##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Amendment No. 1
 Form 10-K/A
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the Fiscal Year Ended December 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the transition period from               to
 Commission file number 0-23137
 RealNetworks, Inc.
 (Exact name of registrant as specified in its charter)
 Washington
    
    91-1628146(State of incorporation)
    
    (I.R.S. Employer Identification Number)2601 Elliott Avenue, Suite 1000Seattle, Washington
    
    98121(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (206) 674-2700
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, Par Value $0.001 per share
    
    The NASDAQ Stock Market LLCPreferred Share Purchase Rights
    
    The NASDAQ Stock Market LLC
 Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class)
 þ o
 o þ
 þ o
 þ
  þ o o
 o þ
 (1)
  DOCUMENTS INCORPORATED BY REFERENCE
  (1)
    
    Excludes shares held of record on that date by directors, executive officers and 10%
shareholders of the registrant. Exclusion of such shares should not be construed to indicate
that any such person directly or indirectly possesses the power to direct or cause the
direction of the management of the policies of the registrant.




---



##### 



TABLE OF CONTENTS
 PagePART IIItem 8. Financial Statements and Supplementary Data
    
    
    2PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    35Item 11. Executive Compensation
    
    
    35Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
    
    
    35Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    36Item 14. Principal Accountant Fees and Services
    
    
    36PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    36Signatures
    
    
    40Exhibit Index
    
    
    41EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  i




---



##### Table of Contents



EXPLANATORY NOTE
  
    
    amending the cover page to indicate that our preferred share
purchase rights are registered pursuant to Section 12(b) of the
Securities Exchange Act of 1934, as amended,
 
    
    amending the cover page to indicate that shares of our common
stock and our preferred share purchase rights are registered on
the NASDAQ Stock Market LLC,
 
    
    correcting a typographical error in the date of the Report of
Independent Registered Public Accounting Firm relating to
managements assessment of internal control over financial
reporting appearing in Item 9A of the Form 10-K to reflect the
report date of February 26, 2007,
 
    
    revising the cover page and Items 10, 11, 12, 13 and 14 of Part
III to reflect the date of our 2007 annual meeting of shareholders
will be June 25, 2007, and
 
    
    revising Items 10, 11, 13 and 14 of Part
III to conform the description of the sections of the Proxy Statement
for RealNetworks Annual Meeting of Shareholders scheduled to be held
on or around June 25, 2007 incorporated by reference into these
Items to what appears in such Proxy Statement filed with the
Securities and Exchange Commission on May 15, 2007.
   1




---



##### Table of Contents



PART II.
 
 Item 8. Financial Statements and Supplementary Data
 REALNETWORKS, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share data)
 December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    525,232
    
    
    $
    651,971Short-term investments
    
    
    153,688
    
    
    
    129,356Trade accounts receivable, net of allowances for doubtful accounts and sales returns of
$2,490 in 2006 and $2,973 in 2005
    
    
    65,751
    
    
    
    16,721Deferred costs, current portion
    
    
    1,643
    
    
    
    Deferred tax assets, net, current portion
    
    
    891
    
    
    
    54,204Prepaid expenses and other current assets
    
    
    21,990
    
    
    
    11,933Total current assets
    
    
    769,195
    
    
    
    864,185Equipment, software, and leasehold improvements, at cost:Equipment and software
    
    
    83,587
    
    
    
    56,402Leasehold improvements
    
    
    29,665
    
    
    
    27,964Total equipment, software, and leasehold improvements
    
    
    113,252
    
    
    
    84,366Less accumulated depreciation and amortization
    
    
    65,509
    
    
    
    51,228Net equipment, software, and leasehold improvements
    
    
    47,743
    
    
    
    33,138Restricted cash equivalents
    
    
    17,300
    
    
    
    17,300Equity investments
    
    
    22,649
    
    
    
    46,163Other assets
    
    
    5,148
    
    
    
    2,397Deferred tax assets, net, non-current portion
    
    
    27,150
    
    
    
    19,147Other intangible assets, net of accumulated amortization of $16,637 in 2006 and $9,850 in 2005
    
    
    105,109
    
    
    
    7,337Goodwill
    
    
    309,122
    
    
    
    123,330Total assets
    
    $
    1,303,416
    
    
    $
    1,112,997LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    52,097
    
    
    $
    11,397Accrued and other liabilities
    
    
    104,328
    
    
    
    112,340Deferred revenue, current portion
    
    
    24,137
    
    
    
    25,021Accrued loss on excess office facilities, current portion
    
    
    4,508
    
    
    
    4,623Total current liabilities
    
    
    185,070
    
    
    
    153,381Deferred revenue, non-current portion
    
    
    3,440
    
    
    
    276Accrued loss on excess office facilities, non-current portion
    
    
    9,993
    
    
    
    13,393Deferred rent
    
    
    4,331
    
    
    
    4,018Deferred tax liabilities, net, non-current portion
    
    
    27,076
    
    
    
    Convertible debt
    
    
    100,000
    
    
    
    100,000Other long-term liabilities
    
    
    3,740
    
    
    
    196Total liabilities
    
    
    333,650
    
    
    
    271,264Commitments and contingenciesShareholders equity:Preferred stock, $0.001 par value, no shares issued and outstandingSeries A: authorized 200 shares
    
    
    
    
    
    
    Undesignated series: authorized 59,800 shares
    
    
    
    
    
    
    Common stock, $0.001 par value authorized 1,000,000 shares; issued and outstanding 163,278
shares in 2006 and 166,037 shares in 2005
    
    
    162
    
    
    
    166Additional paid-in capital
    
    
    791,108
    
    
    
    805,067Deferred stock-based compensation
    
    
    
    
    
    
    (19
    )Accumulated other comprehensive income
    
    
    23,485
    
    
    
    26,724Retained earnings
    
    
    155,011
    
    
    
    9,795Total shareholders equity
    
    
    969,766
    
    
    
    841,733Total liabilities and shareholders equity
    
    $
    1,303,416
    
    
    $
    1,112,997
  2




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 (In thousands, except per share data)
 Years Ended December 31,2006
    
    
    2005
    
    
    2004Net revenue(A)
    
    $
    395,261
    
    
    $
    325,059
    
    
    $
    266,719Cost of revenue(B)
    
    
    124,108
    
    
    
    98,249
    
    
    
    92,207Loss on content agreement
    
    
    
    
    
    
    
    
    
    
    4,938Gross profit
    
    
    271,153
    
    
    
    226,810
    
    
    
    169,574Operating expenses:Research and development
    
    
    77,386
    
    
    
    70,731
    
    
    
    52,066Sales and marketing
    
    
    165,602
    
    
    
    130,515
    
    
    
    96,779General and administrative
    
    
    57,332
    
    
    
    50,697
    
    
    
    31,538Loss on excess office facilities
    
    
    738
    
    
    
    
    
    
    
    866Subtotal operating expenses
    
    
    301,058
    
    
    
    251,943
    
    
    
    181,249Antitrust litigation (benefit) expenses, net
    
    
    (220,410
    )
    
    
    (422,500
    )
    
    
    11,048Total operating expenses (benefit)
    
    
    80,648
    
    
    
    (170,557
    )
    
    
    192,297Operating income (loss)
    
    
    190,505
    
    
    
    397,367
    
    
    
    (22,723
    )Other income (expenses):Interest income, net
    
    
    37,622
    
    
    
    14,511
    
    
    
    4,452Gain on sale of equity investments
    
    
    2,286
    
    
    
    19,330
    
    
    
    Equity in net income (loss) of investments
    
    
    326
    
    
    
    (1,068
    )
    
    
    (4,351
    )Impairment of equity investments
    
    
    (3,116
    )
    
    
    (266
    )
    
    
    (450
    )Other income (expenses)
    
    
    130
    
    
    
    (331
    )
    
    
    597Other income, net
    
    
    37,248
    
    
    
    32,176
    
    
    
    248Income (loss) before income taxes
    
    
    227,753
    
    
    
    429,543
    
    
    
    (22,475
    )Income taxes
    
    
    (82,537
    )
    
    
    (117,198
    )
    
    
    (522
    )Net income (loss)
    
    $
    145,216
    
    
    $
    312,345
    
    
    $
    (22,997
    )Basic net income (loss) per share
    
    $
    0.90
    
    
    $
    1.84
    
    
    $
    (0.14
    )Diluted net income (loss) per share
    
    $
    0.81
    
    
    $
    1.70
    
    
    $
    (0.14
    )Shares used to compute basic net income (loss) per share
    
    
    160,973
    
    
    
    169,986
    
    
    
    168,907Shares used to compute diluted net income (loss) per share
    
    
    179,281
    
    
    
    184,161
    
    
    
    168,907Comprehensive income (loss):Net income (loss)
    
    $
    145,216
    
    
    $
    312,345
    
    
    $
    (22,997
    )Unrealized gain (loss) on investments:Unrealized holding (losses) gains, net of tax
    
    
    (14,399
    )
    
    
    17,864
    
    
    
    7,557Adjustments for gains reclassified to net income (loss)
    
    
    
    
    
    
    (4,052
    )
    
    
    (53
    )Foreign currency translation gains (losses)
    
    
    11,160
    
    
    
    (1,677
    )
    
    
    (99
    )Comprehensive income (loss)
    
    $
    141,977
    
    
    $
    324,480
    
    
    $
    (15,592
    )(A) Components of net revenue:License fees
    
    $
    90,684
    
    
    $
    80,785
    
    
    $
    71,706Service revenue
    
    
    304,577
    
    
    
    244,274
    
    
    
    195,013$
    395,261
    
    
    $
    325,059
    
    
    $
    266,719(B) Components of cost of revenue:License fees
    
    $
    37,089
    
    
    $
    33,770
    
    
    $
    28,206Service revenue
    
    
    87,019
    
    
    
    64,479
    
    
    
    64,001$
    124,108
    
    
    $
    98,249
    
    
    $
    92,207
  3




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Years Ended December 31,2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    145,216
    
