group

	Quarters Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013		2012
Revenue	$	17,641		$	21,392	$	58,407	$	65,631
Cost of revenue	3,264			6,735		12,984		16,026
Gross profit	14,377			14,657		45,423		49,605
Operating expenses	14,449			13,082		44,656		41,849
Operating income (loss)	$	(72	)	$	1,575	$	767	$	7,756

Mobile Entertainment

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenue	$	19,948		$	22,820		$	59,035		$	74,600
Cost of revenue	11,972			12,740			33,974			43,093
Gross profit	7,976			10,080			25,061			31,507
Operating expenses	9,453			11,936			26,976			40,591
Operating income (loss)	$	(1,477	)	$	(1,856	)	$	(1,915	)	$	(9,084	)

Games

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenue	$	11,369		$	14,876		$	38,159		$	51,347
Cost of revenue	3,216			4,989			10,397			17,332
Gross profit	8,153			9,887			27,762			34,015
Operating expenses	11,513			12,023			35,120			39,962
Operating income (loss)	$	(3,360	)	$	(2,136	)	$	(7,358	)	$	(5,947	)

Corporate

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Cost of revenue	$	538		$	780		$	1,660		$	2,182
Sale of patents and other technology assets, net of costs	—			—			—			116,353
Operating expenses	22,990			19,978			46,201			44,445
Operating income (loss)	$	(23,528	)	$	(20,758	)	$	(47,861	)	$	69,726

Revenue by Geographic Region

Our customers consist primarily of consumers and corporations located in the U.S., Europe and various foreign countries. Revenue by geographic region (in thousands):

	Quarters Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
United States	$	21,039	$	29,101	$	70,525	$	89,529
Europe	8,750		12,470		29,278		43,021
Rest of the world	19,169		17,517		55,798		59,028
Total net revenue	$	48,958	$	59,088	$	155,601	$	191,578

Long-Lived Assets by Geographic Region

Long-lived assets, consisting of equipment, software, leasehold improvements, other intangible assets, and goodwill by geographic region (in thousands):

	September 30, 2013		December 31, 2012
United States	$	41,634	$	27,915
Europe	8,830		2,350
Rest of the world	5,570		8,635
Total long-lived assets	$	56,034	$	38,900

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Accrued and Other Liabilities (Tables)

9 Months Ended

Sep. 30, 2013

Payables and Accruals [Abstract]

Accrued and Other Liabilities

Accrued and other current liabilities (in thousands):

	September 30, 2013		December 31, 2012
Royalties and other fulfillment costs	$	16,648	$	19,435
Employee compensation, commissions and benefits	11,821		13,368
Accrued legal settlements	11,525		—
Sales, VAT and other taxes payable	8,449		10,959
Deferred tax liabilities—current	453		3,894
Accrued lease exit and related charges	591		2,463
Other	8,537		7,411
Total accrued and other current liabilities	$	58,024	$	57,530

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Restructuring Charges Restructuring Charges (Tables)

9 Months Ended

Sep. 30, 2013

Restructuring and Related Activities [Abstract]

Schedule of Restructuring Charges by Type of Cost

Restructuring charges by type of cost (in thousands):

	Employee Separation Costs		Contract Assignment Costs	Asset Related and Other Costs	Total
Costs incurred and charged to expense for the nine months ended September 30, 2013	$	2,891	—	1,184	$	4,075
Costs incurred and charged to expense for the nine months ended September 30, 2012	$	8,099	3,629	2,144	$	13,872

Changes to the accrued restructuring cost liability (in thousands):

	By Type of Cost
	Employee Separation Costs			Contract Assignment Costs		Total
Accrued liability as of December 31, 2012	$	731		$	1,700	$	2,431
Costs incurred and charged to expense for the nine months ended September 30, 2013	2,891			—		2,891
Cash payments	(2,806		)	—		(2,806		)
Accrued liability as of September 30, 2013	$	816		$	1,700	$	2,516

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Cash, Cash Equivalents, Short-Term Investments, Restricted Cash Equivalents and Investments

9 Months Ended

Sep. 30, 2013

Cash and Cash Equivalents [Abstract]

