##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    December 31, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For 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 1000
    Seattle, Washington(Address of principal
    executive offices)

98121(Zip Code)   Registrants telephone number, including area code:
 (206) 674-2700
  Securities registered pursuant to Section 12(b) of the
    Act:
 Common Stock, Par Value $0.001 per share
  Securities registered pursuant to Section 12(g) of the
    Act:
 None
 (Title of Class)
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 þ o o
  Rule 12b-2 o þ
      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.




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##### 



TABLE OF
    CONTENTS
  PagePART IItem 1.

Business


4Executive Officers
    of the Registrant


12Item 1A.

Risk
    Factors


14Item 1B.

Unresolved Staff
    Comments


26Item 2.

Properties


26Item 3.

Legal
    Proceedings


27Item 4.

Submission of
    Matters to a Vote of Security Holders


27PART IIItem 5.

Market for
    Registrants Common Equity, Related Shareholder Matters and
    Issuer Purchases of Equity Securities


28Item 6.

Selected Financial
    Data


29Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


30Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


51Item 8.

Financial
    Statements and Supplementary Data


54Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


95Item 9A.

Controls and
    Procedures


95Item 9B.

Other
    Information


95PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


96Item 11.

Executive
    Compensation


96Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Shareholder Matters


96Item 13.

Certain
    Relationships and Related Transactions


97Item 14.

Principal
    Accountant Fees and Services


97PART IVItem 15.

Exhibits and
    Financial Statement Schedules


97Exhibit Index


98Signatures


101EXHIBIT 10.11EXHIBIT 10.12EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2   2




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PART I.  This Annual Report on
    Form 10-K
    and the documents incorporated herein by reference contain
    forward-looking statements that have been made pursuant to the
    provisions of the Private Securities Litigation Reform Act of
    1995. These forward-looking statements are based on current
    expectations, estimates, and projections about
    RealNetworks industry, products, managements
    beliefs, and certain assumptions made by management. Words such
    as anticipates, expects,
    intends, plans, believes,
    seeks, estimates, and similar
    expressions are intended to identify forward-looking statements.
    Forward-looking statements include statements with respect
    to:
  
    future revenues, income taxes, net income per diluted share,
    acquisition costs and related amortization, and other measures
    of results of operations;
    the effects of acquiring WiderThan, including our position as
    a technology services provider for leading wireless carriers;
    plans, strategies and expected opportunities for growth,
    increased profitability and innovation in 2007 and future
    years;
    the expected growth and profitability of our Technology
    Products and Solutions business;
    the financial performance and growth of our games business,
    including future international growth;
    the migration of our Media Software and Services businesses
    from general purpose subscription businesses toward premium
    services and
    free-to-consumer
    services, the popularity of the RealPlayer and our expected
    introduction of new products and innovations in our Media
    Software and Services business;
    our ability to grow our music business, including
    opportunities for us to become the platform of choice for the CE
    industry, the integration of our Rhapsody DNA into the digital
    devices of an expanding list of partners and our plans to
    introduce additional innovations;
    the effect of future interoperability on our music business,
    the significance of growth opportunities in the digital music
    market and our expectations for short-term progress and
    long-term success in our music business;
    our financial position and the availability of resources;
    our expectations regarding acquisition activity in 2007 and
    our focus on the integration of completed acquisitions;
    future competition;
    the degree of seasonality in our revenue; and
    our expectations as to the future calculation of our total
    subscriber count.  These statements are not guarantees of future performance and
    actual actions or results may differ materially. These
    statements are subject to certain risks, uncertainties and
    assumptions that are difficult to predict, including those noted
    in the documents incorporated herein by reference. Particular
    attention should also be paid to the cautionary language in the
    section of Item 1 entitled Competition, in
    Item 1A entitled Risk Factors and in
    Item 3 entitled Legal Proceedings. RealNetworks
    undertakes no obligation to update publicly any forward-looking
    statements as a result of new information, future events or
    otherwise, unless required by law. Readers should, however,
    carefully review the risk factors included in other reports or
    documents filed by RealNetworks from time to time with the
    Securities and Exchange Commission, particularly the Quarterly
    Reports on
    Form 10-Q
    and any Current Reports on
    Form 8-K.
 3




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Item 1.Business  Overview
      music-on-demand, video-on-demand
  Consumer
    Products and Services
  Music
    Rhapsody.
   4




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Rhapsody.com.
  RadioPass.
  RealPlayer Music Store.
  RealMusic.
  Media
    Software and Services
    RealPlayer.
  SuperPass.
  Advertising and Third-Party Software.
 5




