8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): February 10, 2011

RealNetworks, Inc.

(Exact name of registrant as specified in its charter)

WASHINGTON	0-23137	91-1628146
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

2601 Elliott Avenue, Suite 1000

Seattle, Washington 98121

(Address of principal executive offices) (Zip code)

(206) 674-2700

Registrant’s telephone number, including area code

Not Applicable

(Former name or former address if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On February 10, 2011, RealNetworks, Inc. (the “Company” or “RealNetworks”) announced via press release the Company’s results for the quarter and year ended December 31, 2010. A copy of the Company’s press release is attached hereto as Exhibit 99.1 and additional information regarding the inclusion of non-GAAP financial measures in certain of the Company’s public disclosures, including its fourth quarter 2010 financial results announcement, is included as Exhibit 99.2. The information in Item 2.02 of this Form 8-K is intended to be furnished to the Securities and Exchange Commission (“SEC”). This information shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Pursuant to the rules and regulations of the SEC, the attached exhibits are deemed to have been furnished to, but not filed with, the SEC.

Exhibit No.	Description
99.1	Press Release issued by RealNetworks, Inc. dated February 10, 2011
99.2	Information Regarding Non-GAAP Financial Measures

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	REALNETWORKS, INC.
	By:	/s/ Michael Eggers
		Michael Eggers
		Senior Vice President, Chief Financial Officer and Treasurer
Dated: February 10, 2011

EXHIBIT INDEX

Exhibit Number	Description
99.1	Press Release issued by RealNetworks, Inc. dated February 10, 2011
99.2	Information Regarding Non-GAAP Financial Measures

EX-99.1

Exhibit 99.1

REALNETWORKS ANNOUNCES FOURTH QUARTER AND FULL-YEAR 2010 RESULTS

SEATTLE – Feb. 10, 2011 – RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the fourth quarter and fiscal year ended Dec. 31, 2010.

Quarterly Highlights:

• Revenue of $97.8 million

• Net income of $1.2 million or $0.01 per share

• Adjusted EBITDA of $13.3 million

Full Year Highlights:

• Revenue of $401.7 million

• Net income attributable to common shareholders of $3.0 million or $0.05 per share

• Adjusted EBITDA of $25.3 million

• Cash and short term investments of $334.3 million as of Dec. 31, 2010

“These results demonstrate the hard work and discipline managers and employees have exercised over the past year in transforming RealNetworks,” said Bob Kimball, CEO of Real. “In the fourth quarter, we generated positive operating cash flow, continued to reduce our operating expenses, and increased adjusted EBITDA both sequentially and year-over-year.

“Earlier this week, we took the final major step to restructure RealNetworks,” Mr. Kimball added. “We believe we have created a stable and efficient base upon which we can build for growth. We expect to utilize our strong consumer and mobile carrier distribution channels and innovative technologies and services to play a leading role in improving how people use and enjoy their digital media.”

Fourth Quarter Results

For the fourth quarter of 2010, revenue from Real’s Core Products, Emerging Products and Games businesses was $97.8 million, a sequential increase of 13% from the third quarter, and a decrease of 9% compared with the fourth quarter of 2009. Revenue from Real’s music business was $37.6 million in the fourth quarter of 2009, and total revenue, including music, in the fourth quarter of 2009 was $145.5 million. Beginning in the second quarter of 2010, revenue and other operating results of Real’s music business from its Rhapsody joint venture are not consolidated in Real’s financial statements as a result of the restructuring of Rhapsody completed on March 31, 2010. Foreign currency exchange rate fluctuations negatively affected 2010 fourth quarter revenue by approximately $1.9 million compared with the year-ago quarter. Revenue trends in each of Real’s businesses in the fourth quarter of 2010 compared with the year-earlier quarter were: a 4% decrease in Emerging Products revenue to $12.6 million, a 10% decrease in Core Products revenue to $58.0 million, and an 11% decrease in Games revenue to $27.2 million.

1

Net income for the fourth quarter of 2010 was $1.2 million, or $0.01 per share, compared with net loss attributable to common shareholders of $(17.8) million, or $(0.14) per share, in the fourth quarter of 2009. Adjusted EBITDA for the fourth quarter of 2010 was $13.3 million, compared with $8.5 million for the fourth quarter of 2009. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

Gross margin in the fourth quarter rose to 63%, compared with 61% for the fourth quarter a year earlier, primarily due to the deconsolidation of the lower-margin Rhapsody music business beginning in the second quarter of 2010.

As of Dec. 31, 2010, Real had $334.3 million in unrestricted cash, cash equivalents and short-term investments compared with $329.2 million at Sept. 30, 2010, and $384.9 million at Dec. 31, 2009. In addition, Real had $51.0 million in restricted cash and equity investments, including its equity interest in the Rhapsody joint venture, at the end of the year.