    
    $
    312,345
    
    
    $
    (22,997
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    20,980
    
    
    
    16,243
    
    
    
    14,643Stock-based compensation
    
    
    18,151
    
    
    
    128
    
    
    
    695Deferred income taxes
    
    
    54,986
    
    
    
    107,208
    
    
    
    Impairment of equity investments
    
    
    3,116
    
    
    
    266
    
    
    
    450Loss on disposal of property, software, and leasehold improvements
    
    
    276
    
    
    
    
    
    
    
    Excess tax benefit from stock option exercises
    
    
    (39,183
    )
    
    
    
    
    
    
    Accrued loss on excess office facilities
    
    
    (3,515
    )
    
    
    (6,244
    )
    
    
    (4,799
    )Gain on sale of equity investments
    
    
    (2,286
    )
    
    
    (19,330
    )
    
    
    (561
    )Equity in net (income) loss of investments
    
    
    (326
    )
    
    
    1,068
    
    
    
    4,351Accrued loss on content agreement
    
    
    
    
    
    
    (2,917
    )
    
    
    2,917Other
    
    
    97
    
    
    
    804
    
    
    
    1,592Changes in certain assets and liabilities, net of acquisitions:Trade accounts receivable
    
    
    (7,962
    )
    
    
    (1,479
    )
    
    
    (3,314
    )Prepaid expenses and other current assets
    
    
    (3,126
    )
    
    
    (3,409
    )
    
    
    1,258Accounts payable
    
    
    4,276
    
    
    
    44
    
    
    
    3,577Accrued and other liabilities
    
    
    (21,800
    )
    
    
    59,826
    
    
    
    12,810Deferred revenue
    
    
    2,020
    
    
    
    (3,800
    )
    
    
    (3,599
    )Net cash provided by operating activities
    
    
    170,920
    
    
    
    460,753
    
    
    
    7,023Cash flows from investing activities:Purchases of equipment, software, and leasehold improvements
    
    
    (13,808
    )
    
    
    (13,782
    )
    
    
    (10,018
    )Purchases of short-term investments
    
    
    (204,841
    )
    
    
    (153,491
    )
    
    
    (293,560
    )Sales and maturities of short-term investments
    
    
    180,973
    
    
    
    168,358
    
    
    
    324,512Purchases of intangible and other assets
    
    
    
    
    
    
    (1,125
    )
    
    
    (4,839
    )Decrease (increase) in restricted cash equivalents
    
    
    
    
    
    
    2,851
    
    
    
    (198
    )Proceeds from sale of equity investments
    
    
    2,286
    
    
    
    19,530
    
    
    
    572Purchases of cost based investments
    
    
    (834
    )
    
    
    (647
    )
    
    
    Cash used in acquisitions, net of cash acquired
    
    
    (257,841
    )
    
    
    (14,705
    )
    
    
    (10,477
    )Net cash (used in) provided by investing activities
    
    
    (294,065
    )
    
    
    6,989
    
    
    
    5,992Cash flows from financing activities:Net proceeds from sales of common stock under employee stock
purchase plan and exercise of stock options
    
    
    54,929
    
    
    
    20,361
    
    
    
    8,489Repayment of long-term note payable
    
    
    
    
    
    
    (648
    )
    
    
    Excess tax benefit from stock option exercises
    
    
    39,183
    
    
    
    
    
    
    
    Repurchase of common stock
    
    
    (98,876
    )
    
    
    (54,321
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (4,764
    )
    
    
    (34,608
    )
    
    
    8,489Effect of exchange rate changes on cash
    
    
    1,170
    
    
    
    (589
    )
    
    
    (106
    )Net (decrease) increase in cash and cash equivalents
    
    
    (126,739
    )
    
    
    432,545
    
    
    
    21,398Cash and cash equivalents, beginning of year
    
    
    651,971
    
    
    
    219,426
    
    
    
    198,028Cash and cash equivalents, end of year
    
    $
    525,232
    
    
    $
    651,971
    
    
    $
    219,426Supplemental disclosure of cash flow information:Cash paid during the year for income taxes
    
    $
    16,487
    
    
    $
    149
    
    
    $
    415Supplemental disclosure of non-cash investing and financing activities:Accrued acquisition consideration
    
    $
    2,000
    
    
    $
    
    
    
    $
    Payable for repurchase of common stock
    
    $
    
    
    
    $
    5,116
    
    
    $
    Common stock and options to purchase common stock issued in business
combinations
    
    $
    
    
    
    $
    
    
    
    $
    20,901
  4




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (In thousands)
 Notes
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    Receivable
    
    
    Deferred
    
    
    Other
    
    
    Retained
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    from
    
    
    Stock-Based
    
    
    Comprehensive
    
    
    Earnings
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Shareholders
    
    
    Compensation
    
    
    Income
    
    
    (Deficit)
    
    
    EquityBalances, December 31, 2003
    
    
    164,197
    
    
    $
    164
    
    
    $
    639,369
    
    
    $
    (58
    )
    
    $
    (620
    )
    
    $
    7,184
    
    
    $
    (279,553
    )
    
    $
    366,486Common stock issued for:Exercise of stock options and employee stock
purchase plan
    
    
    3,423
    
    
    
    4
    
    
    
    8,485
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,489Business combination
    
    
    3,007
    
    
    
    3
    
    
    
    20,898
    
    
    
    
    
    
    
    (222
    )
    
    
    
    
    
    
    
    
    
    
    20,679Notes receivable retired
    
    
    (8
    )
    
    
    
    
    
    
    (41
    )
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Amortization of deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    695
    
    
    
    
    
    
    
    
    
    
    
    695Shares issued for director payments
    
    
    7
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Unrealized gain on investments, net of income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,557
    
    
    
    
    
    
    
    7,557Adjustments for gains reclassified to net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )
    
    
    
    
    
    
    (53
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (99
    )
    
    
    
    
    
    
    (99
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,997
    )
    
    
    (22,997
    )Balances, December 31, 2004
    
    
    170,626
    
    
    
    171
    
    
    
    668,752
    
    
    
    (10
    )
    
    
    (147
    )
    
    
    14,589
    
    
    
    (302,550
    )
    
    
    380,805Common stock issued for exercise of stock
options and employee stock purchase plan
    
    
    4,056
    
    
    
    3
    
    
    
    20,358
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,361Common shares repurchased
    
    
    (8,642
    )
    
    
    (8
    )
    
    
    (54,313
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54,321
    )Notes receivable retired
    
    
    (18
    )
    
    
    
    
    
    
    (26
    )
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )Amortization of deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128
    
    
    
    
    
    
    
    
    
    
    
    128Shares issued for director payments
    
    
    15
    
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91Unrealized gain on investments, net of income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,864
    
    
    
    
    
    
    
    17,864Adjustments for gains reclassified to net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,052
    )
    
    
    
    
    
    
    (4,052
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,677
    )
    
    
    
    
    
    
    (1,677
    )Net deferred tax adjustment
    
    
    
    
    
    
    
    
    
    
    170,205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170,205Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    312,345
    
    
    
    312,345Balances, December 31, 2005
    
    
    166,037
    
    
    
    166
    
    
    
    805,067
    
    
    
    
    
    
    
    (19
    )
    
    
    26,724
    
    
    
    9,795
    
    
    
    841,733Common stock issued for exercise of stock
options and employee stock purchase plan
    
    
    9,067
    
    
    
    8
    
    
    
    54,921
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,929Common shares repurchased
    
    
    (11,836
    )
    
    
    (12
    )
    
    
    (98,864
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (98,876
    )Shares issued for director payments
    
    
    10
    
    
    
    
    
    
    
    97
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    18,132
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    18,151Unrealized loss on investments, net of income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,399
    )
    
    
    
    
    
    
    (14,399
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,160
    
    
    
    
    
    
    
    11,160Tax benefit from stock option exercises
    
    
    
    
    
    
    
    
    
    
    11,755
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,755Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,216
    
    
    
    145,216Balances, December 31, 2006
    
    
    163,278
    
    
    $
    162
    
    
    $
    791,108
    
    
    $
    
    
    
    $
    
    
    
    $
    23,485
    
    
    $
    155,011
    
    
    $
    969,766
  5




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Years ended December 31, 2006, 2005, and 2004
 Note 1. Description of Business and Summary of Significant Accounting Policies
 Description of Business.
  Basis of Presentation.
 Use of Estimates.
 Cash, Cash Equivalents, and Short-Term Investments.
  Trade Accounts Receivable.
 Concentration of Credit Risk.
 Deferred costs.
 6




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
    Depreciation and Amortization.
  Equity Investments.
 Other Intangible Assets.
 Goodwill.
 
    
    poor economic performance relative to historical or projected operating results;
 
    
    significant negative industry, economic or company specific trends;
 
    
    changes in the manner of our use of the assets or the plans for our business; and
 
    
    loss of key personnel.
 Long-Lived Assets.
 Fair Value of Financial Instruments.
 Research and Development.
 7




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
 Revenue Recognition. Software Revenue Recognition; Software Revenue Recognition with Respect to Certain Arrangements Accounting for Performance of Construction-Type and Certain Production-Type Contracts Revenue Recognition in
Financial Statements Revenue Arrangements with Multiple Deliverables; Reporting Revenue Gross as a Principal versus Net as an Agent
      Advertising Expenses.
 Foreign Currency.
 Derivative Financial Instruments.
  8




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
    ContractContract Amount
    
    Amount
    
    Unrealized(Local Currency)
    
    (US Dollars)
    
    Gain/(Loss)British Pounds (GBP) (contracts to receive GBP/pay US$)
    
    GBP
    
    
    250
    
    
    $
    492
    
    
    $
    2Japanese Yen (JPY) (contracts to receive JPY/pay US$)
    
    JPY
    
    
    28,000
    
    
    $
    238
    
    
    $
    (2
    )
  ContractContract Amount
    
    Amount
    
    Unrealized(Local Currency)
    