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Games
        PC Games.
    Mobile Games.
  Technology
    Products and Solutions
     6




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music-on-demand, T-Mobile music-on-demand
      Ringback Tones. and/or
  Music-On-Demand. music-on-demand
  Video-On-Demand. video-on-demand and/or
  Messaging. e-mail
    Helix Server.
 7




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RealProducer.
  Other Technology Licensing.
      Research
    and Development
    Customers
    and Seasonality
      Sales,
    Marketing and Distribution
  e-mail
  Consumer
    Products and Services Marketing
  www.real.com, www.rhapsody.com,
    www.realarcade.com, www.gamehouse.com, www.zylom.com, etc.
 8




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Technology
    Products and Solutions Marketing
    Customer
    Support
  e-mail on-site
  Competition
  and/or
  Consumer
    Products and Services
    peer-to-peer
   9




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Technology
    Products and Solutions
    
    the quality, reliability, price and licensing terms of the
    overall media delivery solution;
    ubiquitous and easy consumer accessibility to media playback
    capability;
    access to distribution channels necessary to achieve broad
    distribution and use of products;
    the ability to license or develop, support, and distribute
    secure formats and digital rights management systems for digital
    media delivery, particularly music and video, which includes the
    ability to convince consumer electronics manufacturers to adopt
    our technology and the willingness of content providers to use
    our digital rights management technology;
    the ability to license and support popular and emerging media
    formats for digital media delivery in a market where competitors
    may control the intellectual property rights for these formats;
    scalability of streaming media and media delivery technology and
    cost per user; 10




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
    the ability to obtain any necessary patent rights underlying
    important streaming media and digital distribution technologies
    that gain market acceptance; and
    compatibility with new and existing media formats, and with the
    users existing network components and software systems.        Intellectual
    Property
      Employees
   11




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Position
    on Charitable Responsibility
    Available
    Information
  www.realnetworks.com. www.realnetworks.com
 Executive
    Officers of the Registrant    Name

Age

PositionRobert Glaser


45


Chairman of the Board and Chief
    Executive OfficerMichael Eggers


35


Senior Vice President, Chief
    Financial Officer and TreasurerSavino (Sid) Ferrales


56


Senior Vice President 
    Human ResourcesJohn Giamatteo


40


President  Technology
    Products and Solutions and International OperationsRobert Kimball


43


Senior Vice President, Legal and
    Business Affairs, General Counsel and Corporate SecretaryPhilip W. ONeil


48


Senior Vice President 
    MusicDan Sheeran


40


Senior Vice President 
    Corporate Partnerships and Business DevelopmentCarla Stratfold


47


Senior Vice President 
    Integration Program OfficeHarold Zeitz


43


Senior Vice President 
    Games and Media  Software and Services     magna cum
    laude
   12




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magna
    cum laude
    cum laude
     13




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Item 1A.Risk
    Factors  Form 10-K.
  Risks
    Related To Recent Development
  Our
    recent acquisition of WiderThan could expose us to new risks,
    disrupt our business, and adversely impact our results of
    operations.    Our
    businesses may be adversely affected by developments affecting
    the South Korean economy amid increased tensions with North
    Korea.      Risks
    Related to Our Consumer Products and Services Business
  Future
    growth of our online consumer businesses may not keep pace with
    recently realized growth rates; any slowdown in growth would
    negatively impact our overall operating results.    We are
    experiencing greater fluctuations in revenue due to seasonality
    than at any time in our past, and we expect this trend to
    continue.   14




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The
    success of our subscription services businesses depends upon our
    ability to add new subscribers and minimize subscriber
    churn.    Our
    digital content subscription business, and our online music
    services in particular, depend on our continuing ability to
    license compelling content on commercially reasonable
    terms.    Music
    publishing royalty rates for music subscription services are not
    yet fully established; a determination of high royalty rates
    could negatively impact our operating results.    Our
    consumer businesses face substantial competitive challenges that
    may prevent us from being successful in those
    businesses.  Music.
 15




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peer-to-peer
  Media Software and Services.
  Games.
  We may
    not be successful in maintaining and growing our distribution of
    digital media products.
    The
    success of our music services depend, in part, on
    interoperability with our customers music playback
    hardware.
   16




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Risks
    Related to Our Technology Products and Solutions
    Business
  Our
    traditional system software business has been negatively
    impacted by the effects of our competitors and our recent
    settlement agreement with Microsoft may not improve sales of our
    system software products.
    A
    majority of the revenue that we generate in Korea is dependent
    upon our relationship with SK Telecom, the largest wireless
    carrier in Korea; any deterioration of this relationship could
    materially harm our business.
    Contracts
    with our carrier customers subject us to significant risks that
    could negatively impact our revenue from application
    services.
       17