Segment Operating Results

	2010						2009			Sequential Change			Yr/Yr Change
	Q4			Q3			Q4
	(in thousands)
Revenue
Core Products	$	58,030		$	51,870		$	64,154			12	%		-10	%
Emerging Products		12,558			8,778			13,014			43	%		-4	%
Games		27,229			25,784			30,736			6	%		-11	%
Corporate		—			—			—
Total excluding Music		97,817			86,432			107,904			13	%		-9	%
Music		—			—			37,598						NM
Total	$	97,817		$	86,432		$	145,502			13	%		-33	%
Operating Income (loss)
Core Products	$	12,500		$	9,868		$	20,257			27	%		-38	%
Emerging Products		4,020			1,643			2,483			145	%		62	%
Games		1,788			2,413			(910	)		-26	%		-296	%
Corporate		(12,329	)		(18,074	)		(32,880	)		-32	%		-63	%
Total excluding Music		5,979			(4,150	)		(11,050	)		-244	%		-154	%
Music		—			—			(10,500	)					NM
Total	$	5,979		$	(4,150	)	$	(21,550	)		-244	%		-128	%
Adjusted EBITDA
Core Products	$	15,523		$	13,309		$	24,332			17	%		-36	%
Emerging Products		4,109			1,771			2,579			132	%		59	%
Games		2,452			2,885			1,063			-15	%		131	%
Corporate		(8,811	)		(12,265	)		(23,837	)		-28	%		-63	%
Total excluding Music		13,273			5,700			4,137			133	%		221	%
Music		—			—			4,388						NM
Total	$	13,273		$	5,700		$	8,525			133	%		56	%

2

Full Year Results

For 2010, revenue from Real’s Core Products, Emerging Products and Games businesses was $366.0 million, a decrease of 9% compared with $401.4 million for 2009. Revenue from Real’s music business was $35.7 million in 2010, all in the first quarter, and $160.9 million for four quarters in 2009. Total revenue in 2010 was $401.7 million and total revenue for 2009 was $562.3 million. Of the $160.5 million decline, $125.1 million was due to the separation of the Rhapsody music business at the end of the first quarter in 2010. Foreign currency exchange rate fluctuations positively affected 2010 revenue by approximately $1.1 million compared with 2009. Revenue trends in each of Real’s businesses for the full year 2010 compared with 2009 were: an 8% decrease in Emerging Products revenue to $41.8 million, a 9% decrease in Core Products revenue to $212.8 million, and a 9% decrease in Games revenue to $111.4 million.

Net income attributable to common shareholders for the year was $3.0 million, or $0.05 per share, compared with a net loss attributable to common shareholders of $(216.8) million, or $(1.64) per share, in 2009. Net income for the most recent year included restructuring charges totaling $(19.8) million, an income tax benefit of $36.5 million resulting primarily from a third-quarter $30 million cash refund from the IRS and a gain on deconsolidation of Rhapsody of $10.9 million. The net loss in 2009 included impairments of $(175.6) million and restructuring charges of $(4.0) million.

In 2010, adjusted EBITDA was $25.3 million compared with $36.5 million in 2009. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

Real’s reported net income (loss) for the periods presented are based in part upon Real’s share of Rhapsody’s preliminary net loss, which remains subject to finalization. These amounts could change if the final amount of Rhapsody’s net income or loss differs from the preliminary net loss. Changes to these amounts, if any, will not impact Real’s cash position or the adjusted EBITDA results reported in this release.

Business Outlook

For the first quarter of 2011, Real expects aggregate revenue from its Core Products, Emerging Products and Games segments to decline by up to 17% sequentially, consistent with the declines in last year’s first quarter compared with the fourth quarter of 2009, and to decline by up to 13% year-over-year. As a result of the decline in revenue, Real also expects adjusted EBITDA for the quarter to be less than the first quarter of last year.

Real’s outlook for the year anticipates seasonality in revenue and adjusted EBITDA, which typically declines from the fourth quarter to the first quarter, and increases through the year. Real has generated more than 70% of its annual adjusted EBITDA in the second half of the year in each of the past two years. Real expects to see similar seasonal patterns for both revenue and adjusted EBITDA in 2011.

3

For the full year, Real anticipates a small decline in revenue compared with 2010, excluding Music, due primarily to the elimination or de-emphasis of products and services that generate low-profit or unprofitable revenue. Excluding the revenue from these products and services, Real expects 2011 revenue to be essentially flat compared with 2010, excluding Music. Real expects 2011 adjusted EBITDA and adjusted EBITDA margin to increase over 2010 due in large part to the restructuring, which has lowered the company’s overall cost structure.

The foregoing forward-looking statements reflect Real’s expectations as of Feb. 10, 2011. It is not Real’s general practice to update these forward-looking statements until its next quarterly results announcement.