Cash, Cash Equivalents, Short-Term Investments, Restricted Cash Equivalents and Investments

Cash, Cash Equivalents, Short-Term Investments, Restricted Cash Equivalents and Investments

Cash and cash equivalents, short-term investments, and restricted cash equivalents and investments as of September 30, 2013, consisted of the following (in thousands):

	Amortized Cost		Estimated Fair Value
Cash and cash equivalents:
Cash	$	39,348	$	39,348
Money market mutual funds	23,038		23,038
Corporate notes and bonds	72,494		72,493
Total cash and cash equivalents	134,880		134,879
Short-term investments:
Corporate notes and bonds	60,005		60,041
U.S. government agency securities	23,478		23,486
Total short-term investments	83,483		83,527
Total cash, cash equivalents and short-term investments	$	218,363	$	218,406
Restricted cash equivalents and investments	$	5,000	$	5,000

Cash and cash equivalents, short-term investments, and restricted cash equivalents and investments as of December 31, 2012 consisted of the following (in thousands):

	Amortized Cost		Estimated Fair Value
Cash and cash equivalents:
Cash	$	71,283	$	71,283
Money market mutual funds	10,680		10,680
Corporate notes and bonds	81,237		81,235
Total cash and cash equivalents	163,200		163,198

Short-term investments:
Corporate notes and bonds	65,426		65,502
U.S. Government agency securities	42,693		42,714
Total short-term investments	108,119		108,216
Total cash, cash equivalents, and short-term investments	$	271,319	$	271,414
Restricted cash equivalents and investments	$	10,000	$	10,000

Restricted cash equivalents and investments amounts as of September 30, 2013, and December 31, 2012 relate to cash and investments pledged as collateral against letters of credit in connection with lease agreements.

Realized gains or losses on sales of short-term investment securities for the quarters and nine months ended September 30, 2013 and 2012 were not significant. Gross unrealized gains and gross unrealized losses on short-term investment securities as of September 30, 2013 and December 31, 2012 were not significant.

Investments with remaining contractual maturities of five years or less are classified as short-term because the investments are marketable and highly liquid and we have the ability to utilize them for current operations. Contractual maturities of short-term investments as of September 30, 2013 (in thousands):

	Estimated Fair Value
Within one year	$	57,321
Between one year and five years	26,206
Total short-term investments	$	83,527

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Commitments and Contingencies Additional Information (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Oct. 31, 2013 Subsequent Event [Member]
Loss Contingencies [Line Items]
Loss Contingency, Settlement Agreement, Consideration	$ 0	$ 11,500

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

Financial Assets Measured at Fair Value on a Recurring Basis

The following table presents information about our financial assets that have been measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012, and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands).

	Fair Value Measurements as of
	September 30, 2013
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	23,038	$	2	$	23,036	$	—
Corporate notes and bonds	72,493		—		72,493		—
Short-term investments:
Corporate notes and bonds	60,041		—		60,041		—
U.S. government agency securities	23,486		22,658		828		—
Restricted cash equivalents and investments	5,000		—		5,000		—
Equity investments in publicly traded securities	34,485		34,485		—		—
Total	$	218,543	$	57,145	$	161,398	$	—

	Fair Value Measurements as of
	December 31, 2012
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	10,680	$	—	$	10,680	$	—
Corporate notes and bonds	81,235		—		81,235		—
Short-term investments:
Corporate notes and bonds	65,502		—		65,502		—
U.S. government agency securities	42,714		42,113		601		—
Restricted cash equivalents and investments	10,000		—		10,000		—
Equity investments in publicly traded securities	34,334		34,334		—		—
Total	$	244,465	$	76,447	$	168,018	$	—