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Our
    carrier customers could begin developing some or all of our
    carrier applications services on their own, which could result
    in the loss of future revenues.
    The
    mobile entertainment market is highly competitive.
  music-on-demand music-on-demand
  Our
    Helix open source initiative is subject to risks associated with
    open source technology.
    Our
    patents may not improve our business prospects.
    Risks
    Related to Our Business in General
  Our
    operating results are difficult to predict and may fluctuate,
    which may contribute to fluctuations in our stock
    price.
  period-to-period.
 18




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Our
    settlement agreement with Microsoft may not improve our business
    prospects.
    Our
    products and services must compete with the products and
    services of strong or dominant competitors.
    
    reduced prices, revenue and margins;
    increased expenses in responding to competitors;
    loss of current and potential customers, market share and market
    power;
    lengthened sales cycles;
    degradation of our stature and reputation in the market;
    changes in our business and distribution and marketing
    strategies;
    changes to our products, services, technology, licenses and
    business practices, and other disruption of our operations;
    strained relationships with partners; and
    pressure to prematurely release products or product enhancements.    Failure
    to develop and introduce new products and services that achieve
    market acceptance could result in a loss of market opportunities
    and negatively affect our operating results.
    Microsoft
    is one of our strongest competitors, and employs highly
    aggressive tactics against us.
   19




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If our
    products are not able to support the most popular digital media
    formats, our business will be substantially
    impaired.
    We
    depend upon our executive officers and key personnel, but may be
    unable to attract and retain them, which could significantly
    harm our business and results of operations.
      Our
    industry is experiencing consolidation that may cause us to lose
    key relationships and intensify competition.
      Acquisitions
    involve costs and risks that could harm our business and impair
    our ability to realize potential benefits from
    acquisitions.
   20




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
    difficulties and expenses in assimilating the operations,
    products, technology, information systems,
    and/or
    personnel of the acquired company;
    retaining key management or employees of the acquired company;
    entrance into unfamiliar markets, industry segments, or types of
    businesses;
    operating and integrating acquired businesses in remote
    locations;
    integrating and managing businesses based in countries in which
    we have little or no prior experience;
    impairment of relationships with employees, affiliates,
    advertisers or content providers of our business or acquired
    business; and
    assumption of known and unknown liabilities of the acquired
    company, including intellectual property claims.  Our
    strategic investments may not be successful and we may have to
    recognize expenses in our income statement in connection with
    these investments.
    We
    need to develop relationships and technical standards with
    manufacturers of non-PC media and communication devices to grow
    our business.
    Our
    business and operating results will suffer if our systems or
    networks fail, become unavailable, unsecured or perform poorly
    so that current or potential users do not have adequate access
    to our products, services and websites.
   21




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Our
    network is subject to security risks that could harm our
    business and reputation and expose us to litigation or
    liability.
    The
    growth of our business is dependent in part on successfully
    implementing our international expansion strategy.
      We may
    be unable to adequately protect our proprietary rights and may
    face risks associated with third-party claims relating to our
    intellectual property.
   22




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
    our applications for patents and trademarks relating to our
    business may not be granted and, if granted, may be challenged
    or invalidated;
    our efforts to protect our intellectual property rights may not
    be effective in preventing misappropriation of our technology;
    our efforts may not prevent the development and design by others
    of products or technologies similar to, competitive with, or
    superior to those we develop; or
    another party may obtain a blocking patent, thus requiring us to
    either obtain a license or design around the patent in order to
    continue to offer the contested feature or service in our
    products.    We may
    be subject to market risk and legal liability in connection with
    the data collection capabilities of our products and
    services.
    We
    account for employee stock options using the fair value method,
    which may have a material adverse affect on our results of
    operations.
  Share Based
    Payment
  We may
    be subject to assessment of sales and other taxes for the sale
    of our products, license of technology or provision of
    services.
   23




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We may
    be subject to additional income tax assessments.
    We
    donate a portion of our net income to charity.
    Risks
    Related to the Securities Markets and Ownership of Our Common
    Stock
  Our
    directors and executive officers beneficially own approximately
    one third of our stock, which gives them significant control
    over certain major decisions on which our shareholders may vote,
    may discourage an acquisition of us, and any significant sales
    of stock by our officers and directors could have a negative
    effect on our stock price.
    
    elect or defeat the election of our directors;
    amend or prevent amendment of our articles of incorporation or
    bylaws;
    effect or prevent a merger, sale of assets or other corporate
    transaction; and
    control the outcome of any other matter submitted to the
    shareholders for vote.   24