Webcast and Conference Call Information

The company will host an audio Webcast conference call to review results and discuss the company’s operations for the fourth quarter at 5:00 p.m. ET on Feb. 10. The Webcast will be available at: http://investor.realnetworks.com

Webcast participants will need RealPlayer® to hear the webcast, which can be downloaded at www.real.com.

The on-demand Webcast will be available beginning approximately two hours following the conclusion of the live Webcast.

Conference Call Details

5:00 p.m. ET / 2:00 p.m. PT

Dial in:

800-857-5305 Domestic

773-681-5857 International

Passcode: Fourth Quarter Earnings

Leader: Bob Kimball

Telephonic replay will be available until 8:00 p.m. ET, Feb. 24, 2011.

Replay dial in: 800-216-4453 Domestic

402-220-3881 International

For More Information:

Marj Charlier, RealNetworks, 206-892-6718 or mcharlier@real.com

Elizabeth Pheasant, RealNetworks, 206-674-2330 or epheasant@real.com

Press Only:

Sally Julien, RealNetworks, 206-399-1419 or sally@sallyjulien.com

About RealNetworks:

Real creates innovative applications and services that make it easy to connect with and enjoy digital media. Real invented the streaming media category in 1995 and continues to connect consumers with their digital media both directly and through partners, aiming to support every network, device, media type and social network. Real’s corporate information is located at http://www.realnetworks.com/about-us

4

About Non-GAAP Financial Measures

To supplement RealNetworks’ condensed consolidated financial statements presented in accordance with GAAP in this press release, the company also discloses certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA by reporting segment, which management believes provide investors with useful information.

In the financial tables of our earnings press release, RealNetworks has included reconciliations of GAAP operating income (loss) to adjusted EBITDA and to adjusted EBITDA by reporting segment.

The rationale for management’s use of non-GAAP measures is included in the supplementary materials presented with the fourth quarter earnings materials. Please refer to Exhibit 99.2 (“Information Regarding Non-GAAP Financial Measures”) to the company’s report on Form 8-K, which is being submitted today to the SEC.

Forward-Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to Real’s current expectations for future revenue, adjusted EBITDA, future growth, the completion of Real’s restructuring activities and Real’s future role as a provider of digital media services. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements. Actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: fluctuations in foreign currencies; Real’s ability to realize operating efficiencies, growth and other benefits from the implementation of its strategic initiatives; the emergence of new entrants and competition in the market for digital media products and services; other competitive risks, including the growth of competing technologies, products and services; the potential outcomes and effects of claims and legal proceedings on Real’s business, prospects, financial condition or results of operations; risks associated with key customer or strategic relationships, business acquisitions and the introduction of new products and services; changes in consumer and advertising spending in response to disruptions in the global financial markets; and changes in Real’s effective tax rate. More information about potential risk factors that could affect RealNetworks’ business and financial results is included in RealNetworks’ annual report on Form 10-K for the most recent year ended December 31, its quarterly reports on Form 10-Q and in other reports and documents filed by RealNetworks from time to time with the Securities and Exchange Commission. The preparation of RealNetworks’ financial statements and forward-looking financial guidance requires the company to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenues and expenses during the reported period. Actual results may differ materially from these estimates under different assumptions or conditions. The company assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

RealNetworks, RealPlayer and GameHouse are trademarks or registered trademarks of RealNetworks, Inc. or its subsidiaries. All other companies or products listed herein are trademarks or registered trademarks of their respective owners.

5

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	Quarters Ended December 31,						Years Ended December 31,
	2010			2009			2010			2009
	(in thousands, except per share data)
Net revenue	$	97,817		$	145,502		$	401,733		$	562,264
Cost of revenue		35,705			56,821			144,723			222,142
Gross profit		62,112			88,681			257,010			340,122
Operating expenses:
Research and development		19,180			32,541			100,955			119,448
Sales and marketing		27,013			40,325			118,543			165,856
Advertising with related party (A)		—			11,063			1,065			33,292
General and administrative		9,066			23,956			51,217			79,164
Impairment of goodwill		—			—			—			175,583
Restructuring and other charges		874			2,346			12,361			4,017
Loss on excess office facilities		—			—			7,396			—
Total operating expenses		56,133			110,231			291,537			577,360
Operating income (loss)		5,979			(21,550	)		(34,527	)		(237,238	)
Other income (expenses):
Interest income, net		412			779			2,417			3,969
Equity in net loss of Rhapsody and other equity method investments (B)		(4,595	)		(116	)		(16,164	)		(1,313	)
Gain (loss) on sale of equity investments, net		41			(121	)		(9	)		688
Impairment of equity investments		—			(5,020	)		—			(5,020	)
Gain on deconsolidation of Rhapsody		—			—			10,929			—
Other income (expense), net		144			(312	)		1,031			(794	)
Total other income (expense), net		(3,998	)		(4,790	)		(1,796	)		(2,470	)
Income (loss) before income taxes		1,981			(26,340	)		(36,323	)		(239,708	)
Income tax (expense) benefit		(787	)		124			36,451			(3,321	)
Net income (loss)		1,194			(26,216	)		128			(243,029	)
Net loss attributable to the noncontrolling interest in Rhapsody (C)		—			8,397			2,910			26,265
Net income (loss) attributable to common shareholders	$	1,194		$	(17,819	)	$	3,038		$	(216,764	)
Basic net income (loss) per share available to common shareholders	$	0.01		$	(0.14	)	$	0.05		$	(1.64	)
Diluted net income (loss) per share available to common shareholders	$	0.01		$	(0.14	)	$	0.05		$	(1.64	)
Shares used to compute basic net income (loss) per share available to common shareholders		135,853			134,844			135,577			134,612
Shares used to compute diluted net income (loss) per share available to common shareholders		136,133			134,844			136,053			134,612

