

Note 5.	Napster Joint Venture

As of December 31, 2018 we owned approximately 42% of the issued and outstanding stock of Rhapsody International, Inc., doing business as Napster, and account for our investment using the equity method of accounting.

Rhapsody America LLC was initially formed in 2007 as a joint venture between RealNetworks and MTV Networks, a division of Viacom International Inc. (MTVN), to own and operate a business-to-consumer digital audio music service originally branded as Rhapsody. The service was re-branded in 2016 as Napster. In this Note, we refer to the business as Napster, although the legal entity in which we hold our investment is Rhapsody International, Inc.

Following certain restructuring transactions effective March 31, 2010, we began accounting for our investment using the equity method of accounting. As part of the 2010 restructuring transactions, RealNetworks contributed $18.0 million in cash, the Rhapsody brand and certain other assets, including content licenses, in exchange for shares of convertible preferred stock of Rhapsody International, Inc., carrying a $10.0 million preference upon certain liquidation events.

We recorded our share of losses of the Napster business of $0.8 million, $4.0 million, and $6.5 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Because of the $10.0 million liquidation preference on the preferred stock we hold in Napster, under the equity method of accounting we did not record any share of Napster losses that would reduce the carrying value of our investment, which is impacted by Napster equity transactions, below $10.0 million, until Napster's book value was reduced below $10.0 million, which occurred in the first quarter of 2015. As of December 31, 2018, the carrying value of our Napster equity investment was zero, as we did not have any further commitment to provide future support to Napster, with the exception of the guaranty discussed below. Unless we commit to provide future financial support to Napster, we do not record any further share of Napster losses that would reduce our carrying value of Napster below zero; in accordance with GAAP, we currently track those suspended losses outside of our financial statements.

In December 2016, RealNetworks entered into an agreement to loan up to $5 million to Napster for general operating purposes, as did Napster's other 42% owner. Each entity fully funded its loan, providing $3.5 million each in December 2016 and the remaining $1.5 million each in January 2017. These loans are subordinate to senior creditors, and bear an interest rate of 10% per annum, which is added to the outstanding principal balance. At the time of signing the agreement we recognized previously suspended Napster losses, and, consequently, we did not record a receivable related to this loan.

In November 2017, Napster entered into an amendment to its revolving credit facility. In conjunction with the amendment, both RealNetworks and Napster's other 42% owner entered into an arrangement to guarantee up to $2.75 million each of Napster's outstanding indebtedness on the credit facility. As a result of this guaranty, in December 2017, we recognized previously suspended Napster losses up to the full $2.75 million guaranty in our consolidated statement of operations and as a Commitment to Napster in our consolidated balance sheets. As of the date of this filing, RealNetworks has not been required to pay any amounts under the guaranty, nor did we purchase the other 42% owner's guaranty as a result of acquiring a majority voting interest in Napster, as further described in Note 22. Subsequent Event.

Summarized financial information for Napster, which represents 100% of their financial information, is as follows (in thousands):



	Year ended December 31, 2018		Year ended December 31, 2017			Year ended December 31, 2016
Net revenue	$	143,844	$	172,391		$	208,085
Gross profit	37,093		27,173			38,407
Operating income (loss)	16,137		(8,256		)	(12,433		)
Net income (loss)	10,327		(13,087		)	(14,913		)



	As of December 31, 2018		As of December 31, 2017
Current assets	$	44,821	$	43,028
Non-current assets	17,679		16,874
Current liabilities	111,332		119,826
Non-current liabilities	390		1,231