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Acquisitions (Details) (USD $)			3 Months Ended		3 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 Slingo, Inc	Sep. 30, 2013 Slingo, Inc	Sep. 30, 2013 Muzicall Ltd [Member]	Sep. 30, 2013 Tradenames and Trademarks Slingo, Inc	Sep. 30, 2013 Developed Technology, tradenames and trademarks and customer relationships [Member] Muzicall Ltd [Member]	Sep. 30, 2013 Developed Technology and Customer Relationships Slingo, Inc
Business Acquisition [Line Items]
Percentage of voting interests acquired			100.00%		100.00%
Payments to acquire businesses			$ 15,600,000		$ 6,700,000
Intangible assets acquired				8,000,000
Indefinite-Lived Intangible Assets (Excluding Goodwill)						4,500,000
Finite-lived intangibles acquired							5,400,000	3,500,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Deferred Tax Assets Noncurrent					3,400,000
Deferred tax liability				2,700,000
Goodwill	$ 17,518,000	$ 6,309,000		$ 9,800,000	$ 1,300,000

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Goodwill

9 Months Ended

Sep. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

Goodwill

Changes in goodwill (in thousands):

Balance, December 31, 2012	$	6,309
Increases due to current year acquisitions	11,352
Effects of foreign currency translation	(143		)
Balance, September 30, 2013	$	17,518

Goodwill by segment (in thousands):

	September 30, 2013
RealPlayer Group	$	580
Mobile Entertainment	2,115
Games	14,823
Total goodwill	$	17,518

For current year increases in goodwill, see Note 3, Acquisitions, for details on our acquisitions of Slingo, a social casino games business, in the quarter ended June 30, 2013, and Muzicall, a ringback tone business, in the quarter ended September 30, 2013.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

We measure certain financial assets at fair value on a recurring basis, including cash equivalents, short-term investments, and equity investments of publicly traded companies. The fair value of these financial assets was determined based on three levels of inputs:

• Level 1: Quoted prices in active markets for identical assets or liabilities

• Level 2: Directly or indirectly observed inputs for the asset or liability, including quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active

• Level 3: Significant unobservable inputs that reflect our own estimates of assumptions that market participants would use

Items Measured at Fair Value on a Recurring Basis

The following table presents information about our financial assets that have been measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012, and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands).

	Fair Value Measurements as of
	September 30, 2013
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	23,038	$	2	$	23,036	$	—
Corporate notes and bonds	72,493		—		72,493		—
Short-term investments:
Corporate notes and bonds	60,041		—		60,041		—
U.S. government agency securities	23,486		22,658		828		—
Restricted cash equivalents and investments	5,000		—		5,000		—
Equity investments in publicly traded securities	34,485		34,485		—		—
Total	$	218,543	$	57,145	$	161,398	$	—

	Fair Value Measurements as of
	December 31, 2012
	Total		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	10,680	$	—	$	10,680	$	—
Corporate notes and bonds	81,235		—		81,235		—
Short-term investments:
Corporate notes and bonds	65,502		—		65,502		—
U.S. government agency securities	42,714		42,113		601		—
Restricted cash equivalents and investments	10,000		—		10,000		—
Equity investments in publicly traded securities	34,334		34,334		—		—
Total	$	244,465	$	76,447	$	168,018	$	—

Our equity investments in publicly traded companies consist of J-Stream Inc., a Japanese media services company, and LoEn Entertainment, Inc., a Korean digital music distribution company. These equity investments are accounted for as available for sale. The aggregate cost basis of these securities totaled $8.6 million as of September 30, 2013 and $8.6 million at December 31, 2012.

Items Measured at Fair Value on a Non-recurring Basis

Certain of our assets and liabilities are measured at estimated fair value on a non-recurring basis, using Level 3 inputs. These instruments are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). During the nine months endedSeptember 30, 2013 and 2012, we did not record any impairments on those assets required to be measured at fair value on a non-recurring basis.

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Description of Business and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Description of Business and Summary of Significant Accounting Policies

Description of Business and Summary of Significant Accounting Policies

Description of Business. RealNetworks, Inc. and subsidiaries is a leading global provider of network-delivered digital media applications and services that make it easy to manage, play and share digital media. The Company also develops and markets software products and services that enable the creation, distribution and consumption of digital media, including audio and video.

Inherent in our business are various risks and uncertainties, including a limited history of certain of our product and service offerings. RealNetworks' success will depend on the acceptance of our technology, products and services and the ability to generate related revenue.