(A) Consists of advertising purchased by Rhapsody from MTV Networks (MTVN). MTVN had a 49% ownership interest in Rhapsody prior to the restructuring transactions that occurred on March 31, 2010. See note (B) for more details regarding the restructuring and the related deconsolidation.

(B) On March 31, 2010, we completed the restructuring of Rhapsody which resulted in our ownership decreasing to approximately 47% of the outstanding equity in Rhapsody and no longer having operating control. Since the restructuring was completed on the last day of the quarter ended March 31, 2010, our statement of operations for the first quarter includes results from Rhapsody’s operations. Beginning with the quarter ended June 30, 2010, Rhapsody’s revenue or other operating results are no longer consolidated within our financial statements and we are not recording any operating or other financial results for our Music segment. We now report our share of Rhapsody’s income or losses as “Equity in net loss of Rhapsody and other equity method investments” in “Other income.”

(C) Noncontrolling interest in Rhapsody reflects MTVN’s 49% ownership share in the losses of Rhapsody prior to the restructuring transactions that occurred on March 31, 2010.

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

	December 31, 2010		December 31, 2009
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	236,018	$	277,030
Short-term investments		98,303		107,870
Trade accounts receivable, net		48,324		60,937
Deferred costs, current portion		9,173		5,192
Related party receivable - Rhapsody (A)		1,139		—
Prepaid expenses and other current assets		32,040		30,624
Total current assets		424,997		481,653
Equipment, software, and leasehold improvements, at cost:
Equipment and software		144,623		151,951
Leasehold improvements		25,367		31,041
Total equipment, software, and leasehold improvements		169,990		182,992
Less accumulated depreciation and amortization		126,619		125,878
Net equipment, software, and leasehold improvements		43,371		57,114
Restricted cash equivalents and investments		10,000		13,700
Equity investments		41,027		19,553
Other assets		3,316		4,030
Deferred costs, non-current portion		18,401		10,182
Deferred tax assets, net, non-current portion		12,805		10,001
Other intangible assets, net		6,952		10,650
Goodwill		4,960		—
Total assets	$	565,829	$	606,883
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	32,012	$	32,703
Accrued and other liabilities		85,702		124,934
Deferred revenue, current portion		19,036		31,374
Related party payable - Rhapsody (B)		788		—
Related party payable - MTVN (C)		—		11,216
Accrued loss on excess office facilities, current portion		1,144		3,228
Total current liabilities		138,682		203,455
Deferred revenue, non-current portion		460		1,933
Accrued loss on excess office facilities, non-current portion		3,380		—
Deferred rent		3,514		4,464
Deferred tax liabilities, net, non-current portion		1,049		961
Other long-term liabilities		7,999		13,006
Total liabilities		155,084		223,819
Noncontrolling interest in Rhapsody (D)		—		7,253
Shareholders’ equity		410,745		375,811
Total liabilities and shareholders’ equity	$	565,829	$	606,883

(A) Related party receivable reflects amounts Rhapsody International, formed on March 31, 2010, owes RealNetworks.

(B) Related party payable reflects amounts owed to Rhapsody International, formed on March 31, 2010.

(C) Related party payable reflects amounts owed by Rhapsody to MTVN in periods prior to the restructuring and related deconsolidation that was completed on March 31, 2010.

(D) Noncontrolling interest in Rhapsody reflects MTVN’s 49% ownership interest in the net assets of Rhapsody at December 31, 2009. Due to the restructuring transactions which occurred on March 31, 2010, Rhapsody’s balance sheet is no longer included within RealNetworks consolidated financial statements.