    (US Dollars)
    
    Gain/(Loss)British Pounds (GBP) (contracts to receive GBP/pay US$)
    
    GBP
    
    
    1,000
    
    
    $
    1,736
    
    
    $
    (15
    )Euro (EUR) (contracts to pay EUR/receive US$)
    
    EUR
    
    
    1,260
    
    
    $
    1,514
    
    
    $
    23Japanese Yen (JPY) (contracts to receive JPY/pay US$)
    
    JPY
    
    
    30,000
    
    
    $
    251
    
    
    $
    4
  Income Taxes.
 Stock-Based Compensation. Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
 Accounting for Stock Appreciation Rights
and Other Variable Stock Option or Award Plans
  Net Income (Loss) Per Share.
 9




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Weighted average shares outstanding
    
    
    160,973
    
    
    
    169,986
    
    
    
    169,056Less restricted shares
    
    
    
    
    
    
    
    
    
    
    149Shares used to compute basic net income (loss) per share
    
    
    160,973
    
    
    
    169,986
    
    
    
    168,907Dilutive potential common shares:Stock options and restricted stock
    
    
    7,558
    
    
    
    3,425
    
    
    
    Convertible debt
    
    
    10,750
    
    
    
    10,750
    
    
    
    Shares used to compute diluted net income (loss) per share
    
    
    179,281
    
    
    
    184,161
    
    
    
    168,907
  Accumulated Other Comprehensive Income.
  December 31,2006
    
    
    2005Unrealized gains on investments, including
taxes of $5,243 in 2006 and $13,592 in 2005
    
    $
    14,318
    
    
    $
    28,717Foreign currency translation adjustments
    
    
    9,167
    
    
    
    (1,993
    )Accumulated other comprehensive income
    
    $
    23,485
    
    
    $
    26,724
 Reclassifications.
 New Accounting Pronouncements. Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or
Acquired in a Business Combination
 Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109.
 How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross Versus Net Presentation) Accounting Changes and Error Corrections
 10




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
  Considering the Effects of Prior Year
Misstatements when Quantifying Current Year Misstatements.
 Fair Value Measurements
 Note 2. Stock-Based Compensation
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
   Accounting for Stock Appreciation Rights and Other Variable
Stock Option or Award Plans
 11




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
  Year EndedDecember 31, 2006Cost of service revenue
    
    $
    257Research and development
    
    
    6,512Sales and marketing
    
    
    7,152General and administrative
    
    
    4,230Total stock-based compensation expense
    
    $
    18,151
  Accounting for Stock-Based Compensation  Transition and Disclosure
  As Reported
    
    If ReportedFollowing
    
    FollowingSFAS 123(R)
    
    APB No. 25Operating income
    
    $
    190,505
    
    
    $
    208,637Income before income taxes
    
    
    227,753
    
    
    
    245,885Net income
    
    $
    145,216
    
    
    $
    156,777Basic net income per share
    
    $
    0.90
    
    
    $
    0.97Diluted net income per share
    
    $
    0.81
    
    
    $
    0.87
  Year Ended
    
    
    Year EndedDecember 31, 2005
    
    
    December 31, 2004Net income (loss) as reported
    
    $
    312,345
    
    
    $
    (22,997
    )Plus: stock-based employee
compensation expense included in
reported net income, net of
related tax effects
    
    
    128
    
    
    
    695Less: stock-based employee
compensation expense determined
under fair value based methods
for all awards, net of related
tax effects
    
    
    (14,860
    )
    
    
    (21,227
    )Pro forma net income (loss)
    
    $
    297,613
    
    
    $
    (43,529
    )Net income (loss) per share:Basic  as reported
    
    $
    1.84
    
    
    $
    (0.14
    )Diluted  as reported
    
    $
    1.70
    
    
    $
    (0.14
    )Basic  pro forma
    
    $
    1.75
    
    
    $
    (0.26
    )Diluted  pro forma
    
    $
    1.62
    
    
    $
    (0.26
    )
  Note 3. Business Combinations
 Business Combinations in 2006.
   12




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
    Cash paid at acquisition
    
    $
    7,922Additional future payments related to initial purchase price
    
    
    2,000Estimated direct acquisition costs
    
    
    293Total
    
    $
    10,215
   Current assets
    
    $
    1,830Property and equipment
    
    
    166Other intangible assets subject to amortization:Technology and games
    
    
    570Tradenames and trademarks
    
    
    560Distributor and customer relationships
    
    
    1,290Non-compete agreements
    
    
    180Goodwill
    
    
    8,168Total assets acquired
    
    
    12,764Current liabilities
    
    
    (1,781
    )Net deferred tax liabilities
    
    
    (768
    )Total liabilities acquired
    
    
    (2,549
    )Net assets acquired
    
    $
    10,215
      13




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
  Cash
    
    $
    336,652Direct acquisition costs
    
    
    6,036Total purchase price
    
    $
    342,688
   Current assets
    
    $
    144,732Property and equipment
    
    
    11,148Other long-term assets
    
    
    4,407Other intangible assets subject to amortization:Customer relationships
    
    
    67,000Developed technology
    
    
    24,000Tradenames and trademarks
    
    
    3,800Service contracts
    
    
    3,400Goodwill
    
    
    166,925Total assets acquired
    
    
    425,412Current liabilities
    
    
    (55,885
    )Long-term liabilities
    
    
    (1,110
    )Net deferred tax liabilities
    
    
    (25,729
    )Total liabilities acquired
    
    
    (82,724
    )Net assets acquired
    
    $
    342,688
    Year Ended
    
    Year EndedDecember 31, 2006
    
    December 31, 2005Net revenue
    
    $
    500,017
    
    
    $
    423,412Net income
    
    $
    153,688
    
    
    $
    301,570Basic net income per share
    
    $
    0.95
    
    
    $
    1.77Diluted net income per share
    
    $
    0.86
    
    
    $
    1.64
  14




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
     Cash
    
    $
    3,600Direct acquisition costs
    
    
    224Total purchase price
    
    $
    3,824
   Current assets
    
    $
    77Property and equipment
    
    
    10Other long-term assets
    
    
    3Other intangible assets subject to amortization:Customer relationships
    
    
    650Supplier relationships
    
    
    150Tradenames and trademarks
    
    
    120Goodwill
    
    
    4,220Total assets acquired
    
    
    5,230Current liabilities
    
    
    (124
    )Long-term liabilities
    
    
    (969
    )Net deferred tax liabilities
    
    
    (313
    )Total liabilities acquired
    
    
    (1,406
    )Net assets acquired
    
    $
    3,824
   Business Combination in 2005.
   15




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
   Cash
    
    $
    15,089Direct acquisition costs
    
    
    534Total purchase price
    
    $
    15,623
   Current assets
    
    $
    1,624Property and equipment
    
    
    10Other intangible assets subject to amortization:Technology and games
    
    
    1,460Tradenames and trademarks
    
    
    400Distributor and customer relationships
    
    
    1,500Goodwill
    
    
    12,745Total assets acquired
    
    
    17,739Current liabilities
    
    
    (756
    )Net deferred tax liabilities
    
    
    (497
    )Long-term notes payable
    
    
    (863
    )Total liabilities acquired
    
    
    (2,116
    )Net assets acquired
    
    $
    15,623
  Business Combination in 2004.
   16




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
  Cash
    
    $
    9,131Fair value of common stock and options issued
    
    
    20,901Direct acquisition costs
    
    
    350Total purchase price
    
    $
    30,382
   Current assets
    
    $
    1,315Property and equipment
    
    
    82Other intangible assets subject to amortization:Technology and games
    
    
    5,200Tradename
    
    
    1,600Customer list
    
    
    400Goodwill
    
    
    21,894Current liabilities
    
    
    (331
    )Deferred stock compensation
    
    
    222Net assets acquired
    
    $
    30,382
  17




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
 Note 4. Cash, Cash Equivalents, Short-Term Investments, and Restricted Cash Equivalents
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCash and cash equivalents:Cash
    
    $
    108,415
    
    
    $
    
    
    
    $
    
    
    
    $
    108,415Money market mutual funds
    
    
    231,634
    
    
    
    
    
    
    
    
    
    
    
    231,634Corporate notes and bonds
    
    
    182,184
    
    
    
    
    
    
    
    
    
    
    
    182,184U.S. Government agency securities
    
    
    2,999
    
    
    
    
    
    
    
    
    
    
    
    2,999Total cash and cash equivalents
    
    
    525,232
    
    
    
    
    
    
    
    
    
    
    
    525,232Short-term investments:U.S. Government agency securities
    
    
    153,520
    
    
    
    188
    
    
    
    (20
    )
    
    
    153,688Total short-term investments
    
    
    153,520
    
    
    
    188
    
    
    
    (20
    )
    
    
    153,688Total cash, cash equivalents, and short-term investments
    
    $
    678,752
    
    
    $
    188
    
    
    $
    (20
    )
    
    $
    678,920Restricted cash equivalents
    
    $
    17,300
    
    
    $
    
    
    
    $
    
    
    
    $
    17,300
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCash and cash equivalents:Cash
    
    $
    2,455
    
    
    $
    
    
    
    $
    
    
    
    $
    2,455Money market mutual funds
    
    
    587,256
    
    
    
    
    
    
    
    
    
    
    
    587,256Corporate notes and bonds
    
    
    49,234
    
    
    
    
    
    
    
    
    
    
    
    49,234U.S. Government agency securities
    
    
    13,026
    
    
    
    
    
    
    
    
    
    
    
    13,026Total cash and cash equivalents
    
    
    651,971
    
    
    
    
    
    
    
    
    
    
    
    651,971Short-term investments:U.S. Government agency securities
    
    
    129,658
    
    
    
    
    
    
    
    (302
    )
    
    
    129,356Total short-term investments
    
    
    129,658
    
    
    
    
    
    
    
    (302
    )
    