In this Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 (10-Q or Report), RealNetworks, Inc. and Subsidiaries is referred to as “RealNetworks”, the “Company”, “we”, “us”, or “our”.

Basis of Presentation. The unaudited condensed consolidated financial statements include the accounts of RealNetworks and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal, recurring adjustments that, in the opinion of the Company’s management, are necessary for a fair presentation of the results of operations for the periods presented. Operating results for the quarter and nine months endedSeptember 30, 2013 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ending December 31, 2013. Certain information and disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012 (the 10-K).

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In addition, current economic conditions may require the use of additional estimates, and certain estimates we make are subject to a greater degree of uncertainty as a result of the current economic conditions.

Reportable Segments. In the first quarter of 2013 we reorganized the management of our businesses and as a result, we changed our reportable segments. See Note 18, Segment Information, for details.

Accumulated Other Comprehensive Income (Loss). The components of accumulated other comprehensive income (loss), net of any applicable tax, were as follows (in thousands):

	September 30, 2013			December 31, 2012
Unrealized gains on investments, net of tax effects of $(716) and $(846) at September 30, 2013 and December 31, 2012, respectively	$	26,657		$	26,685
Foreign currency translation adjustments	(53,616		)	(53,225		)
Accumulated other comprehensive income (loss)	$	(26,959	)	$	(26,540	)

In the quarter and nine months ended September 30, 2012 we liquidated the investment in certain of our foreign entities and recorded net pre-tax gains of $0.4 million and $2.0 million, respectively, in Other income (expense), net, in the consolidated statement of operations upon the reclassification of the same amount of cumulative foreign exchange translation adjustment from accumulated other comprehensive income (loss) on the balance sheet. The reclassification adjustments had no related income tax expense or benefit.

There were no material reclassification adjustments or related tax effects related to foreign exchange translation amounts in the nine months ended September 30, 2013.

In the quarter and nine months ended September 30, 2012 we realized pre-tax gains of $2.2 million and $4.3 million, respectively, in the consolidated statement of operations, within Gain (loss) on sale of equity and other investments, net, related to the sale of a portion of the equity shares we hold in LoEn Entertainment, Inc., with the same amounts reclassified from accumulated other comprehensive income (loss) on the balance sheet. The reclassification adjustment had no related income tax expense or benefit.

There were no reclassification adjustments or related tax effects related to unrealized gains on investments in the nine months ended September 30, 2013.

For the three months ended September 30, 2013 we recorded income tax expense of $0.6 million and for the nine months ended September 30, 2013 we recorded an income tax benefit of $0.1 million related to unrealized gains (losses) on investment securities, and recognized the corresponding amount as an increase or decrease to accumulated other comprehensive income.

2012 Sale of Patents and Other Technology Assets to Intel Corporation. In the second quarter of 2012, we completed the sale of certain patents, patent applications and related rights held by us, and certain of our assets relating to our next generation video codec technologies to Intel Corporation (Intel). The entire $120.0 million of cash proceeds we received, net of certain direct costs incurred, was recorded as a gain on our statement of operations in the quarter ending June 30, 2012, since the patent assets and other technology had a net book value of zero. The gain recognized of $116.4 million in the nine months ended September 30, 2012 was net of related direct costs for the sale transaction totaling $3.6 million incurred in the first and second quarters of 2012.

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Allowance for Doubtful Accounts Receivable and Sales Returns (Activity in Allowance for Doubtful Accounts Receivable and Sales Returns) (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Allowance for Doubtful Accounts Receivable
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	$ 1,010
Addition (reduction) to allowance	210
Amounts written off	(61)
Foreign currency translation	20
Ending Balance	1,179
Allowance for Sales Returns
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	653
Addition (reduction) to allowance	(47)
Amounts written off	(21)
Foreign currency translation	0
Ending Balance	$ 585

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Rhapsody Joint Venture (Summarized Financial Operating Information for Rhapsody) (Detail) (Rhapsody America LLC, USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Rhapsody America LLC
Schedule of Equity Method Investments [Line Items]
Net revenue	$ 35,190	$ 36,389	$ 103,831	$ 109,368
Gross profit	7,800	9,266	24,412	28,757
Net loss	$ (5,621)	$ (3,424)	$ (14,812)	$ (9,031)