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Years Ended December 31,
	2010			2009
	(in thousands)
Cash flows from operating activities:
Net income (loss)	$	128		$	(243,029	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization		23,401			31,454
Stock-based compensation		12,203			21,460
Loss on disposal of equipment, software, and leasehold improvements		(41	)		502
Equity in net loss of Rhapsody and other investments		16,164			1,313
Loss (gain) on sale of equity investment, net		9			(688	)
Gain on deconsolidation of Rhapsody		(10,929	)		—
Excess tax benefit from stock option exercises		(48	)		(15	)
Impairment of goodwill		—			175,583
Impairment of equity investments		—			5,020
Accrued restructuring and other charges		652			(2,773	)
Accrued loss on excess office facilities		5,670			—
Deferred income taxes, net		622			4,255
Other		451			48
Net change in certain operating assets and liabilities, net of acquisitions and disposals		(79,404	)		(2,434	)
Net cash used in operating activities		(31,122	)		(9,304	)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements		(12,904	)		(16,807	)
Purchases of short-term investments		(116,831	)		(143,273	)
Proceeds from sales and maturities of short-term investments		126,398			173,169
Proceeds from the sales of equity investments		—			1,014
Purchases of equity investments		—			(2,000	)
Payment of acquisition costs, net of cash acquired		(5,806	)		(3,324	)
Sale of Exomi, net of cash received		49			—
Payment in connection with the restructuring of Rhapsody		(18,000	)		—
Repayment of temporary funding on deconsolidation of Rhapsody		5,869			—
Decrease in restricted cash equivalents and investments, net		3,700			1,042
Net cash (used in) provided by investing activities		(17,525	)		9,821
Cash flows from financing activities:
Net proceeds from sales of common stock under employee stock purchase plan and exercise of stock options		2,678			1,455
Payments received on MTVN note		1,213			33,022
Capital contribution to Rhapsody from MTVN		—			5,000
Excess tax benefit from stock option exercises		48			15
Net cash provided by financing activities		3,939			39,492
Effect of exchange rate changes on cash and cash equivalents		3,696			4,053
Net (decrease) increase in cash and cash equivalents		(41,012	)		44,062
Cash and cash equivalents, beginning of period		277,030			232,968
Cash and cash equivalents, end of period	$	236,018		$	277,030

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)

	2010								2009
	Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
	(in thousands)
Net Revenue by Line of Business:
Core Products (A)	$	58,030	$	51,870	$	51,742	$	51,203	$	64,154	$	58,173	$	56,346	$	54,692
Emerging Products (B)		12,558		8,778		8,997		11,428		13,014		13,835		9,153		9,205
Games (C)		27,229		25,784		28,145		30,236		30,736		29,491		29,774		32,823
Total net revenue excluding music		97,817		86,432		88,884		92,867		107,904		101,499		95,273		96,720
Music (D)		—		—		—		35,733		37,598		38,765		40,452		44,053
Total net revenue including music	$	97,817	$	86,432	$	88,884	$	128,600	$	145,502	$	140,264	$	135,725	$	140,773
Core Products Revenue by Product:
SaaS (E)	$	35,656	$	31,885	$	32,388	$	33,614	$	39,399	$	38,704	$	35,517	$	34,497
Systems Integrations / Professional Services (F)		4,388		953		998		367		5,040		818		3,228		1,088
Technology Licensing (G)		7,632		7,473		7,736		7,910		9,830		7,906		7,463		7,994
Consumer subscriptions (H)		10,354		11,559		10,620		9,312		9,885		10,745		10,138		11,113
Total Core Products net revenue	$	58,030	$	51,870	$	51,742	$	51,203	$	64,154	$	58,173	$	56,346	$	54,692
Net Revenue by Geography:
United States	$	48,048	$	46,874	$	48,351	$	84,550	$	91,175	$	95,758	$	90,685	$	96,666
Rest of world		49,769		39,558		40,533		44,050		54,327		44,506		45,040		44,107
Total net revenue	$	97,817	$	86,432	$	88,884	$	128,600	$	145,502	$	140,264	$	135,725	$	140,773
Product Metrics (subscribers and ICM presented as greater than):
Addressable subscribers of mobile operators under contract (I)		700,000		700,000		675,000		650,000		625,000		575,000		575,000		550,000
SaaS subscribers (J)		36,700		37,500		37,600		37,950		38,850		37,500		36,300		33,850
SaaS ARPU (in cents) (K)	$	0.20	$	0.16	$	0.16	$	0.16	$	0.17	$	0.19	$	0.17	$	0.17
ICM delivered in billions (L)		136		134		128		120		112		101		93		82
Consumer subscribers(M)		550		600		600		575		625		625		550		575

(A) The Core Products segment primarily includes revenue from SaaS services, system integration and professional services to carriers and mobile handset companies, sales of technology licenses of our software products such as Helix for handsets, and consumer subscriptions such as SuperPass and our international radio subscription services.