    
    129,356Total cash, cash equivalents, and short-term investments
    
    $
    781,629
    
    
    $
    
    
    
    $
    (302
    )
    
    $
    781,327Restricted cash equivalents
    
    $
    17,300
    
    
    $
    
    
    
    $
    
    
    
    $
    17,300
     Amortized
    
    
    EstimatedCost
    
    
    Fair ValueWithin one year
    
    $
    120,909
    
    
    $
    120,945Between one year and two years
    
    
    32,611
    
    
    
    32,743Total short-term investments
    
    $
    153,520
    
    
    $
    153,688
 18




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
 Note 5. Allowance for Doubtful Accounts Receivable and Sales Returns
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Balance, beginning of year
    
    $
    1,340
    
    
    $
    1,145
    
    
    $
    1,278Additions charged to expenses
    
    
    596
    
    
    
    377
    
    
    
    527Amounts written off
    
    
    (835
    )
    
    
    (182
    )
    
    
    (660
    )Balance, end of year
    
    $
    1,101
    
    
    $
    1,340
    
    
    $
    1,145
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Balance, beginning of year
    
    $
    1,633
    
    
    $
    2,141
    
    
    $
    1,580Additions charged to revenue
    
    
    4,898
    
    
    
    6,560
    
    
    
    8,528Amounts written off
    
    
    (5,142
    )
    
    
    (7,068
    )
    
    
    (7,967
    )Balance, end of year
    
    $
    1,389
    
    
    $
    1,633
    
    
    $
    2,141
   Note 6. Deferred Costs
  December 31,2006Deferred costs
    
    $
    2,170Less current portion
    
    
    1,643Deferred costs, non-current portion
    
    $
    527
  Note 7. Equity Investments
   Consolidation
of Variable Interest Entities
 19




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
  2006
    
    
    2005Carrying
    
    
    
    
    
    
    CarryingCost
    
    
    Value
    
    
    Cost
    
    
    ValuePublicly traded investments
    
    $
    913
    
    
    $
    20,235
    
    
    $
    913
    
    
    $
    43,447Privately held investments
    
    
    1,879
    
    
    
    2,414
    
    
    
    12,500
    
    
    
    2,716Total equity investments
    
    $
    2,792
    
    
    $
    22,649
    
    
    $
    13,413
    
    
    $
    46,163
     Note 8. Other Intangible Assets
  Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetCustomer relationships
    
    $
    73,061
    
    
    $
    3,386
    
    
    $
    69,675Developed technology
    
    
    36,891
    
    
    
    9,981
    
    
    
    26,910Patents, trademarks and tradenames
    
    
    7,114
    
    
    
    2,226
    
    
    
    4,888Service contracts
    
    
    4,680
    
    
    
    1,044
    
    
    
    3,636Total other intangible assets, December 31, 2006
    
    $
    121,746
    
    
    $
    16,649
    
    
    $
    105,109Total other intangible assets, December 31, 2005
    
    $
    17,187
    
    
    $
    9,850
    
    
    $
    7,337
  20




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
  2007
    
    $
    21,2562008
    
    
    20,5492009
    
    
    18,7982010
    
    
    14,8742011
    
    
    9,655Thereafter
    
    
    19,977Total
    
    $
    105,109
 Note 9. Goodwill
  2006
    
    
    2005Balance, beginning of year
    
    $
    123,330
    
    
    $
    119,217Increases due to acquisitions
    
    
    179,313
    
    
    
    12,745Deferred tax adjustment
    
    
    
    
    
    
    (7,528
    )Effects of foreign currency translation
    
    
    6,479
    
    
    
    (1,104
    )Balance, end of year
    
    $
    309,122
    
    
    $
    123,330
 Note 10. Accrued and Other Liabilities
  December 31,2006
    
    
    2005Royalties and costs of sales and fulfillment
    
    $
    29,958
    
    
    $
    24,740Employee compensation, commissions and benefits
    
    
    25,244
    
    
    
    11,413Sales, VAT and other taxes payable
    
    
    13,364
    
    
    
    16,562Income taxes payable
    
    
    8,455
    
    
    
    9,120Legal fees and contingent legal fees
    
    
    4,075
    
    
    
    17,815Accrued charitable donations
    
    
    2,048
    
    
    
    15,401Other
    
    
    21,174
    
    
    
    17,289Total
    
    $
    104,328
    
    
    $
    112,340
 Note 11. Loss on Excess Office Facilities and Content Agreement
     21




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
   Accrued loss, December 31, 2003
    
    $
    29,059Adjustment to accrual for change in estimate
    
    
    126Less amounts paid on accrued loss on excess office facilities, net of sublease income
    
    
    (4,925
    )Loss on content agreement initially recorded
    
    
    4,938Less amounts paid on content agreement in 2004, net of interest expense
    
    
    (2,021
    )Accrued loss, December 31, 2004
    
    
    27,177Less amounts paid on accrued loss on excess office facilities, net of sublease income
    
    
    (6,244
    )Less amounts paid on content agreement, net of interest expense
    
    
    (2,917
    )Accrued loss, December 31, 2005
    
    
    18,016Adjustment to accrual for change in estimate
    
    
    738Less amounts paid on accrued loss on excess office facilities, net of sublease income
    
    
    (4,253
    )Accrued loss, December 31, 2006
    
    
    14,501Less current portion
    
    
    4,508Accrued loss, non-current portion
    
    $
    9,993
 Note 12. Convertible Debt
  Note 13. Shareholders Equity
 Preferred Stock.
  Shareholder Rights Plan.
 22




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
  Equity Compensation Plans.
 Restricted Stock Units
  Shares
    
    Options Outstanding
    
    WeightedAvailable
    
    Number
    
    Weighted
    
    Average Fairfor Grant
    
    of Shares
    
    Average
    
    Valuein (000s)
    
    in (000s)
    
    Exercise Price
    
    GrantsBalances, December 31, 2003
    
    
    12,789
    
    
    
    36,644
    
    
    $
    7.05Options granted at or above common stock price
    
    
    (9,130
    )
    
    
    9,130
    
    
    
    5.78
    
    
    $
    2.78Options granted below common stock price
    
    
    (321
    )
    
    
    321
    
    
    
    1.32
    
    
    
    4.40Options exercised
    
    
    
    
    
    
    (3,103
    )
    
    
    2.20Options canceled
    
    
    7,515
    
    
    
    (7,515
    )
    
    
    6.90Balances, December 31, 2004
    
    
    10,853
    
    
    
    35,477
    
    
    
    7.13Additional shares authorized in the 2005 Plan(1)
    
    
    7,397
    
    
    
    Options granted below common stock price
    
    
    (10,633
    )
    
    
    10,633
    
    
    
    5.87
    
    
    
    2.57Options exercised
    
    
    
    
    
    
    (3,631
    )
    
    
    5.14Options canceled
    
    
    6,857
    
    
    
    (6,857
    )
    
    
    7.03Balances, December 31, 2005
    
    
    14,474
    
    
    
    35,622
    
    
    
    6.95Options granted at or above common stock price
    
    
    (12,913
    )
    
    
    12,913
    
    
    
    10.05
    
    
    
    4.53Restricted stock units granted
    
    
    (129
    )
    
    
    80
    
    
    
    
    
    
    
    11.38Options exercised
    
    
    
    
    
    
    (8,854
    )
    
    
    5.99Options canceled
    
    
    3,953
    
    
    
    (3,953
    )
    
    
    6.81Balances, December 31, 2006
    
    
    5,385
    
    
    
    35,808
    
    
    $
    8.31
 
 (1)
    
    Pursuant to the provisions of the 2005 Stock Incentive Plan, shares available
for grant as of December 31, 2005 were adjusted to reflect an additional 3.1 million available
shares which were cancelled from previously expired Plans during 2005.  Years Ended December 31,2006
    
    2005
    
    2004Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    4.75
    %
    
    
    3.76
    %
    
    
    2.54
    %Expected life (years)
    
    
    4.3
    
    
    
    4.4
    
    
    
    4.4Volatility
    
    
    49
    %
    
    
    54
    %
    
    
    59
    %
 23




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
  Options OutstandingWeighted
    
    
    
    
    
    Options ExercisableAverage
    
    Weighted
    
    
    
    
    
    WeightedNumber
    
    Remaining
    
    Average
    
    Number of
    
    Averageof Shares
    
    Contractual
    
    Exercise
    
    Shares
    
    ExerciseExercise Prices


    
    

    (in 000s)
    
    Life (Years)
    
    Price
    
    (in 000s)
    
    Price$
    0.00
    
    
    
    
    
    
    $
    5.01
    
    
    
    5,188
    
    
    
    9.64
    
    
    $
    4.19
    
    
    
    2,497
    
    
    $
    3.67$
    5.03
    
    
    
    
    
    
    $
    5.89
    
    
    
    5,297
    
    
    
    14.23
    
    
    
    5.52
    
    
    
    1,739
    
    
    
    5.53$
    5.90
    
    
    
    
    
    
    $
    7.22
    
    
    
    8,006
    
    
    
    15.47
    
    
    
    6.67
    
    
    
    5,820
    
    
    
    6.80$
    7.24
    
    
    
    
    
    
    $
    9.19
    
    
    
    4,804
    
    
    
    7.80
    
    
    
    8.08
    
    
    
    1,602
    
    
    
    8.15$
    9.26
    
    
    
    
    
    
    $
    10.06
    
    
    
    5,442
    
    
    
    7.00
    
    
    
    9.92
    
    
    
    923
    
    
    
    9.97$
    10.06
    
    
    
    
    
    
    $
    11.34
    
    
    
    4,494
    
    
    
    7.25
    
    
    
    10.81
    
    
    
    468
    
    
    
    10.67$
    11.37
    
    
    
    
    
    
    $
    46.00
    
    
    
    2,567
    
    
    
    9.58
    
    
    
    19.95
    
    
    
    1,264
    
    
    
    28.75$
    46.18
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    12.69
    
    
    
    48.18
    
    
    
