Fair Value Measurements

3 Months Ended

Mar. 31, 2016



Note 6	Fair Value Measurements

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 March 31, 2016 and December 31, 2015, and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands).



	Fair Value Measurements as of								Amortized Cost as of
	March 31, 2016								March 31, 2016
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Cash	$	24,701	$	—	$	—	$	24,701	$	24,701
Money market funds	6,612		—		—		6,612		6,612
Corporate notes and bonds	—		9,226		—		9,226		9,226
Total cash and cash equivalents	31,313		9,226		—		40,539		40,539
Short-term investments:
Corporate notes and bonds	—		46,289		—		46,289		46,285
Total short-term investments	—		46,289		—		46,289		46,285
Restricted cash equivalents and investments	—		3,100		—		3,100		3,100
Equity investment in publicly traded securities	1,910		—		—		1,910		362
Warrant issued by Rhapsody (included in Other assets)	—		—		1,009		1,009		—
Total	$	33,223	$	58,615	$	1,009	$	92,847	$	90,286



	Fair Value Measurements as of								Amortized Cost as of
	December 31, 2015								December 31, 2015
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Cash	$	23,152	$	—	$	—	$	23,152	$	23,152
Money market funds	5,061		—		—		5,061		5,061
Corporate notes and bonds	—		19,102		—		19,102		19,102
Total cash and cash equivalents	28,213		19,102		—		47,315		47,315
Short-term investments:
Corporate notes and bonds	—		51,814		—		51,814		51,862
Total short-term investments	—		51,814		—		51,814		51,862
Restricted cash equivalents and investments	—		2,890		—		2,890		2,890
Equity investment in publicly traded securities	1,721		—		—		1,721		362
Warrant issued by Rhapsody (included in Other assets)	—		—		1,053		1,053		—
Total	$	29,934	$	73,806	$	1,053	$	104,793	$	102,429

Restricted cash equivalents and investments as of March 31, 2016 and December 31, 2015 relate to cash 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 ended March 31, 2016 and 2015 were not significant. Gross unrealized gains and gross unrealized losses on short-term investment securities as of March 31, 2016 and December 31, 2015 were also 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 March 31, 2016 (in thousands):



	Estimated Fair Value
Within one year	$	42,584
Between one year and five years	3,705
Total short-term investments	$	46,289

Our equity investment in a publicly traded company as of March 31, 2016 and December 31, 2015 consisted of J-Stream Inc., a Japanese media services company. This equity investment is accounted for as available for sale. In March 2015, we sold a portion of the J-Stream shares we held, resulting in cash proceeds of $0.4 million and a pre-tax gain of $0.3 million.

In February 2015, Rhapsody issued warrants to purchase Rhapsody common shares to each of RealNetworks and Rhapsody's one other 43% stockholder. The warrants were issued as compensation for past services provided by RealNetworks and the other 43% stockholder, and both warrants covered the same number of underlying shares. The exercise price of the warrants was equal to the fair value of the underlying shares on the issuance date, and we used the Black-Scholes option-pricing model to calculate the fair value of the warrant, using an expected term of 5 years and expected volatility of 55%. On the date of issuance, we recognized and recorded the $1.2 million fair value of the warrant issued to RealNetworks within other assets in the unaudited condensed consolidated balance sheets, and as an expense reduction within General and administrative expense in the unaudited condensed consolidated statements of operations. The warrants are free-standing derivatives and as such their fair value is determined each quarter using updated inputs in the Black-Scholes option-pricing model. During the three months ended March 31, 2016, the decrease in the fair value of the warrants from December 31, 2015 was insignificant.

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 three months ended March 31, 2016 and 2015, we did not record any impairments on those assets required to be measured at fair value on a non-recurring basis.

See Note 12, Lease Exit and Related Charges, for a discussion of the losses related to reductions in the use of RealNetworks' office space, which were recorded at the estimated fair value of remaining lease obligations, less expected sub-lease income.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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