(B) The Emerging Products segment primarily includes revenue from RealPlayer and related products, such as revenue from distribution of third party software products, advertising on RealPlayer websites and sales of RealPlayerPlus software licenses to consumers.

(C) The Games segment primarily includes revenue from sales of games licenses, online games subscription services, advertising on game sites and social network sites, games syndication services, microtransactions from online and social games and sales of mobile games.

(D) On March 31, 2010, we completed the restructuring of Rhapsody, which resulted in our ownership decreasing to approximately 47% of the outstanding equity in Rhapsody, and our loss of operating control over Rhapsody. Beginning with the quarter ended June 30, 2010, Rhapsody’s revenue or other operating results are no longer consolidated within our financial statements and we are not recording any operating or other financial results for our Music segment. We now report our share of Rhapsody’s income or losses as “Equity in net loss of Rhapsody and other equity method investments” in Other Income (Expense).

(E) Software as a Service (SaaS) revenue includes revenue from music on demand (MOD), video on demand (VOD), ringtones, ringback tones (RBT) and intercarrier messaging services provided to network service providers, who are largely mobile phone networks.

(F) Systems Integration revenue includes professional services, other than those associated with software sales, provided to mobile carriers and handset manufacturers.

(G) Technology Licensing includes revenue from sales of software and other intellectual property licenses such as Helix server licenses and Helix software licenses for handsets.

(H) Consumer subscriptions includes revenue from SuperPass, as well as our international radio subscription services.

(I) Total subscribers reported at the end of the quarter of mobile carriers that offer one or more of our SaaS services, other than intercarrier messaging services, to their customers.

(J) Includes subscribers for our SaaS services which include RBT, MOD and VOD services, measured at the end of the quarter.

(K) Monthly SaaS ARPU (Average Revenue Per User) is calculated by dividing (a) the total quarterly revenue from SaaS subscription services, including RBT, MOD, VOD, by (b) the number of SaaS subscribers at the end of the quarter, and dividing the resulting quotient by three.

(L) The total number of intercarrier messages delivered across our messaging platform in the quarter.

(M) Primarily includes subscribers to SuperPass and GamePass. We repurchased our international radio subscription services from Rhapsody as part of the restructuring that occurred on March 31, 2010, and as a result, subscribers to our international radio services are included beginning in the quarter ended June 30, 2010.

RealNetworks, Inc. and Subsidiaries

Segment Results of Operations

(Unaudited)

	2010						2009			2010			2009
	Q4			Q3			Q4			YTD			YTD
	(in thousands)
Core Products
Net revenue	$	58,030		$	51,870		$	64,154		$	212,845		$	233,365
Cost of revenue		25,679			22,230			23,767			83,733			81,774
Gross profit		32,351			29,640			40,387			129,112			151,591
Gross margin		56	%		57	%		63	%		61	%		65	%
Operating expenses:		19,851			19,772			20,130			86,217			138,502
Operating income (loss)	$	12,500		$	9,868		$	20,257		$	42,895		$	13,089
Adjusted EBITDA	$	15,523		$	13,309		$	24,332		$	56,306		$	79,935
Emerging Products
Net revenue	$	12,558		$	8,778		$	13,014		$	41,761		$	45,207
Cost of revenue		1,179			1,076			1,664			7,123			6,884
Gross profit		11,379			7,702			11,350			34,638			38,323
Gross margin		91	%		88	%		87	%		83	%		85	%
Operating expenses:		7,359			6,059			8,867			28,053			73,211
Operating income (loss)	$	4,020		$	1,643		$	2,483		$	6,585		$	(34,888	)
Adjusted EBITDA	$	4,109		$	1,771		$	2,579		$	7,157		$	12,703
Games
Net revenue	$	27,229		$	25,784		$	30,736		$	111,394		$	122,824
Cost of revenue		7,861			6,279			8,254			29,071			32,862
Gross profit		19,368			19,505			22,482			82,323			89,962
Gross margin		71	%		76	%		73	%		74	%		73	%
Operating expenses:		17,580			17,092			23,392			78,275			127,908
Operating income (loss)	$	1,788		$	2,413		$	(910	)	$	4,048		$	(37,946	)
Adjusted EBITDA	$	2,452		$	2,885		$	1,063		$	8,970		$	7,772
Music
Net revenue	$	—		$	—		$	37,598		$	35,733		$	160,868
Cost of revenue		—			—			22,614			21,864			98,322
Gross profit		—			—			14,984			13,869			62,546
Gross margin		N/A			N/A			40	%		39	%		39	%
Operating expenses:		—			—			25,484			13,911			129,085
Operating income (loss)	$	—		$	—		$	(10,500	)	$	(42	)	$	(66,539	)
Adjusted EBITDA	$	—		$	—		$	4,388		$	4,214		$	17,594
Corporate
Net revenue	$	—		$	—		$	—		$	—		$	—
Cost of revenue		986			1,125			522			2,932			2,300
Gross profit		(986	)		(1,125	)		(522	)		(2,932	)		(2,300	)
Gross margin		N/A			N/A			N/A			N/A			N/A
Operating expenses:		11,343			16,949			32,358			85,081			108,654
Operating income (loss)	$	(12,329	)	$	(18,074	)	$	(32,880	)	$	(88,013	)	$	(110,954	)
Adjusted EBITDA	$	(8,811	)	$	(12,265	)	$	(23,837	)	$	(51,345	)	$	(81,515	)
Total
Net revenue	$	97,817		$	86,432		$	145,502		$	401,733		$	562,264
Cost of revenue		35,705			30,710			56,821			144,723			222,142
Gross profit		62,112			55,722			88,681			257,010			340,122
Gross margin		63	%		64	%		61	%		64	%		60	%
Operating expenses:		56,133			59,872			110,231			291,537			577,360
Operating income (loss)	$	5,979		$	(4,150	)	$	(21,550	)	$	(34,527	)	$	(237,238	)
Adjusted EBITDA	$	13,273		$	5,700		$	8,525		$	25,302		$	36,489