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Provisions
    of our charter documents, Shareholder Rights Plan, and
    Washington law could discourage our acquisition by a
    third-party.
    
    adopt a plan of merger;
    authorize the sale, lease, exchange or mortgage of assets
    representing more than 50% of the book value of our assets prior
    to the transaction or on which our long-term business strategy
    is substantially dependent;
    authorize our voluntary dissolution; or
    take any action that has the effect of any of the above.        We are
    exposed to potential risks from recent legislation requiring
    companies to evaluate controls under Section 404 of the
    Sarbanes-Oxley Act of 2002.
   25




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Certain
    material weaknesses in internal controls of WiderThan were
    identified as of December 31, 2005; if we fail to remediate
    and maintain an effective system of internal controls at
    WiderThan we may be unable to accurately report our financial
    results or reduce our ability to prevent or detect fraud, and
    investor confidence may be affected.
    
    WiderThan did not retain accounting staff with sufficient depth
    and skill in the application of U.S. GAAP commensurate with
    the reporting requirements of a U.S. registrant;
    WiderThan did not have effective controls over establishing and
    maintaining accounting policies related to revenue
    recognition; and
    WiderThan did not maintain effective controls, including
    monitoring, over the financial close and reporting process.
    Specifically, WiderThan relied heavily on the use of spreadsheet
    programs during the financial close process and did not have
    adequately designed controls to ensure the completeness,
    accuracy, and restricted access to such spreadsheets.      Our
    stock price has been volatile in the past and may continue to be
    volatile.
  52-week
  Financial
    forecasting of our operating results will be difficult because
    of the changing nature of our products and business, and our
    actual results may differ from forecasts.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties   26




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Area leased


MonthlyLocation

(sq. feet)


rent


Lease expirationSeattle, Washington


264,000


$
468,000


September 2014, with an
    option to renew for two five-year periodsSeattle, Washington(1)


133,000



398,000


September 2010Seoul, Republic of Korea


78,000



127,000


October 2008Reston, Virginia


35,000



76,000


December 2011Tokyo, Japan


6,700



39,000


March 2008San Francisco, California


28,750



32,000


November 2007New York, New York


15,000



30,000


February 2011London, United Kingdom


4,540



20,000


May 2010Seattle, Washington


11,300



17,000


July 2010New York, New York


4,200



13,000


December 2009Eindhoven, Netherlands


14,700



10,000


June 2011     (1)
    
    In 2001, we re-evaluated our facilities requirements and as a
    result, decided to sublet all of this office space for the
    remainder of the term of our lease.    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   27




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PART II.  Item 5.
    Market
    for Registrants Common Equity, Related Shareholder Matters
    and Issuer Purchases of Equity Securities      Years Ended December 31,2006


2005High


Low


High


LowFirst Quarter

$
8.60


$
7.20


$
7.08


$
5.42Second Quarter


11.05



8.27



7.40



4.85Third Quarter


11.20



9.12



5.95



4.65Fourth Quarter


12.08



10.44



9.08



5.63     Form 10-K.
         28




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Item 6.
    Selected
    Financial Data    Years Ended December 31,2006


2005


2004


2003


2002(In thousands, except per share data)Consolidated Statements of
    Operations Data:Net revenue

$
395,261


$
325,059


$
266,719


$
202,377


$
182,679Cost of revenue


124,108



98,249



97,145



68,343



50,269Gross profit


271,153



226,810



169,574



134,034



132,410Operating expenses:Research and development


77,386



70,731



52,066



47,730



49,514Sales and marketing


165,602



130,515



96,779



77,335



73,928General and administrative


57,332



50,697



31,538



21,160



19,820Loss on excess office facilities


738







866



7,098



17,207Personnel reduction and related
    charges


















3,595Subtotal operating expenses


301,058



251,943



181,249



153,323



164,064Antitrust litigation (benefit)
    expenses, net


(220,410
)


(422,500
)


11,048



1,574



Total operating expenses (benefit)


80,648



(170,557
)


192,297



154,897



164,064Operating income (loss)


190,505



397,367



(22,723
)


(20,863
)


(31,654
)Other income (expenses), net


37,248



32,176



248



(444
)


(727
)Income (loss) before income taxes


227,753



429,543



(22,475
)


(21,307
)


(32,381
)Income taxes


(82,537
)


(117,198
)


(522
)


(144
)


(5,972
)Net income (loss)

$
145,216


$
312,345


$
(22,997
)