    10
    
    
    
    46.1835,808
    
    
    
    10.67
    
    
    $
    8.31
    
    
    
    14,323
    
    
    $
    8.55
  Employee Stock Purchase Plan
 Years Ended December 31,2006
    
    2005
    
    2004Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    5.12
    %
    
    
    2.69
    %
    
    
    2.29
    %Expected life (years)
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5Volatility
    
    
    49
    %
    
    
    54
    %
    
    
    61
    %
 Repurchase of Common Stock.
  24




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
 Note 14. Income Taxes
  Years Ended December 31,2006
    
    
    2005
    
    
    2004United States operations
    
    $
    228,668
    
    
    $
    430,549
    
    
    $
    (24,300
    )Foreign operations
    
    
    (915
    )
    
    
    (1,006
    )
    
    
    1,825Income (loss) before income taxes
    
    $
    227,753
    
    
    $
    429,543
    
    
    $
    (22,475
    )
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Current:United States Federal
    
    $
    20,683
    
    
    $
    8,055
    
    
    $
    State and local
    
    
    3,643
    
    
    
    1,362
    
    
    
    Foreign
    
    
    3,225
    
    
    
    549
    
    
    
    522Total current
    
    
    27,551
    
    
    
    9,966
    
    
    
    522Deferred:United States Federal
    
    
    53,648
    
    
    
    106,981
    
    
    
    State and local
    
    
    3,206
    
    
    
    748
    
    
    
    Foreign
    
    
    (1,868
    )
    
    
    (497
    )
    
    
    Total deferred
    
    
    54,986
    
    
    
    107,232
    
    
    
    Total income tax expense
    
    $
    82,537
    
    
    $
    117,198
    
    
    $
    522
  Years Ended December 31,2006
    
    
    2005
    
    
    2004United States federal tax expense (benefit) at statutory rate
    
    $
    79,714
    
    
    $
    150,340
    
    
    $
    (7,866
    )State taxes, net of United States federal tax benefit
    
    
    3,127
    
    
    
    3,497
    
    
    
    Change in valuation allowance
    
    
    1,757
    
    
    
    (41,993
    )
    
    
    10,409Other
    
    
    (2,061
    )
    
    
    5,354
    
    
    
    (2,021
    )Total income tax expense
    
    $
    82,537
    
    
    $
    117,198
    
    
    $
    522
 25




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
  December 31,2006
    
    
    2005Deferred tax assets:United States Federal net operating loss carryforwards
    
    $
    17,521
    
    
    $
    65,884Deferred expenses
    
    
    17,290
    
    
    
    13,366Net unrealized loss on investments
    
    
    10,772
    
    
    
    9,757Capital loss carryforwards
    
    
    7,713
    
    
    
    1,804Accrued loss on excess office facilities
    
    
    5,212
    
    
    
    6,547Stock-based compensation
    
    
    5,023
    
    
    
    State net operating loss carryforwards
    
    
    2,636
    
    
    
    5,072Foreign net operating loss carryforwards
    
    
    1,766
    
    
    
    882Cash rights liability
    
    
    1,483
    
    
    
    Deferred revenue
    
    
    715
    
    
    
    2,727Alternative minimum tax (AMT) carryforwards
    
    
    
    
    
    
    8,055Research and development credit carryforwards
    
    
    
    
    
    
    7,084Other
    
    
    7,143
    
    
    
    6,155Gross deferred tax assets
    
    
    77,274
    
    
    
    127,333Less valuation allowance
    
    
    35,222
    
    
    
    36,250Gross deferred tax assets, net of valuation allowance
    
    
    42,052
    
    
    
    91,083Deferred tax liabilities:Other intangible assets
    
    
    (28,957
    )
    
    
    Net unrealized gains on investments
    
    
    (6,973
    )
    
    
    (15,490
    )Other foreign deferred tax liabilities
    
    
    (2,973
    )
    
    
    Prepaid expenses
    
    
    (2,184
    )
    
    
    (2,242
    )Gross deferred tax liabilities
    
    
    (41,087
    )
    
    
    (17,732
    )Net deferred tax assets
    
    $
    965
    
    
    $
    73,351
     26




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
   Note 15. Commitments and Contingencies
 Commitments.
 OtherOffice
    
    
    ContractualLeases
    
    
    Obligations
    
    
    Total2007
    
    $
    15,042
    
    
    $
    2,959
    
    
    $
    18,0012008
    
    
    14,491
    
    
    
    2,656
    
    
    
    17,1472009
    
    
    13,481
    
    
    
    2,490
    
    
    
    15,9712010
    
    
    12,159
    
    
    
    2,330
    
    
    
    14,4892011
    
    
    7,815
    
    
    
    
    
    
    
    7,815Thereafter
    
    
    16,558
    
    
    
    
    
    
    
    16,558Total minimum payments
    
    
    79,546
    
    
    
    10,435
    
    
    
    89,981Less future minimum receipts under subleases
    
    
    9,946
    
    
    
    
    
    
    
    9,946Net
    
    $
    69,600
    
    
    $
    10,435
    
    
    $
    80,035
   Borrowing Arrangements
   27




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
  4 01(k) Retirement Savings Plan.
 Litigation
     28




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
 Note 16. Guarantees
 Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Othersan
interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34
  Note 17. Segment Information
 Disclosure About Segments of an
Enterprise and Related Information
  Years Ended December 31,2006
    
    
    2005
    
    
    2004United States
    
    $
    283,433
    
    
    $
    249,855
    
    
    $
    202,574Europe
    
    
    62,270
    
    
    
    44,867
    
    
    
    40,222Asia
    
    
    46,291
    
    
    
    27,916
    
    
    
    21,439Rest of the World
    
    
    3,267
    
    
    
    2,421
    
    
    
    2,484Total net revenue
    
    $
    395,261
    
    
    $
    325,059
    
    
    $
    266,719
  
    
    Consumer Products and Services segment primarily includes revenue
from: digital media subscription services such as Rhapsody,
RadioPass, GamePass and SuperPass; sales and distribution of
third-party software and services; sales of digital content such
as music and game downloads; sales of premium versions of our
RealPlayer and related products; and advertising. These products
and services are sold and provided primarily through the Internet
and the Company charges customers credit cards at the time of
sale. Billing periods for subscription services typically occur
monthly, quarterly or annually, depending on the service
purchased.
 
    
    Technology Products and Solutions segment includes revenue from:
sales of video-on-demand, music-on-demand, ringback tones, and
messaging services; sales of our media delivery system software,
including Helix system software and related authoring and
publishing tools, both directly to customers and indirectly
through original equipment manufacturer (OEM) channels; support
and maintenance services that we sell to customers who purchase
our software products; broadcast hosting services; and consulting
services we offer to our customers. These products and services
are primarily sold to corporate customers.
 29




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Consumer Products and Services
    
    $
    322,772
    
    
    $
    279,964
    
    
    $
    218,343Technology Products and Solutions
    
    
    72,489
    
    
    
    45,095
    
    
    
    48,376Total net revenue
    
    $
    395,261
    
    
    $
    325,059
    
    
    $
    266,719
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Music
    
    $
    123,033
    
    
    $
    101,769
    
    
    $
    68,190Media software and services
    
    
    113,503
    
    
    
    121,918
    
    
    
    115,618Games
    
    
    86,236
    
    
    
    56,277
    
    
    
    34,535Total Consumer Products and Services revenue
    
    $
    322,772
    
    
    $
    279,964
    
    
    $
    218,343
  December 31,2006
    
    
    2005United States
    
    $
    172,846
    
    
    $
    148,732Republic of Korea
    
    
    256,032
    
    
    
    Europe
    
    
    26,807
    
    
    
    14,771Rest of the World
    
    
    6,289
    
    
    
    302Total
    
    $
    461,974
    
    
    $
    163,805
  December 31,2006
    
    
    2005United States
    
    $
    621,532
    
    
    $
    826,480Republic of Korea
    
    
    314,106
    
    
    
    Europe
    
    
    26,298
    
    
    
    14,623Rest of the World
    
    
    7,830
    
    
    
    630Total
    
    $
    969,766
    
    
    $
    841,733
  December 31,2006
    
    
    2005Consumer Products and Services
    
    $
    131,997
    
    
    $
    117,340Technology Products and Solutions
    
    
    177,125
    
    
    
    5,990Total goodwill, net
    
    $
    309,122
    
    
    $
    123,330
 30




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
  Consumer Products
    
    
    Technology Products
    
    
    Reconcilingand Services
    
    
    and Solutions
    
    
    Amounts
    
    
    ConsolidatedNet revenue
    
    $
    322,772
    
    
    $
    72,489
    
    
    $
    
    
    
    $
    395,261Cost of revenue
    
    
    101,995
    
    
    
    22,113
    
    
    
    
    
    
    
    124,108Gross profit
    
    
    220,777
    
    
    
    50,376
    
    
    
    
    
    
    
    271,153Loss on excess office facilities
    
    
    
    
    
    
    
    
    
    
    738
    
    
    
    738Antitrust litigation benefit, net
    
    
    
    
    
    
    
    
    
    
    (220,410
    )
    
    
    (220,410
    )Other operating expenses
    
    
    242,385
    
    
    
    57,935
    
    
    
    
    
    
    
    300,320Operating income (loss)
    
    
    (21,608
    )
    
    
    (7,559
    )
    
    
    219,672
    
    
    
    190,505Total non-operating expenses, net
    
    
    
    
    
    
    
    
    
    
    37,248
    
    
    
    37,248Income (loss) before income taxes
    
    $
    (21,608
    )
    
    $
    (7,559
    )
    
    $
    256,920
    
    
    $
    227,753
  Consumer Products
    
    
    Technology Products
    
    
    Reconcilingand Services
    
    
    and Solutions
    
    
    Amounts
    
    
    ConsolidatedNet revenue
    
    $
    279,964
    
    
    $
    45,095
    
    
    $
    
    
    