RealNetworks, Inc. and Subsidiaries

Reconciliation of segment operating income (loss) to adjusted EBITDA by reporting segment

(Unaudited)

	2010						2009			2010			2009
	Q4			Q3			Q4			YTD			YTD
	(in thousands)
Core Products
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:
Operating income (loss)	$	12,500		$	9,868		$	20,257		$	42,895		$	13,089
Acquisitions related intangible asset amortization		705			1,059			1,424			3,991			5,475
Depreciation and amortization		2,318			2,382			2,651			9,420			10,840
Impairment of goodwill		—			—			—			—			50,531
Adjusted EBITDA	$	15,523		$	13,309		$	24,332		$	56,306		$	79,935
Emerging Products
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:
Operating income (loss)	$	4,020		$	1,643		$	2,483		$	6,585		$	(34,888	)
Acquisitions related intangible asset amortization		—			—			—			—			—
Depreciation and amortization		89			128			96			572			815
Impairment of goodwill		—			—			—			—			46,776
Adjusted EBITDA	$	4,109		$	1,771		$	2,579		$	7,157		$	12,703
Games
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:
Operating income (loss)	$	1,788		$	2,413		$	(910	)	$	4,048		$	(37,946	)
Acquisitions related intangible asset amortization		263			126			95			510			408
Depreciation and amortization		401			346			1,878			4,412			4,063
Impairment of goodwill		—			—			—			—			41,247
Adjusted EBITDA	$	2,452		$	2,885		$	1,063		$	8,970		$	7,772
Music
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:
Operating income (loss)	$	—		$	—		$	(10,500	)	$	(42	)	$	(66,539	)
Net income (loss) attributable to noncontrolling interest in Rhapsody		—			—			8,397			2,910			26,265
Acquisitions related intangible asset amortization (A)		—			—			278			58			1,115
Depreciation and amortization (A)		—			—			636			690			2,854
Pro forma gain on sale of interest in Rhapsody America		—			—			5,577			598			16,870
Impairment of goodwill		—			—			—			—			37,029
Adjusted EBITDA	$	—		$	—		$	4,388		$	4,214		$	17,594
Corporate
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:
Operating income (loss)	$	(12,329	)	$	(18,074	)	$	(32,880	)	$	(88,013	)	$	(110,954	)
Other income (expense), net		144			(206	)		(312	)		1,031			(794	)
Depreciation and amortization		577			1,033			1,094			3,677			4,756
Restructuring and other charges		874			1,080			2,346			12,361			4,017
Stock-based compensation		1,923			3,588			5,915			12,203			21,460
Loss on excess office facilities		—			314			—			7,396			—
Adjusted EBITDA	$	(8,811	)	$	(12,265	)	$	(23,837	)	$	(51,345	)	$	(81,515	)
Total
Reconciliation of GAAP operating income (loss) to adjusted EBITDA:
Operating income (loss)	$	5,979		$	(4,150	)	$	(21,550	)	$	(34,527	)	$	(237,238	)
Net income (loss) attributable to noncontrolling interest in Rhapsody		—			—			8,397			2,910			26,265
Other income (expense), net		144			(206	)		(312	)		1,031			(794	)
Acquisitions related intangible asset amortization (A)		968			1,185			1,797			4,559			6,998
Depreciation and amortization (A)		3,385			3,889			6,355			18,771			23,328
Impairment of goodwill		—			—			—			—			175,583
Loss on excess office facilities		—			314			—			7,396			—
Pro forma gain on sale of interest in Rhapsody America		—			—			5,577			598			16,870
Restructuring and other charges		874			1,080			2,346			12,361			4,017
Stock-based compensation		1,923			3,588			5,915			12,203			21,460
Adjusted EBITDA	$	13,273		$	5,700		$	8,525		$	25,302		$	36,489
(A)   Net of noncontrolling interest effect.