$
(21,451
)

$
(38,353
)Basic net income (loss) per share

$
0.90


$
1.84


$
(0.14
)

$
(0.13
)

$
(0.24
)Diluted net income (loss) per share

$
0.81


$
1.70


$
(0.14
)

$
(0.13
)

$
(0.24
)Shares used to compute basic net
    income (loss) per share


160,973



169,986



168,907



160,309



159,365Shares used to compute diluted net
    income (loss) per share


179,281



184,161



168,907



160,309



159,365   As of December 31,2006


2005


2004


2003


2002(In thousands)Consolidated Balance Sheets
    Data:Cash, cash equivalents, and
    short-term investments

$
678,920


$
781,327


$
363,621


$
373,593


$
309,071Working capital


584,125



710,804



287,599



310,679



248,400Other intangible assets, net


105,109



7,337



8,383



1,065



848Goodwill


309,122



123,330



119,217



97,477



60,077Total assets


1,303,416



1,112,997



602,502



580,939



462,101Convertible debt


100,000



100,000



100,000



100,000



Shareholders equity


969,766



841,733



380,805



366,486



349,765  29




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Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
        free-to-consumer
  music-on-demand,
   30




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
    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.
    Technology Products and Solutions segment includes revenue from:
    sales of ringback tones,
    music-on-demand,
    video-on-demand,
    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.    Years Ended December 31,2006


2005


2004Net revenue:License fees


22.9
%


24.9
%


26.9
%Service revenue


77.1



75.1



73.1Total net revenue


100.0



100.0



100.0Cost of revenue:License fees


9.4



10.4



10.6Service revenue


22.0



19.8



24.0Loss on content agreement










1.9Total cost of revenue


31.4



30.2



36.5Gross profit


68.6



69.8



63.5Operating expenses:Research and development


19.6



21.8



19.5Sales and marketing


41.9



40.2



36.3General and administrative


14.5



15.6



11.8Loss on excess office facilities


0.2







0.3Subtotal operating expenses


76.2



77.6



67.9Antitrust litigation (benefit)
    expenses, net


(55.8
)


(130.0
)


4.1Total operating expenses (benefit)


20.4



(52.4
)


72.0Operating income (loss)


48.2



122.2



(8.5
)Other income, net


9.4



9.9



0.1Income (loss) before income taxes


57.6



132.1



(8.4
)Income taxes


(20.9
)


(36.1
)


(0.2
)Net income (loss)


36.7
%


96.0
%


(8.6
)%   Critical
    Accounting Policies and Estimates
   31




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
    Revenue recognition;
    Estimating music publishing rights and music royalty accruals;
    Recoverability of deferred costs;
    Estimating allowances for doubtful accounts and sales returns;
    Estimating losses on excess office facilities;
    Determining whether declines in the fair value of investments
    are
    other-than-temporary
    and estimating fair market value of investments in privately
    held companies;
    Valuation of other intangible assets;
    Valuation of goodwill;
    Stock-based compensation;
    Accounting for income taxes; and
    Determining loss on purchase commitments.  Revenue Recognition. No. 97-2, Software Revenue Recognition; SOP No. 98-9, Software Revenue Recognition with Respect to Certain
    Arrangements SOP No. 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts Revenue Recognition in Financial Statements No. 00-21, Revenue Arrangements with Multiple Deliverables; No. 99-19, Reporting Revenue Gross as a Principal versus Net as an
    Agent.
    No. 00-21.
  No. 99-19.
  SOP No. 97-2, SOP No. 98-9. SOP No. 81-1.
 32




---



##### Table of Contents



Music Publishing Rights and Music Royalty
    Accruals.
  Recoverability of Deferred Costs.
    Allowances for Doubtful Accounts and Sales
    Returns.
  Accrued Loss on Excess Office Facilities.
 33




---



##### Table of Contents



Impairment of Investments. other-than-temporary. other-than-temporary
  Valuation of Other Intangible Assets.
  Valuation of Goodwill.
  
    poor economic performance relative to historical or projected
    future 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.    Stock-Based Compensation. Share-Based Payment.
 34




---



##### Table of Contents



Accounting for Stock Issued to
    Employees.
  Accounting for Income Taxes.
    non-U.S. subsidiaries
    Determining Loss on Purchase Commitments. time-to-time
 35




---



##### Table of Contents



Revenue
    by Segment
    2006


Change


2005


Change


2004Consumer products and services

$
322,772



15
%

$
279,964



28
%

$
218,343Technology products and solutions


72,489



61



45,095



(7
)