    $
    325,059Cost of revenue
    
    
    90,104
    
    
    
    8,145
    
    
    
    
    
    
    
    98,249Gross profit
    
    
    189,860
    
    
    
    36,950
    
    
    
    
    
    
    
    226,810Antitrust litigation benefit, net
    
    
    
    
    
    
    
    
    
    
    (422,500
    )
    
    
    (422,500
    )Other operating expenses
    
    
    197,902
    
    
    
    54,041
    
    
    
    
    
    
    
    251,943Operating income (loss)
    
    
    (8,042
    )
    
    
    (17,091
    )
    
    
    422,500
    
    
    
    397,367Total non-operating expenses, net
    
    
    
    
    
    
    
    
    
    
    32,176
    
    
    
    32,176Income (loss) before income taxes
    
    $
    (8,042
    )
    
    $
    (17,091
    )
    
    $
    454,676
    
    
    $
    429,543
  Consumer Products
    
    
    Technology Products
    
    
    Reconcilingand Services
    
    
    and Solutions
    
    
    Amounts
    
    
    ConsolidatedNet revenue
    
    $
    218,343
    
    
    $
    48,376
    
    
    $
    
    
    
    $
    266,719Cost of revenue
    
    
    83,968
    
    
    
    8,239
    
    
    
    
    
    
    
    92,207Loss on content agreement
    
    
    4,938
    
    
    
    
    
    
    
    
    
    
    
    4,938Gross profit
    
    
    129,437
    
    
    
    40,137
    
    
    
    
    
    
    
    169,574Loss on excess office facilities
    
    
    
    
    
    
    
    
    
    
    866
    
    
    
    866Antitrust litigation expenses, net
    
    
    
    
    
    
    
    
    
    
    11,048
    
    
    
    11,048Other operating expenses
    
    
    128,299
    
    
    
    51,084
    
    
    
    
    
    
    
    180,383Operating income (loss)
    
    
    138
    
    
    
    (10,947
    )
    
    
    (11,914
    )
    
    
    (22,723
    )Total non-operating expenses, net
    
    
    
    
    
    
    
    
    
    
    248
    
    
    
    248Income (loss) before income taxes
    
    $
    138
    
    
    $
    (10,947
    )
    
    $
    (11,666
    )
    
    $
    (22,475
    )
  31




---



##### Table of Contents



REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued
 Note 18. Quarterly Information (Unaudited)
  Total
    
    Dec. 31
    
    Sept. 30
    
    June 30
    
    Mar. 312006:Net revenue
    
    $
    395,261
    
    
    $
    125,574
    
    
    $
    93,676
    
    
    $
    89,409
    
    
    $
    86,602Gross profit
    
    
    271,153
    
    
    
    83,254
    
    
    
    65,287
    
    
    
    62,763
    
    
    
    59,849Operating income
    
    
    190,505
    
    
    
    52,107
    
    
    
    57,201
    
    
    
    49,659
    
    
    
    31,538Net income
    
    
    145,216
    
    
    
    39,302
    
    
    
    42,153
    
    
    
    38,878
    
    
    
    24,883Basic net income per share(1)
    
    
    0.90
    
    
    
    0.24
    
    
    
    0.26
    
    
    
    0.24
    
    
    
    0.15Diluted net income per share(1)
    
    
    0.81
    
    
    
    0.22
    
    
    
    0.24
    
    
    
    0.22
    
    
    
    0.142005:Net revenue
    
    $
    325,059
    
    
    $
    83,568
    
    
    $
    82,233
    
    
    $
    82,686
    
    
    $
    76,572Gross profit
    
    
    226,810
    
    
    
    59,592
    
    
    
    57,538
    
    
    
    57,845
    
    
    
    51,835Operating income (loss)
    
    
    397,367
    
    
    
    402,384
    
    
    
    (129
    )
    
    
    (5,087
    )
    
    
    199Net income
    
    
    312,345
    
    
    
    295,640
    
    
    
    11,182
    
    
    
    4,709
    
    
    
    814Basic net income per share(1)
    
    
    1.84
    
    
    
    1.76
    
    
    
    0.07
    
    
    
    0.03
    
    
    
    0.00Diluted net income per share
    
    
    1.70
    
    
    
    1.61
    
    
    
    0.06
    
    
    
    0.03
    
    
    
    0.00
 
 (1)
    
    The sum of the quarterly net income per share will not necessarily equal the
net income per share for the year due to the effects of rounding.  Litigation.
  32




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 The Board of Directors and Shareholders
RealNetworks, Inc.:
    Share-Based Payment
   
 33




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 The Board of Directors and Shareholders
RealNetworks, Inc.:
         
 34




---



##### Table of Contents



PART III.
 
 Item 10. Directors and Executive Officers of the Registrant
   
 Item 11. Executive Compensation
  
 Item 12. Security Ownership
of Certain Beneficial Owners and Management and Related Shareholder
Matters
  Equity Compensation Plans
    Number of SecuritiesRemaining AvailableNumber of Securities
    
    
    
    
    
    for Future Issuanceto be Issued upon
    
    Weight-average
    
    under EquityExercise of
    
    Exercise Price of
    
    Compensation PlansOutstanding Options,
    
    Outstanding Options,
    
    (Excluding SecuritiesWarrants and Rights
    
    Warrants and Rights
    
    Reflected in Column (a))Plan Category
    
    (in 000s) (a)
    
    (b)
    
    (in 000s) (c)Equity compensation plans approved by security holders
    
    
    35,263
    
    
    $
    8.27
    
    
    
    5,385
    (1)Equity compensation plans not approved by security holders
    
    
    545
    
    
    $
    10.74
    
    
    
    Total
    
    
    35,808
    
    
    $
    8.31
    
    
    
    5,385
 
 (1)
    
    Excludes 318,331 shares available for future issuance under the Director Stock Plan
which enables non-employee Directors of RealNetworks to receive all or a portion of their
quarterly compensation for Board service in shares of RealNetworks Common Stock in lieu of
cash. The number of shares of Common Stock to be issued in respect of quarterly fees payable
to non-employee Directors is equal to the amount of such fees to be paid in shares of Common
Stock, as elected by each non-member Director, divided by the market value of a share of
Common Stock on the last business day of each calendar quarter. 35




---



##### Table of Contents



Equity Compensation Plans Not Approved By Security Holders.
 
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
  
 PART IV.
 
 Item 15. Exhibits and Financial Statement Schedules
 Index to Exhibits
 ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Merger and Reorganization by and among
RealNetworks, Inc., Symphony Acquisition Corp. I, Symphony
Acquisition Corp. II, Listen.Com, Inc., Mellon Investor
Services LLC, as Escrow Agent and Robert Reid, as Shareholder
Representative dated as of April 21, 2003 (incorporated by
reference from Exhibit 2.1 to RealNetworks, Inc.s Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
2003 filed with the Securities and Exchange Commission on
August 14, 2003)2.2
    
    Combination Agreement by and among RealNetworks, Inc., RN
International Holdings B.V. and WiderThan Co., Ltd. dated as
of September 12, 2006 (incorporated by reference from Exhibit
2.1 to RealNetworks Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 14, 2006)3.1
    
    Amended and Restated Articles of Incorporation (incorporated
by reference from Exhibit 3.1 to RealNetworks Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
2000 filed with the Securities and Exchange Commission on
August 11, 2000)3.2
    
    Amended and Restated Bylaws (incorporated by reference from
Exhibit 3.2 to RealNetworks Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1998 filed with the
Securities and Exchange Commission on November 13, 1998)3.3
    
    Amendment No. 1 dated April 22, 2003 to Amended and Restated
Bylaws of RealNetworks, Inc. Adopted July 16, 1998
(incorporated by reference from Exhibit 3.1 to RealNetworks
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2003 filed with the Securities and Exchange
Commission on August 14, 2003)4.1
    
    Shareholder Rights Plan dated as of December 4, 1998 between
RealNetworks, Inc. and Mellon Investor Services LLC (formerly
Chase Mellon Shareholder Services, L.L.C.) (incorporated by
reference from Exhibit 1 to RealNetworks Registration
Statement on Form 8-A12G filed with the Securities and
Exchange Commission on December 14, 1998)4.2
    
    Amendment No. 1 dated as of January 21, 2000 to Shareholder
Rights Plan between RealNetworks, Inc. and Mellon Investor
Services LLC (formerly Chase Mellon Shareholder Services,
L.L.C.) (incorporated by reference from Exhibit 1 to
RealNetworks Registration Statement on Form 8-A12G/A filed
with the Securities and Exchange Commission on February 7,
2000)
 36




---



##### Table of Contents



ExhibitNumber
    
    Description4.3
    
    Amendment No. 2 dated as of May 30, 2000 to Shareholder Rights
Plan between RealNetworks, Inc. and Mellon Investor Services
LLC (formerly Chase Mellon Shareholder Services, L.L.C.)
(incorporated by reference from Exhibit 1 to RealNetworks
Registration Statement on Form 8-A12G/A filed with the
Securities and Exchange Commission on June 8, 2000)4.4
    
    Third Amended and Restated Investors Rights Agreement dated
March 24, 1998 by and among RealNetworks, Inc. and certain
shareholders of RealNetworks (incorporated by reference from
Exhibit 10.16 to RealNetworks Annual Report on Form 10-K for
the year ended December 31, 1997 filed with the Securities and
Exchange Commission on March 30, 1998)4.5
    
    Indenture dated as of June 17, 2003 between RealNetworks, Inc.
and U.S. Bank National Association, including the form of Zero
Coupon Subordinated Note due 2010 included in Section 2.2
thereof (incorporated by reference from Exhibit 4.1 to
RealNetworks Amendment No. 1 to Registration Statement on
Form S-3 filed with the Securities and Exchange Commission on
November 18, 2003)4.6
    
    Registration Rights Agreement dated as of June 17, 2003,
between RealNetworks, Inc. and Goldman, Sachs & Co.
(incorporated by reference from Exhibit 4.3 to RealNetworks
Registration Statement on Form S-3 filed with the Securities
and Exchange Commission on September 12, 2003)10.1
    