RealNetworks, Inc. and Subsidiaries

Earnings Per Share Reconciliation

(Unaudited)

	Quarters Ended December 31,					Years Ended December 31,
	2010		2009			2010		2009
	(in thousands, except per share data)
Net income (loss) attributable to common shareholders	$	1,194	$	(17,819	)	$	3,038	$	(216,764	)
Less accretion of MTVN’s preferred return in Rhapsody		—		(925	)		3,700		(3,700	)
Net income (loss) available to common shareholders	$	1,194	$	(18,744	)	$	6,738	$	(220,464	)
Shares used to compute basic net income (loss) per share available to common shareholders		135,853		134,844			135,577		134,612
Dilutive potential common shares:
Stock options and restricted stock		280		—			476		—
Shares used to compute diluted net income (loss) per share available to common shareholders		136,133		134,844			136,053		134,612
Basic net income (loss) per share available to common shareholders	$	0.01	$	(0.14	)	$	0.05	$	(1.64	)
Diluted net income (loss) per share available to common shareholders	$	0.01	$	(0.14	)	$	0.05	$	(1.64	)

EX-99.2

Exhibit 99.2

About Non-GAAP Financial Measures

To supplement RealNetworks’ condensed consolidated financial statements presented in accordance with GAAP, the Company presents investors with certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA by reporting segment. Adjusted EBITDA and adjusted EBITDA by reporting segment consist of operating income (loss) and includes other income (expense) net, and net income (loss) attributable to noncontrolling interest in Rhapsody but excludes the impact of the following: depreciation and amortization (net of noncontrolling interest effect); acquisitions related intangible asset amortization (net of noncontrolling interest effect); stock-based compensation; impairment of goodwill; restructuring and other charges; loss on excess office facilities; and the effect of the change in accounting for the sale of noncontrolling interest in the Company’s Rhapsody joint venture.

RealNetworks believes that the presentation of adjusted EBITDA and adjusted EBITDA by reporting segment provide important supplemental information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations. Management believes that the use of these non-GAAP financial measures provides consistency and comparability with RealNetworks’ past financial reports, and also facilitates comparisons with other companies in the Company’s industry, many of which use similar non-GAAP financial measures to supplement their GAAP results. Management has historically used these non-GAAP measures when evaluating operating performance because the inclusion or exclusion of the items described above provides additional useful measures of the Company’s operating results and facilitates comparisons of the Company’s core operating performance against prior periods and its business model objectives. The Company has chosen to provide this information to investors in order to enable them to perform additional analyses of past, present and future operating performance, to enable them to compare RealNetworks with other companies, and as a supplemental means to evaluate the Company’s ongoing operations. Externally, the Company believes that adjusted EBITDA is useful to investors in their assessment of RealNetworks’ operating performance and the valuation of the Company.

Internally, adjusted EBITDA and adjusted EBITDA by reporting segment are significant measures used by management for purposes of:

• supplementing the financial results and forecasts reported to the Company’s board of directors;

• evaluating the operating performance of RealNetworks which includes direct and incrementally controllable revenue and costs of operations, but excludes items considered by management to be non-cash or non-operating such as interest income and expense, stock-based compensation, tax expense, depreciation and amortization; impairment of goodwill and long-lived assets; or not within management’s control, such as significant fluctuations in foreign currencies;

• managing and comparing performance internally across the Company’s businesses and externally against the Company’s peers;

• establishing internal operating budgets; and

• evaluating and valuing potential acquisition candidates.

1

Adjusted EBITDA and adjusted EBITDA by reporting segment are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of RealNetworks’ business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of RealNetworks’ results as reported under GAAP. The Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from its non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. Some of the limitations in relying on the Company’s non-GAAP financial measures are that adjusted EBITDA and adjusted EBITDA by reporting segment are measures that the Company has defined for internal and investor purposes and are not in accordance with GAAP. A further limitation associated with these measures is that they do not include all costs and income that impact the Company’s operating income (loss). The Company compensates for these limitations by prominently disclosing GAAP operating income (loss), which the Company believes is the most directly comparable GAAP measure, and providing investors with reconciliations from GAAP operating income (loss) to adjusted EBITDA and to adjusted EBITDA by reporting segment.

RealNetworks has included reconciliations of GAAP operating income (loss) to adjusted EBITDA and to adjusted EBITDA by reporting segment for the relevant periods in the financial tables of its earnings press release, which is included as Exhibit 99.1 to this report.

2