48,376Total net revenue

$
395,261



22
%

$
325,059



22
%

$
266,719     2006


2005


2004Consumer products and services


82
%


86
%


82
%Technology products and solutions


18



14



18Total net revenue


100
%


100
%


100
%   Consumer Products and Services.
      Technology Products and Solutions. music-on-demand, video-on-demand,
 36




---



##### Table of Contents



Consumer
    Products and Services Revenue
    2006


Change


2005


Change


2004Music

$
123,033



21
%

$
101,769



49
%

$
68,190Media software and services


113,503



(7
)


121,918



5



115,618Games


86,236



53



56,277



63



34,535Total consumer products and
    services revenue

$
322,772



15
%

$
279,964



28
%

$
218,343   Music.
    Media Software and Services.
    Games.
 37




---



##### Table of Contents



Geographic
    Revenue
    2006


Change


2005


Change


2004United States

$
283,433



13
%

$
249,855



23
%

$
202,574Europe


62,270



39



44,867



12



40,222Asia


46,291



66



27,916



30



21,439Rest of the World


3,267



35



2,421



(3
)


2,484Total

$
395,261



22
%

$
325,059



22
%

$
266,719    Games  Music
   Games  Music
       38




---



##### Table of Contents



Revenue
    2006


Change


2005


Change


2004License fees

$
90,684



12
%

$
80,785



13
%

$
71,706Service revenue


304,577



25



244,274



25



195,013Total net revenue

$
395,261



22
%

$
325,059



22
%

$
266,719     2006


2005


2004License fees


23
%


25
%


27
%Service revenue


77



75



73Total net revenue


100
%


100
%


100
%   License Fees.
    Service Revenue. music-on-demand, video-on-demand,
 39




---



##### Table of Contents



Deferred
    Revenue
    Cost of
    Revenue by Segment
    2006


Change


2005


Change


2004Consumer products and services

$
101,995



13
%

$
90,104



7
%

$
83,968Technology products and solutions


22,113



172



8,145



(1
)


8,239Loss on content agreement














n/a



4,938Total cost of revenue

$
124,108



26
%

$
98,249



1
%

$
97,145     2006


2005


2004Consumer products and services(1)


32
%


32
%


41
%Technology products and solutions


31



18



17Total cost of revenue


31



30



36     (1)
    
    Consumer Products and Services includes costs related to loss on
    content agreement during the year ended December 31, 2004.  Cost of Consumer Products and Services.
 40




---



##### Table of Contents



Cost of Technology Products and
    Solutions.
    Cost of
    Revenue
    2006


Change


2005


Change


2004License fees

$
37,089



10
%

$
33,770



20
%

$
28,206Service revenue


87,019



35



64,479



1



64,001Loss on content agreement














n/a



4,938Total cost of revenue

$
124,108



26
%

$
98,249



1
%

$
97,145As a percentage of total net
    revenue


31
%






30
%






36
%     2006


2005


2004License fees(1)


41
%


42
%


46
%Service revenue


29



26



33Total cost of revenue


31



30



36     (1)
    
    Cost of license revenue includes costs related to loss on
    content agreement during the year ended December 31, 2004.  Cost of License Fees.
 41




---



##### Table of Contents



Cost of Service Revenue.
      Loss on Content Agreement.
  Other
    segment and geographical information
   42




---



##### Table of Contents



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 income, net










(220,410
)


(220,410
)Other operating expenses


242,385



57,935







300,320Operating income (loss)


(21,608
)


(7,559
)


219,672



190,505Other income, 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 income, net










(422,500
)


(422,500
)Other operating expenses


197,902



54,041







251,943Operating income (loss)


(8,042
)


(17,091
)


422,500



397,367Other income, 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


129,299



51,084







180,383Operating income (loss)


138



(10,947
)


(11,914
)


(22,723
)Other income, net










248



248Income (loss) before income taxes

$
138


$
(10,947
)

$
(11,666
)

$
(22,475
)  43




---



##### Table of Contents



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   Operating
    Expenses
  Research
    and Development
  year-over-year
  2006


Change


2005


Change


2004Research and development

$
77,386



9
%

$
70,731



36
%

$
52,066As a percentage of total net
    revenue


20
%






22
%






20
%       Sales
    and Marketing
   44




---



##### Table of Contents



year-over-year
  2006


Change


2005


Change


2004Sales and marketing

$
165,602



27
%

$
130,515



35
%

$
96,779As a percentage of total net
    revenue


42
%






40
%






36
%       General
    and Administrative
  year-over-year
  2006


Change


2005


Change


2004General and administrative

$
57,332



13
%

$
50,697



61
%

$
31,538As a percentage of total net
    revenue


15
%






16
%






12
%       Loss
    on Excess Office Facilities
  10-year
   45




---



##### Table of Contents



Antitrust
    Litigation (Benefit) Expenses, net
    Other
    Income, Net
  year-over-year
  2006