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Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Other Intangible Assets

Other intangible assets (in thousands):

		Gross Amount		Accumulated Amortization		Net
Amortizing intangible assets:
	Customer relationships	$	34,753	$	30,168	$	4,585
	Developed technology	28,949		24,554		4,395
	Patents, trademarks and tradenames	3,965		3,558		407
	Service contracts and other	5,637		5,473		164
		$	73,304	$	63,753	$	9,551
Non-amortizing intangible assets:
	Trademarks and tradenames					$	4,500
	Total other intangible assets, September 30, 2013					$	14,051

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Segment Information (Long-Lived Assets by Geographic Region) (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Long-Lived Assets by Geographical Areas [Line Items]
Long-lived assets	$ 56,034	$ 38,900
United States
Long-Lived Assets by Geographical Areas [Line Items]
Long-lived assets	41,634	27,915
Europe
Long-Lived Assets by Geographical Areas [Line Items]
Long-lived assets	8,830	2,350
Rest of World
Long-Lived Assets by Geographical Areas [Line Items]
Long-lived assets	$ 5,570	$ 8,635

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Lease Exit and Related Charges (Changes to Accrued Loss on Excess Office Facilities) (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013 term	Jun. 30, 2013	Sep. 30, 2013 stage
Disclosure Changes To Accrued Loss On Excess Office Facilities [Abstract]
Leases term	11 years
Number of extensions	2
Extension term	5 years
Early termination, number of stages			3
Loss on contract termination			$ 6,600,000
Cash paid for contract termination fees	3,100,000	3,200,000	6,300,000
Accrued loss December 31, 2011			4,213,000
Additions and adjustments to the lease exit charges accrual, including sublease income estimate revision			1,331,000
Less amounts paid, net of sublease income			4,953,000
Accrued loss June 30, 2013 (included in Accrued and other current liabilities)	$ 591,000		$ 591,000

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Lease Exit and Related Charges

9 Months Ended

Sep. 30, 2013

Disclosure Changes To Accrued Loss On Excess Office Facilities [Abstract]

Lease Exit and Related Charges

Lease Exit and Related Charges

As a result of the reduction in use of RealNetworks' office space, primarily in our former corporate headquarters in Seattle, Washington, and certain other locations, losses have been recognized representing rent and contractual operating expenses over the remaining life of the leases, and related write-downs of leasehold improvements to their estimated fair value.

In the second quarter of 2013, we entered into a new lease in a new location for our Seattle headquarters and concurrently entered into an amendment to our then-current headquarters office lease that provided for an early termination of such lease.

The new Seattle building lease is for an initial term of 11 years and commenced on August 15, 2013. We have the option to extend the lease for two additional five-year terms, with certain increases in base rent.

The amendment to our former headquarters office lease provided for an early termination of such lease effective in three stages, with the termination of a majority of the premises on August 31, 2013, and the final stage being complete by December 31, 2013. Prior to the execution of the amendment, the lease had been scheduled to expire in September 2014. In connection with the early termination of the lease, we agreed to pay the landlord termination fees totaling approximately $6.6 million in 2013. In the quarter and nine months endedSeptember 30, 2013, we paid the landlord $3.1 million and $6.3 million, respectively, in termination fees. The initial payment of $3.2 million was expensed and paid within the second quarter of 2013, and is therefore not included in the rollforward below. The second payment of $3.1 million was accrued in the second quarter of 2013 and subsequently paid in the third quarter of 2013, and is included in the rollforward of the accrued loss below.

