Fair Value Measurements

6 Months Ended

Jun. 30, 2017



Note 5	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 June 30, 2017 and December 31, 2016, 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
	June 30, 2017								June 30, 2017
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Cash	$	28,754	$	—	$	—	$	28,754	$	28,754
Money market funds	8,302		—		—		8,302		8,302
Corporate notes and bonds	—		799		—		799		799
Total cash and cash equivalents	37,056		799		—		37,855		37,855
Short-term investments:
Corporate notes and bonds			24,619		—		24,619		24,616
Total short-term investments	—		24,619		—		24,619		24,616
Restricted cash equivalents and investments	—		2,700		—		2,700		2,700
Warrants issued by Rhapsody (included in Other assets)	—		—		1,190		1,190		—
Total	$	37,056	$	28,118	$	1,190	$	66,364	$	65,171



	Fair Value Measurements as of								Amortized Cost as of
	December 31, 2016								December 31, 2016
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Cash	$	32,585	$	—	$	—	$	32,585	$	32,585
Money market funds	136		—		—		136		136
Corporate notes and bonds	—		1,000		—		1,000		1,000
Total cash and cash equivalents	32,721		1,000		—		33,721		33,721
Short-term investments:
Corporate notes and bonds	—		43,331		—		43,331		43,343
Total short-term investments	—		43,331		—		43,331		43,343
Restricted cash equivalents and investments	—		2,700		—		2,700		2,700
Warrant issued by Rhapsody (included in Other assets)	—		—		773		773		—
Total	$	32,721	$	47,031	$	773	$	80,525	$	79,764

Restricted cash equivalents and investments as of June 30, 2017 and December 31, 2016 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 and six months ended June 30, 2017 and 2016 were not significant. Gross unrealized gains and gross unrealized losses on short-term investment securities as of June 30, 2017 and December 31, 2016 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 June 30, 2017 (in thousands):



	Estimated Fair Value
Within one year	$	21,603
Between one year and five years	3,016
Total short-term investments	$	24,619

In February 2015, Rhapsody issued warrants to purchase Rhapsody common shares to each of RealNetworks and Rhapsody's one other large stockholder, Columbus Nova. The warrants were issued as compensation for past services provided by RealNetworks and Columbus Nova, 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 six months ended June 30, 2017, the decrease in the fair value of the warrants was insignificant.

In February 2017, Rhapsody issued additional warrants to purchase Rhapsody common shares to both RealNetworks and Columbus Nova. Consistent with the warrants issued in 2015, the 2017 warrants were issued as compensation for past services provided by RealNetworks and Columbus Nova, and both warrants covered the same number of underlying shares. The exercise price of the warrants exceeded 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%, resulting in a recognized fair value of $0.5 million in 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. During the six months ended June 30, 2017, the decrease in the fair value of the warrants 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 six months ended June 30, 2017 and 2016, we did not record any impairments on those assets required to be measured at fair value on a non-recurring basis.

See Note 11, 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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