    RealNetworks, Inc. 1995 Stock Option Plan (incorporated by
reference from Exhibit 99.1 to RealNetworks Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on September 14, 1998)10.2
    
    RealNetworks, Inc. 1996 Stock Option Plan, as amended and
restated on June 1, 2001 (incorporated by reference from
Exhibit 10.1 to RealNetworks Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2001 filed with the
Securities and Exchange Commission on August 13, 2001)10.3
    
    RealNetworks, Inc. 2000 Stock Option Plan, as amended and
restated on June 1, 2001 (incorporated by reference from
Exhibit 10.2 to RealNetworks Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2001 filed with the
Securities and Exchange Commission on August 13, 2001)10.4
    
    RealNetworks, Inc. 2002 Director Stock Option Plan
(incorporated by reference from Exhibit 10.2 to RealNetworks
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2002 filed with the Securities and Exchange
Commission on July 25, 2002)10.5
    
    Form of Stock Option Agreement under the RealNetworks, Inc.
1996 Stock Option Plan, as amended and restated (incorporated
by reference from Exhibit 10.1 to RealNetworks Quarterly
Report on Form 10-Q for the quarterly period ended September
30, 2002 filed with the Securities and Exchange Commission on
November 14, 2002)10.6
    
    Form of Stock Option Agreement under the RealNetworks, Inc.
2000 Stock Option Plan, as amended and restated (incorporated
by reference from Exhibit 10.2 to RealNetworks Quarterly
Report on Form 10-Q for the quarterly period ended September
30, 2002 filed with the Securities and Exchange Commission on
November 14, 2002)10.7
    
    Forms of Stock Option Agreement under the RealNetworks, Inc.
2002 Director Stock Option Plan (incorporated by reference
from Exhibit 10.3 to RealNetworks Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2002 filed
with the Securities and Exchange Commission on November 14,
2002)10.8
    
    RealNetworks, Inc. 1998 Employee Stock Purchase Plan, as
amended and restated on December 15, 2005 (incorporated by
reference from Exhibit 10.8 to RealNetworks Annual Report on
Form 10-K for the year ended December 31, 2005 filed with the
Securities and Exchange Commission on March 16, 2006)10.9
    
    RealNetworks, Inc. Director Compensation Stock Plan
(incorporated by reference from Exhibit 10.10 to RealNetworks
Annual Report on Form 10-K for the year ended December 31,
2003 filed with the Securities and Exchange Commission on
March 15, 2004)10.10
    
    RealNetworks, Inc. 2005 Stock Incentive Plan (incorporated by
reference from Exhibit 10.1 to RealNetworks Current Report on
Form 8-K filed with the Securities and Exchange Commission on
June 15, 2005)
 37




---



##### Table of Contents



ExhibitNumber
    
    Description10.11**
    
    Form on Non-Qualified Stock Option Terms and Conditions for
use under the RealNetworks, Inc. 2005 Stock Incentive Plan10.12**
    
    Form of Restricted Stock Units Terms and Conditions for use
under the RealNetworks, Inc. 2005 Stock Incentive Plan10.13
    
    Lease dated January 21, 1998 between RealNetworks, Inc. as
Lessee and 2601 Elliott, LLC, as amended (incorporated by
reference from Exhibit 10.1 to RealNetworks Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 2004
filed with the Securities and Exchange Commission on November
9, 2004)10.14
    
    Form of Director and Officer Indemnification Agreement
(incorporated by reference from Exhibit 10.14 to RealNetworks
Registration Statement on Form S-1 filed with the Securities
and Exchange Commission on September 26, 1997 (File No.
333-36553))10.15
    
    Voting Agreement dated September 25, 1997 by and among
RealNetworks, Robert Glaser, Accel IV L.P., Mitchell Kapor and
Bruce Jacobsen (incorporated by reference from Exhibit 10.17
to RealNetworks Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on September 26, 1997
(File No. 333-36553))10.16
    
    Agreement dated September 26, 1997 by and between RealNetworks
and Robert Glaser (incorporated by reference from Exhibit
10.18 to RealNetworks Registration Statement on Form S-1
filed with the Securities and Exchange Commission on September
26, 1997 (File No. 333-36553))10.17
    
    Offer Letter dated March 31, 2005 between RealNetworks, Inc.
and John Giamatteo (incorporated by reference from Exhibit
10.1 to RealNetworks Current Report on Form 8-K filed with
the Securities and Exchange Commission on June 6, 2005)10.18
    
    Offer Letter dated September 18, 2003 between RealNetworks,
Inc. and Dan Sheeran (incorporated by reference from Exhibit
10.18 to RealNetworks Annual Report on form 10-K for the year
ended December 31, 2005 filed with the Securities and Exchange
Commission on March 16, 2005)10.19
    
    Offer Letter dated February 13, 2006 between RealNetworks,
Inc. and Michael Eggers (incorporated by reference from
Exhibit 10.19 to RealNetworks Annual Report on form 10-K for
the year ended December 31, 2005 filed with the Securities and
Exchange Commission on March 16, 2006)10.20
    
    Offer Letter dated April 2, 2004 between RealNetworks, Inc.
and Sid Ferrales (incorporated by reference from Exhibit 10.20
to RealNetworks Annual Report on form 10-K for the year ended
December 31, 2005 filed with the Securities and Exchange
Commission on March 16, 2006)10.21
    
    Agreement dated February 1, 2006 between RealNetworks, Inc.
and Rob Glaser (incorporated by reference from Exhibit 10.1 to
RealNetworks Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 3, 2006)10.22
    
    Agreement dated November 30, 2005 between RealNetworks, Inc.
and Bob Kimball (incorporated by reference from Exhibit 10.22
to RealNetworks Annual Report on form 10-K for the year ended
December 31, 2005 filed with the Securities and Exchange
Commission on March 16, 2006)10.23
    
    Agreement dated November 30, 2005 between RealNetworks, Inc.
and Dan Sheeran (incorporated by reference from Exhibit 10.23
to RealNetworks Annual Report on form 10-K for the year ended
December 31, 2005 filed with the Securities and Exchange
Commission on March 16, 2006)10.24*
    
    Amended and Restated Settlement Agreement dated as of March
10, 2006 between RealNetworks, Inc. and Microsoft Corporation
(incorporated by reference from Exhibit 10.24 to RealNetworks
Annual Report on form 10-K for the year ended December 31,
2005 filed with the Securities and Exchange Commission on
March 16, 2006)14.1
    
    RealNetworks, Inc. Code of Business Conduct and Ethics
(incorporated by reference from Exhibit 14.1 to RealNetworks
Annual Report on Form 10-K for the year ended December 31,
2003 filed with the Securities and Exchange Commission on
March 15, 2004)
 38




---



##### Table of Contents



ExhibitNumber
    
    Description21.1**
    
    Subsidiaries of RealNetworks, Inc.23.1
    
    Consent of KPMG LLP24.1**
    
    Power of Attorney31.1
    
    Certification of Robert Glaser, Chairman and Chief Executive
Officer of RealNetworks, Inc., Pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 200231.2
    
    Certification of Michael Eggers, Senior Vice President, Chief
Financial Officer and Treasurer of RealNetworks, Inc.,
Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    Certification of Robert Glaser, Chairman and Chief Executive
Officer of RealNetworks, Inc., Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2
    
    Certification of Michael Eggers, Senior Vice President, Chief
Financial Officer and Treasurer of RealNetworks, Inc.,
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 
    
    Executive Compensation Plan or Agreement*
    
    Portions of the Agreement are subject to confidential treatment**
    
    Previously filed with RealNetworks Annual Report on Form 10-K for the year ended December 31,
2006. 39




---



##### Table of Contents



SIGNATURES
  REALNETWORKS, INC.By:

/s/ MICHAEL EGGERSMichael EggersSenior Vice President, Chief Financial Officer and Treasurer  Signature
    
    Title*
    
    Chairman of the Board and Chief Executive OfficerRobert Glaser
    
    (Principal
Executive Officer)/s/ MICHAEL EGGERS
    
    Senior Vice President, Chief Financial Officer and TreasurerMichael Eggers
    
    (Principal
Financial and Accounting Officer)*
    
    DirectorEric A. Benhamou*
    
    DirectorEdward Bleier*
    
    DirectorJames W. Breyer*
    
    DirectorJeremy Jaech*
    
    DirectorJonathan D. Klein*
    
    DirectorKalpana Raina
 *By:
    
    /s/ MICHAEL EGGERSAttorney-in-fact
 40




---



##### Table of Contents



Exhibit Index
 ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Merger and Reorganization by and among
RealNetworks, Inc., Symphony Acquisition Corp. I, Symphony
Acquisition Corp. II, Listen.Com, Inc., Mellon Investor
Services LLC, as Escrow Agent and Robert Reid, as Shareholder
Representative dated as of April 21, 2003 (incorporated by
reference from Exhibit 2.1 to RealNetworks, Inc.s Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
2003 filed with the Securities and Exchange Commission on
August 14, 2003)2.2
    
    Combination Agreement by and among RealNetworks, Inc., RN
International Holdings B.V. and WiderThan Co., Ltd. dated as
of September 12, 2006 (incorporated by reference from Exhibit
2.1 to RealNetworks Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 14, 2006)3.1
    
    Amended and Restated Articles of Incorporation (incorporated
by reference from Exhibit 3.1 to RealNetworks Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
2000 filed with the Securities and Exchange Commission on
August 11, 2000)3.2
    
    Amended and Restated Bylaws (incorporated by reference from
Exhibit 3.2 to RealNetworks Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1998 filed with the
Securities and Exchange Commission on November 13, 1998)3.3
    
    Amendment No. 1 dated April 22, 2003 to Amended and Restated
Bylaws of RealNetworks, Inc. Adopted July 16, 1998
(incorporated by reference from Exhibit 3.1 to RealNetworks
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2003 filed with the Securities and Exchange
Commission on August 14, 2003)4.1
    