Changes to accrued lease exit and related charges (in thousands):

Accrued loss December 31, 2012	$	4,213
Additions and adjustments to the lease exit charges accrual, including sublease income estimate revision	1,331
Less amounts paid, net of sublease amounts	(4,953		)
Accrued loss September 30, 2013 (included in Accrued and other current liabilities)	$	591

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Other Intangible Assets

9 Months Ended

Sep. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Other Intangible Assets

Other Intangible Assets

Other intangible assets (in thousands):

		Gross Amount		Accumulated Amortization		Net
Amortizing intangible assets:
	Customer relationships	$	34,753	$	30,168	$	4,585
	Developed technology	28,949		24,554		4,395
	Patents, trademarks and tradenames	3,965		3,558		407
	Service contracts and other	5,637		5,473		164
		$	73,304	$	63,753	$	9,551
Non-amortizing intangible assets:
	Trademarks and tradenames					$	4,500
	Total other intangible assets, September 30, 2013					$	14,051

For current year increases in other intangible assets, see Note 3, Acquisitions, for details on our acquisitions of Slingo, a social casino games business, in the quarter ended June 30, 2013, and Muzicall, a ringback tone business, in the quarter ended September 30, 2013.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Commitments. See Note 13, Lease exit and related charges, for details on office lease commitments.

Litigation. In October 2013, we executed settlement agreements relating to certain of our outstanding litigation matters; specifically, the matters brought against us by VoiceAge Corporation and Callertone Innovations, Inc., which are more fully described below. During the fourth quarter of 2013 we paid an aggregate of $11.5 million, representing our total obligation under these settlements. This amount was accrued as of September 30, 2013, and is identified in our Condensed Consolidated Statements of Operations as "Loss on litigation settlements."

On July 3, 2012, a lawsuit was filed against us by VoiceAge Corporation in the Supreme Court of the State of New York, wherein VoiceAge asserted that we had breached our payment obligations under the terms of a patent license agreement between us and VoiceAge in respect of distribution of specified codec technology, and sought a material amount of damages. We removed the proceedings to New York federal court, and discovery took place from January 4 to May 15, 2013. In June 2013, VoiceAge submitted a motion for summary judgment, which was denied by the Supreme Court of the State of New York on August 5, 2013. On October 24, 2013, we executed a settlement agreement with VoiceAge to settle and dismiss with prejudice all outstanding claims in the lawsuit.

On October 28, 2011 and November 1, 2011, respectively, two lawsuits were filed by Callertone Innovations, LLC in the U.S. District Court for the District of Delaware. The first lawsuit was against T-Mobile USA, Inc. and the second lawsuit was against MetroPCS Wireless, Inc. and MetroPCS Communications, Inc., which we collectively refer to as MetroPCS. The lawsuits alleged that T-Mobile and MetroPCS, respectively, infringed Callertone's patents by providing ringback tone services. We agreed to indemnify each of T-Mobile and MetroPCS against the claims based on an indemnity that was claimed to be owed by us. The respective complaint was served on T-Mobile on January 16, 2012 and on MetroPCS on January 14, 2012. We filed our answers to each complaint on April 9, 2012. In each matter, we disputed the plaintiff's allegations regarding both the validity of its patents and its claims of infringement against T-Mobile and MetroPCS, respectively. A claims construction hearing was held on September 6, 2013. On October 21, 2013, we executed a settlement agreement with Callertone to settle and dismiss with prejudice all outstanding claims in each of the lawsuits.

On April 25, 2007, a lawsuit was filed by Greenville Communications, LLC in Greenville, Mississippi against a number of cell phone carriers, including our partners T-Mobile USA, Inc. and Alltel Corporation, alleging that they infringed Greenville's patents by providing ringback tone services. We agreed to indemnify T-Mobile and Alltel against the claims based on an indemnity that was claimed to be owed by us. On August 27, 2007, our motion to transfer this matter to the U.S. District Court for the District of New Jersey was granted. The parties briefed claims construction, but the case was subsequently stayed pending reexamination of the patents at issue. On December 10, 2009, the U.S. Patent and Trademark Office issued notice of its intent to issue reexamination certificates for the patents in the suit. The District Court lifted the stay on the litigation on January 29, 2010 and discovery resumed. On September 28, 2011, the District Court held a claims construction hearing, and on May 10, 2012, the District Court issued a non-infringement judgment that was favorable to us and the other defendants. On December 4, 2012, Greenville appealed the claims construction order and the judgment, and the defendants filed a reply brief on January 28, 2013. On May 17, 2013, the U.S. Court of Appeals for the Federal Circuit affirmed the judgment of non-infringement of the District Court. Greenville has filed a petition for re-hearing with the U.S. Court of Appeals. Due to the uncertainties inherent in this matter, we are unable to estimate the range of possible loss that could result from this litigation.

