

Note 6.	Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

The following tables present information about our financial assets that have been measured at fair value on a recurring basis as of December 31, 2018 and 2017, and indicates the fair value hierarchy of the valuation inputs utilized to determine fair value (in thousands).



	Fair Value Measurements as of								Amortized Cost as of
	December 31, 2018								December 31, 2018
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Cash	$	22,853	$	—	$	—	$	22,853	$	22,853
Money market funds	12,708		—		—		12,708		12,708
Total cash and cash equivalents	35,561		—		—		35,561		35,561
Short-term investments:
Corporate notes and bonds	—		24		—		24		24
Total short-term investments	—		24		—		24		24
Restricted cash equivalents and investments	—		1,630		—		1,630		1,630
Warrants issued by Napster (included in Other assets)	—		—		865		865		—
Total	$	35,561	$	1,654	$	865	$	38,080	$	37,215



	Fair Value Measurements as of								Amortized Cost as of
	December 31, 2017								December 31, 2017
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Cash	$	31,065	$	—	$	—	$	31,065	$	31,065
Money market funds	20,131		—		—		20,131		20,131
Total cash and cash equivalents	51,196		—		—		51,196		51,196
Short-term investments:
Corporate notes and bonds	—		8,779		—		8,779		8,779
Total short-term investments	—		8,779		—		8,779		8,779
Restricted cash equivalents and investments	—		2,400		—		2,400		2,400
Warrant issued by Napster (included in Other assets)	—		—		989		989		—
Total	$	51,196	$	11,179	$	989	$	63,364	$	62,375

Restricted cash equivalents and investments as of December 31, 2018 and 2017 relate to cash pledged as collateral against letters of credit in connection with lease agreements.

Realized gains and losses on sales of short-term investment securities for 2018, 2017, and 2016 were not significant. Gross unrealized gains and gross unrealized losses on short-term investment securities as of December 31, 2018 and 2017 were not significant.

In February 2015, Napster issued warrants to purchase Napster common shares to both RealNetworks and Napster's other 42% owner. The warrants were issued as compensation for past services provided by RealNetworks and Napster's other 42% owner, and both warrants covered the same number of underlying shares, with a 10 year contractual term. 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 consolidated balance sheets, and as an expense reduction within General and administrative expense in the 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. At December 31, 2017, due to the management change and strategic shift undertaken by Napster, we determined that a change to the expected term was necessary. As a result, we extended the expected term by 3.25 years, resulting in a total expected term for the warrant of 8.25 years. During the year ended December 31, 2018 the decrease in the fair value of the warrants was approximately $0.1 million.

In February 2017, Napster issued additional warrants to purchase Napster common shares to both RealNetworks and Napster's other 42% owner. Consistent with the warrants issued in 2015, the 2017 warrants were issued as compensation for past services provided by RealNetworks and Napster's other 42% owner, and both warrants covered the same number of underlying shares, with a 10 year contractual term. 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 consolidated balance sheets, and as an expense reduction within General and administrative expense in the consolidated statements of operations. At December 31, 2017, due to the management change and strategic shift undertaken by Napster, we determined that a change to the expected term was necessary. As a result, we extended the expected term by 1 year, resulting in a total expected term for the warrant of 6 years. During the year ended December 31, 2018 the decrease in 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). We did not record any impairments on those assets required to be measured at fair value on a non-recurring basis in 2018, 2017 or 2016.

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.