Fair Value Measurements

3 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

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 September 30, 2021 and December 31, 2020, 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
	September 30, 2021								September 30, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	28,990	$	—	$	—	$	28,990	$	28,990
Investments	—		—		2,758		2,758		N/A
Restricted cash equivalents	1,630		—		—		1,630		1,630
Total assets	$	30,620	$	—	$	2,758	$	33,378	N/A

	Fair Value Measurements as of								Amortized Cost as of
	December 31, 2020								December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	23,940	$	—	$	—	$	23,940	$	23,940
Investments	—		—		9,965		9,965		N/A
Restricted cash equivalents	1,630		—		—		1,630		1,630
Total assets	$	25,570	$	—	$	9,965	$	35,535	N/A
Liabilities:
Accrued and other current liabilities
Napster acquisition contingent consideration	$	—	$	—	$	4,800	$	4,800	N/A
Other long-term liabilities
Simple Agreements for Future Equity	—		—		2,106		2,106		N/A
Total liabilities	$	—	$	—	$	6,906	$	6,906	N/A

Restricted cash equivalents as of September 30, 2021 and December 31, 2020 primarily relate to maintaining a minimum balance of unrestricted cash at the bank. See Note 8. Debt for additional details.

Investments as of September 30, 2021 and December 31, 2020 are comprised of Napster Group ordinary shares received as a portion of the consideration from the Napster disposition, which closed on December 30, 2020. The fair value of these equity securities was calculated using the closing price of the shares as of September 30, 2021 and December 31, 2020 and discounted for a lack of liquidity due to the 12-month contractual restriction on selling or transferring the shares, subject to certain exceptions. The determination of the discount required the use of significant unobservable inputs, such as the lock-up period combined with an estimated equity volatility for the shares, that reflect our own estimates of assumptions that market participants would use. A 10% increase or decrease to the equity volatility rate would result in an insignificant decrease or increase, respectively, in the fair value of the stock. For the three and nine months ended September 30, 2021, we recognized unrealized losses of $1.2 million and $5.9 million, respectively, in Loss on equity and other investments, net on the condensed consolidated statements of operations.

During the second quarter of 2021, the Company settled the contingent consideration liability. Accrued and other current liabilities as of December 31, 2020 included the estimated fair value of the contingent consideration for the Napster acquisition, which was determined using a fair value measurement categorized within Level 3 of the fair value hierarchy. The valuation methodology of the contingent consideration at December 31, 2020 was based on RealNetworks' contractual obligation to pay the seller of the Napster interests acquired by RealNetworks in January 2019.

On June 30, 2021, the Company deconsolidated Scener, removing the SAFE Notes from RealNetworks, Inc. consolidated balance sheet. See Note 1. Description of Business and Summary of Significant Accounting Policies for additional information regarding the deconsolidation of Scener.

In the third quarter of 2020, Scener received $2.1 million in cash in exchange for the issuance of convertible securities, each a Simple Agreement for Future Equity. The conversion of these securities, or SAFE Notes, is contingent upon the occurrence of specific future capital-raising events by Scener. The future contingent events also contemplate the possibility of Scener having to pay back the original cash investment to each investor. The SAFE Notes were recorded at fair value and as an other, long-term liability on our consolidated financial statements until June 30, 2021, the date of Scener's deconsolidation from

RealNetworks, as further discussed in Note 1. Description of Business and Summary of Significant Accounting Policies. The valuation analysis model for the fair value of the SAFE Notes as of December 31, 2020 used significant unobservable inputs that reflected our own estimates of assumptions that market participants would use. Significant unobservable inputs to the valuation analysis model included the underlying conversion date for the SAFE Notes, Scener's capitalization prior to conversion of the SAFE Notes, an 80% discount rate as defined in the SAFE Note agreements, conversion price, conversion shares and an annual present value rate. All of the inputs were subject to significant judgment.

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 and nine months ended September 30, 2021 and 2020, we did not record any impairments on those assets required to be measured at fair value on a non-recurring basis.