    Shareholder Rights Plan dated as of December 4, 1998 between
RealNetworks, Inc. and Mellon Investor Services LLC (formerly
Chase Mellon Shareholder Services, L.L.C.) (incorporated by
reference from Exhibit 1 to RealNetworks Registration
Statement on Form 8-A12G filed with the Securities and
Exchange Commission on December 14, 1998)4.2
    
    Amendment No. 1 dated as of January 21, 2000 to Shareholder
Rights Plan between RealNetworks, Inc. and Mellon Investor
Services LLC (formerly Chase Mellon Shareholder Services,
L.L.C.) (incorporated by reference from Exhibit 1 to
RealNetworks Registration Statement on Form 8-A12G/A filed
with the Securities and Exchange Commission on February 7,
2000)4.3
    
    Amendment No. 2 dated as of May 30, 2000 to Shareholder Rights
Plan between RealNetworks, Inc. and Mellon Investor Services
LLC (formerly Chase Mellon Shareholder Services, L.L.C.)
(incorporated by reference from Exhibit 1 to RealNetworks
Registration Statement on Form 8-A12G/A filed with the
Securities and Exchange Commission on June 8, 2000)4.4
    
    Third Amended and Restated Investors Rights Agreement dated
March 24, 1998 by and among RealNetworks, Inc. and certain
shareholders of RealNetworks (incorporated by reference from
Exhibit 10.16 to RealNetworks Annual Report on Form 10-K for
the year ended December 31, 1997 filed with the Securities and
Exchange Commission on March 30, 1998)4.5
    
    Indenture dated as of June 17, 2003 between RealNetworks, Inc.
and U.S. Bank National Association, including the form of Zero
Coupon Subordinated Note due 2010 included in Section 2.2
thereof (incorporated by reference from Exhibit 4.1 to
RealNetworks Amendment No. 1 to Registration Statement on
Form S-3 filed with the Securities and Exchange Commission on
November 18, 2003)4.6
    
    Registration Rights Agreement dated as of June 17, 2003,
between RealNetworks, Inc. and Goldman, Sachs & Co.
(incorporated by reference from Exhibit 4.3 to RealNetworks
Registration Statement on Form S-3 filed with the Securities
and Exchange Commission on September 12, 2003)10.1
    
    RealNetworks, Inc. 1995 Stock Option Plan (incorporated by
reference from Exhibit 99.1 to RealNetworks Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on September 14, 1998)
 41




---



##### Table of Contents



ExhibitNumber
    
    Description10.2
    
    RealNetworks, Inc. 1996 Stock Option Plan, as amended and
restated on June 1, 2001 (incorporated by reference from
Exhibit 10.1 to RealNetworks Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2001 filed with the
Securities and Exchange Commission on August 13, 2001)10.3
    
    RealNetworks, Inc. 2000 Stock Option Plan, as amended and
restated on June 1, 2001 (incorporated by reference from
Exhibit 10.2 to RealNetworks Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2001 filed with the
Securities and Exchange Commission on August 13, 2001)10.4
    
    RealNetworks, Inc. 2002 Director Stock Option Plan
(incorporated by reference from Exhibit 10.2 to RealNetworks
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2002 filed with the Securities and Exchange
Commission on July 25, 2002)10.5
    
    Form of Stock Option Agreement under the RealNetworks, Inc.
1996 Stock Option Plan, as amended and restated (incorporated
by reference from Exhibit 10.1 to RealNetworks Quarterly
Report on Form 10-Q for the quarterly period ended September
30, 2002 filed with the Securities and Exchange Commission on
November 14, 2002)10.6
    
    Form of Stock Option Agreement under the RealNetworks, Inc.
2000 Stock Option Plan, as amended and restated (incorporated
by reference from Exhibit 10.2 to RealNetworks Quarterly
Report on Form 10-Q for the quarterly period ended September
30, 2002 filed with the Securities and Exchange Commission on
November 14, 2002)10.7
    
    Forms of Stock Option Agreement under the RealNetworks, Inc.
2002 Director Stock Option Plan (incorporated by reference
from Exhibit 10.3 to RealNetworks Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2002 filed
with the Securities and Exchange Commission on November 14,
2002)10.8
    
    RealNetworks, Inc. 1998 Employee Stock Purchase Plan, as
amended and restated on December 15, 2005 (incorporated by
reference from Exhibit 10.8 to RealNetworks Annual Report on
Form 10-K for the year ended December 31, 2005 filed with the
Securities and Exchange Commission on March 16, 2006)10.9
    
    RealNetworks, Inc. Director Compensation Stock Plan
(incorporated by reference from Exhibit 10.10 to RealNetworks
Annual Report on Form 10-K for the year ended December 31,
2003 filed with the Securities and Exchange Commission on
March 15, 2004)10.10
    
    RealNetworks, Inc. 2005 Stock Incentive Plan (incorporated by
reference from Exhibit 10.1 to RealNetworks Current Report on
Form 8-K filed with the Securities and Exchange Commission on
June 15, 2005)10.11**
    
    Form on Non-Qualified Stock Option Terms and Conditions for
use under the RealNetworks, Inc. 2005 Stock Incentive Plan10.12**
    
    Form of Restricted Stock Units Terms and Conditions for use
under the RealNetworks, Inc. 2005 Stock Incentive Plan10.13
    
    Lease dated January 21, 1998 between RealNetworks, Inc. as
Lessee and 2601 Elliott, LLC, as amended (incorporated by
reference from Exhibit 10.1 to RealNetworks Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 2004
filed with the Securities and Exchange Commission on November
9, 2004)10.14
    
    Form of Director and Officer Indemnification Agreement
(incorporated by reference from Exhibit 10.14 to RealNetworks
Registration Statement on Form S-1 filed with the Securities
and Exchange Commission on September 26, 1997 (File No.
333-36553))10.15
    
    Voting Agreement dated September 25, 1997 by and among
RealNetworks, Robert Glaser, Accel IV L.P., Mitchell Kapor and
Bruce Jacobsen (incorporated by reference from Exhibit 10.17
to RealNetworks Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on September 26, 1997
(File No. 333-36553))10.16
    
    Agreement dated September 26, 1997 by and between RealNetworks
and Robert Glaser (incorporated by reference from Exhibit
10.18 to RealNetworks Registration Statement on Form S-1
filed with the Securities and Exchange Commission on September
26, 1997 (File No. 333-36553))
 42




---



##### Table of Contents



ExhibitNumber
    
    Description10.17
    
    Offer Letter dated March 31, 2005 between RealNetworks, Inc.
and John Giamatteo (incorporated by reference from Exhibit
10.1 to RealNetworks Current Report on Form 8-K filed with
the Securities and Exchange Commission on June 6, 2005)10.18
    
    Offer Letter dated September 18, 2003 between RealNetworks,
Inc. and Dan Sheeran (incorporated by reference from Exhibit
10.18 to RealNetworks Annual Report on form 10-K for the year
ended December 31, 2005 filed with the Securities and Exchange
Commission on March 16, 2005)10.19
    
    Offer Letter dated February 13, 2006 between RealNetworks,
Inc. and Michael Eggers (incorporated by reference from
Exhibit 10.19 to RealNetworks Annual Report on form 10-K for
the year ended December 31, 2005 filed with the Securities and
Exchange Commission on March 16, 2006)10.20
    
    Offer Letter dated April 2, 2004 between RealNetworks, Inc.
and Sid Ferrales (incorporated by reference from Exhibit 10.20
to RealNetworks Annual Report on form 10-K for the year ended
December 31, 2005 filed with the Securities and Exchange
Commission on March 16, 2006)10.21
    
    Agreement dated February 1, 2006 between RealNetworks, Inc.
and Rob Glaser (incorporated by reference from Exhibit 10.1 to
RealNetworks Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 3, 2006)10.22
    
    Agreement dated November 30, 2005 between RealNetworks, Inc.
and Bob Kimball (incorporated by reference from Exhibit 10.22
to RealNetworks Annual Report on form 10-K for the year ended
December 31, 2005 filed with the Securities and Exchange
Commission on March 16, 2006)10.23
    
    Agreement dated November 30, 2005 between RealNetworks, Inc.
and Dan Sheeran (incorporated by reference from Exhibit 10.23
to RealNetworks Annual Report on form 10-K for the year ended
December 31, 2005 filed with the Securities and Exchange
Commission on March 16, 2006)10.24*
    
    Amended and Restated Settlement Agreement dated as of March
10, 2006 between RealNetworks, Inc. and Microsoft Corporation
(incorporated by reference from Exhibit 10.24 to RealNetworks
Annual Report on form 10-K for the year ended December 31,
2005 filed with the Securities and Exchange Commission on
March 16, 2006)14.1
    
    RealNetworks, Inc. Code of Business Conduct and Ethics
(incorporated by reference from Exhibit 14.1 to RealNetworks
Annual Report on Form 10-K for the year ended December 31,
2003 filed with the Securities and Exchange Commission on
March 15, 2004)21.1**
    
    Subsidiaries of RealNetworks, Inc.23.1
    
    Consent of KPMG LLP24.1**
    
    Power of Attorney31.1
    
    Certification of Robert Glaser, Chairman and Chief Executive
Officer of RealNetworks, Inc., Pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 200231.2
    
    Certification of Michael Eggers, Senior Vice President, Chief
Financial Officer and Treasurer of RealNetworks, Inc.,
Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    Certification of Robert Glaser, Chairman and Chief Executive
Officer of RealNetworks, Inc., Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2
    
    Certification of Michael Eggers, Senior Vice President, Chief
Financial Officer and Treasurer of RealNetworks, Inc.,
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 
    
    Executive Compensation Plan or Agreement 43




---



##### Table of Contents



*
    
    Portions of the Agreement are subject to confidential treatment**
    
    Previously filed with RealNetworks Annual Report on Form 10-K for the year ended December 31,
2006. 44