Although the matters described above have been either settled, as in the lawsuits filed by VoiceAge and Callertone, or the appeals process has been nearly exhausted, as in the Greenville matter, we could in the future become subject to legal proceedings, governmental investigations and claims in the ordinary course of business, including employment claims, contract-related claims, and claims of alleged infringement of third-party patents, trademarks and other intellectual property rights. Such claims, even if not meritorious, could force us to expend significant financial and managerial resources. In addition, given the broad distribution of some of our consumer products, any individual claim related to those products could give rise to liabilities that may be material to us. In the event of a determination adverse to us, we could incur substantial monetary liability, and/or be required to change our business practices. Either of these could have a material adverse effect on our consolidated financial statements.

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Income Taxes

9 Months Ended

Sep. 30, 2013

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

As of September 30, 2013, there have been no material changes to RealNetworks’ uncertain tax positions disclosures as provided in Note 14 of the 10-K. We do not anticipate that our total unrecognized tax benefits will significantly change within the next twelve months.

We file numerous consolidated and separate income tax returns in the U.S including federal, state and local, as well as foreign jurisdictions. With few exceptions, we are no longer subject to U.S federal income tax examinations for tax years before 2008 or state, local, or foreign income tax examinations for years before 1993. We are currently under audit by various states and foreign jurisdictions for certain tax years subsequent to 1993.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Oct. 31, 2013
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Trading Symbol	RNWK
Entity Registrant Name	REALNETWORKS INC
Entity Central Index Key	0001046327
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		35,733,174

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Earnings Per Share

9 Months Ended

Sep. 30, 2013

Earnings Per Share [Abstract]

Earnings Per Share

Earnings (Loss) Per Share

Basic net income (loss) per share (EPS) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the weighted average number of common and dilutive potential common shares outstanding during the period. Basic and diluted EPS (in thousands, except per share amounts):

	Quarters Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net income (loss) available to common shareholders	$	(31,375	)	$	(22,214	)	$	(61,520	)	$	41,768
Weighted average common shares outstanding used to compute basic EPS	35,670			34,998			35,490			34,747
Dilutive effect of stock based awards	—			—			—			253
Weighted average common shares outstanding used to compute diluted EPS	35,670			34,998			35,490			35,000
Basic EPS	$	(0.88	)	$	(0.63	)	$	(1.73	)	$	1.20
Diluted EPS	$	(0.88	)	$	(0.63	)	$	(1.73	)	$	1.19

During the quarter and nine months endedSeptember 30, 2013, respectively, 4.6 million and 4.4 million of potentially issuable shares from stock awards were excluded from the calculation of diluted EPS because of their antidilutive effect.

During the quarter and nine months endedSeptember 30, 2012, respectively, 4.3 million and 5.3 million of potentially issuable shares from stock awards were excluded from the calculation of diluted EPS because of their antidilutive effect.

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Earnings Per Share - Additional Information (Detail) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Earnings Per Share [Abstract]
Shares of common stock excluded from the calculation of diluted net income per share because of antidilutive effect	4.6	4.3	4.4	5.3

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Earnings Per Share (Calculation of Basic and Diluted Earnings Per Share) (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Earnings Per Share [Abstract]
Net income (loss) available to common shareholders	$ (31,375)	$ (22,214)	$ (61,520)	$ 41,768
Weighted average common shares outstanding used to compute basic EPS	35,670	34,998	35,490	34,747
Dilutive effect of stock based awards	0	0	0	253
Weighted average common shares outstanding used to compute diluted EPS	35,670	34,998	35,490	35,000
Basic EPS	$ (0.88)	$ (0.63)	$ (1.73)	$ 1.20
Diluted EPS	$ (0.88)	$ (0.63)	$ (1.73)	$ 1.19