Change


2005


Change


2004Interest income, net

$
37,622



159
%

$
14,511



226
%

$
4,452Gain on sale of equity investments


2,286



(88
)


19,330



n/a



Equity in net income (loss) of
    investments


326



(131
)


(1,068
)


(75
)


(4,351
)Impairment of equity investments


(3,116
)


1,071



(266
)


(41
)


(450
)Other income (expenses)


130



(139
)


(331
)


(155
)


597Other income, net

$
37,248



16
%

$
32,176



n/a


$
248      46




---



##### Table of Contents



available-for-sale, other-than-temporary other-than-temporary, other-than-temporary other-than-temporary other-than-temporary
  J-Stream available-for-sale.
 47




---



##### Table of Contents



Income
    Taxes
      Recently
    Issued Accounting Standards
  No. 05-06, Determining the Amortization Period for Leasehold
    Improvements Purchased after Lease Inception or Acquired in a
    Business Combination. No. 05-06 No. 05-06 No. 05-06
  Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109.
  No. 06-3, How Taxes Collected from Customers and Remitted to
    Governmental Authorities Should Be Presented in the Income
    Statement (That Is, Gross Versus Net Presentation). No. 06-3
 48




---



##### Table of Contents



Accounting Changes and Error
    Corrections. No. 06-3 No. 06-3
  Considering the Effects of Prior Year Misstatements when
    Quantifying Current Year Misstatements. one-time
  Fair Value Measurements
  Liquidity
    and Capital Resources
       49




---



##### Table of Contents



Form 8-K
         50




---



##### Table of Contents



non-U.S. Government non-U.S. Agency
      Less than


1-3


4-5


AfterContractual Obligations

Total


1 Year


Years


Years


5 Years(In thousands)Office leases

$
79,546


$
15,042


$
27,972


$
19,974


$
16,558Up to











Up toConvertible debt


100,000











100,000



Other contractual obligations


10,435



2,959



5,146



2,330



Up to











Up toTotal contractual cash obligations

$
189,981


$
18,001


$
33,118


$
122,304


$
16,558     Off
    Balance Sheet Arrangements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest Rate Risk.
 51




---



##### Table of Contents



WeightedAverageInterest


Expected Maturity Dates


Amortized


EstimatedRate


2007


2008


Cost


Fair ValueShort-term investments:U.S. Government agency
    securities


3.34
%

$
120,945


$
32,743


$
153,520


$
153,688Total short-term investments


3.34
%

$
120,945


$
32,743


$
153,520


$
153,688   Investment Risk. available-for-sale, other-than-temporary other-than-temporary, other-than-temporary other-than-temporary other-than-temporary
  Foreign Currency Risk.
  (3) non-U.S. dollar
 52




---



##### Table of Contents



Contract Amount


UnrealizedContract Amount (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
)     Contract Amount


UnrealizedContract Amount (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    53




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  REALNETWORKS,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2006


2005(In thousands, except per share data)ASSETSCurrent 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    54




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
    (LOSS)
  Years Ended December 31,2006


2005


2004(In thousands, except per share data)Net 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    55




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2006


2005


2004(In thousands)Cash 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    56




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS EQUITY
   Notes





AccumulatedAdditional


Receivable


Deferred


Other


Retained


TotalCommon Stock


Paid-In


from


Stock-Based


Comprehensive


Earnings


ShareholdersShares


Amount


Capital


Shareholders


Compensation


Income


(Deficit)


Equity(In thousands)Balances, 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    57




---



##### 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.
 58




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Deferred costs.
      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. 59




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Long-Lived Assets.
  Fair Value of Financial Instruments.
  Research and Development.
  Revenue Recognition. No. 97-2, Software Revenue Recognition; SOP No. 98-9, Software Revenue Recognition with Respect to Certain
    Arrangements SOP No. 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts Revenue Recognition in Financial Statements No. 00-21, Revenue Arrangements with Multiple Deliverables; No. 99-19, Reporting Revenue Gross as a Principal versus Net as an
    Agent.
    No. 00-21.
  No. 99-19.
  SOP No. 97-2, SOP No. 98-9.
 60




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SOP No. 81-1.
    Advertising Expenses.
  Foreign Currency.
  Derivative Financial Instruments.
     61




---



##### 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.
   62




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for Stock Appreciation Rights and Other Variable
    Stock Option or Award Plans.
    Net Income (Loss) Per Share.
  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.
 63




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  No. 05-06
  Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109.
  No. 06-3, How Taxes Collected from Customers and Remitted to
    Governmental Authorities Should Be Presented in the Income
    Statement (That Is, Gross Versus Net Presentation). No. 06-3 Accounting Changes and Error Corrections. No. 06-3 No. 06-3
  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.
 64




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Accounting
    for Stock Appreciation Rights and Other Variable Stock Option or
    Award Plans.
    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
 65




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      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.
  Zylom Media
    Group B.V.
     66




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  PC-based
    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       WiderThan
    Co., Ltd.
   67




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    music-on-demand,
    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      68




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended


Year EndedDecember 31,


December 31,2006


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     Atrativa
    Latin America Ltda.
        Cash

$
3,600Direct acquisition costs


224Total purchase price

$
3,824    69




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     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.
        Cash

$
15,089Direct acquisition costs


534Total purchase price

$
15,623  70




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      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.
     71




---



##### 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    72




---



##### 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     available-for-sale
 73




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    available-for-sale
  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   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    74




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 7.
    Equity
    Investments      Consolidation of Variable Interest
    Entities.
    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     J-Stream (J-Stream), available-for-sale. J-Stream
 75




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    other-than-temporary
    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


$
16,637


$
105,109Total other intangible assets,
    December 31, 2005

$
17,187


$
9,850


$
7,337     
  2007

$
21,2562008


20,5492009


18,7982010


14,8742011


9,655Thereafter


19,977Total

$
105,109  76




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  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

$
29,968


$
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  10-year
       77




---



##### 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  5-year
  Note 13.
    Shareholders
    Equity  Preferred Stock.
 78




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Shareholder Rights Plan.
  Equity Compensation Plans.
  Restricted Stock Units.
 79




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    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
%  80




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##### 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. Rule 10(b)5-1
 81




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##### 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  82




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##### 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      83




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  paid-in-capital
    non-U.S. subsidiaries
    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    84




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Borrowing Arrangements.
        401(k) Retirement Savings Plan.
  Litigation.
 85




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          and/or
 86




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##### 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. 87




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  
    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.    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  88




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2006


2005Consumer Products and Services

$
131,997


$
117,340Technology Products and Solutions


177,125



5,990Total goodwill, net

$
309,122


$
123,330     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  89




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    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
)     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. 90




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Litigation.
   91




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  The Board of Directors and Shareholders
 RealNetworks, Inc.:
        Share-Based Payment.
    
    92




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                93




---



##### Table of Contents



94




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Rule 13a-15(e) 15d-15(e)
  Managements
    Annual Report on Internal Control over Financial
    Reporting
  Rules 13a-15(f). Internal Control 
    Integrated Framework
      Changes
    in Internal Control over Financial Reporting
  Rules 13a-15 15d-15
  Item 9B.
    Other
    Information   95




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##### 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 96




---



##### Table of Contents



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.  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 Consolidated Financial Statements
                Financial Statement Schedules
   97




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##### Table of Contents



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)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)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) 98




---



##### Table of Contents



ExhibitNumber

Description10
.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))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) 99




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##### Table of Contents



ExhibitNumber

Description10
.18

Offer Letter dated
    December 8, 2005 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, 2006)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 Attorney (included on
    signature page)31
.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 100




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##### Table of Contents



SIGNATURES      By:
    /s/  ROBERT
    GLASER     POWER OF
    ATTORNEY
  attorneys-in-fact
    Signature

Title/s/  ROBERT
    GLASERRobert
    Glaser

Chairman of the Board and Chief
    Executive Officer
    (Principal Executive Officer)/s/  MICHAEL
    EGGERSMichael
    Eggers

Senior Vice President, Chief
    Financial Officer and Treasurer (Principal Financial and
    Accounting Officer)/s/  ERIC
    A. BENHAMOUEric
    A. Benhamou

Director/s/  EDWARD
    BLEIEREdward
    Bleier

Director/s/  JAMES
    W. BREYERJames
    W. Breyer

Director/s/  JEREMY
    JAECHJeremy
    Jaech

Director/s/  JONATHAN
    D. KLEINJonathan
    D. Klein

Director/s/  KALPANA
    RAINAKalpana
    Raina

Director  101




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##### 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)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)




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##### Table of Contents



ExhibitNumber

Description10
.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))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
    December 8, 2005 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, 2006)




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##### Table of Contents



ExhibitNumber

Description10
.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 Attorney (included on
    signature page)31
.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