##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, 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, 2007ORo

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:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, Par Value $0.001 per share

The NASDAQ Stock Market LLCPreferred Share Purchase Rights

The NASDAQ Stock Market LLC  Securities registered pursuant to Section 12(g) of the
    Act:
 None
 (Title of Class)
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  þ o 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


4Item 1A.

Risk Factors


14Item 1B.

Unresolved Staff Comments


27Item 2.

Properties


27Item 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


48Item 8.

Financial Statements and Supplementary Data


51Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


91Item 9A.

Controls and Procedures


91Item 9B.

Other Information


91PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


91Item 11.

Executive Compensation


92Item 12.

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


92Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


93Item 14.

Principal Accountant Fees and Services


93PART IVItem 15.

Exhibits and Financial Statement Schedules


93Exhibit Index


94Signatures


97EXHIBIT 10.9EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2   2




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##### Table of Contents



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 our acquisitions, including WiderThan, Sony
    NetServices GmbH and Exomi Oy, and our position as a technology
    services provider for leading wireless carriers;
    plans, strategies and expected opportunities for growth,
    increased profitability and innovation in 2008 and future
    years;
    the expected growth and profitability of our Technology
    Products and Solutions business;
    the governance, management, accounting and integration of our
    Rhapsody America venture;
    the dilutive impact on our shareholders if the call or put
    rights contained in the limited liability agreement for Rhapsody
    America are exercised and result in the issuance of additional
    shares of our common stock;
    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
    consumer electronics 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 2008 and
    our focus on the integration of completed acquisitions;
    our relationships with our employees;
    future competition; and
    the degree of seasonality in our revenue.  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
    included or referred to 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,
    business-to-consumer
    Music
    Rhapsody.
 4




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Rhapsody.com.
  RadioPass.
  RealPlayer Music Store.
  RealMusic.
 5




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Consumer
  Media
    Software and Services
  RealPlayer.
  SuperPass.
  Advertising and Third-Party Software.
  Games
      PC Games.
     6




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Mobile Games.
  Technology
    Products and Solutions
    music-on-demand
  end-to-end
  music-on-demand, T-Mobile
    Ringback Tones. and/or
  Music-On-Demand. music-on-demand
 7




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Video-On-Demand. video-on-demand and/or
  Messaging. e-mail
    Helix Server.
  RealProducer.
  Exomi Messaging Gateway.
  Exomi WAP Gateway.
  Other Technology Licensing.
     8




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Research
    and Development
    Customers
    and Seasonality
      Sales,
    Marketing and Distribution
  e-mail
  Music
    and Consumer Marketing
  www.rhapsody.com www.real.com,
    www.realarcade.com, www.gamehouse.com, www.zylom.com, etc.
  Technology
    Products and Solutions Marketing
   9




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Customer
    Support
  e-mail on-site
  Competition
  and/or
    Music
  peer-to-peer
   10




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Consumer
  Games
    Media
    Software and Services
    Technology
    Products and Solutions
  Carrier
    Application Services
  time-to-market,
  music-on-demand video-on-demand
 11




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Server
    Software
    Intellectual
    Property
      Employees
    Position
    on Charitable Responsibility
    Available
    Information
  Form 10-K, Form 10-Q Form 8-K,
 12




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Executive
    Officers of the Registrant
    Name

Age

PositionRobert Glaser


46


Chairman of the Board and Chief Executive OfficerMichael Eggers


36


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


57


Senior Vice President  Human ResourcesJohn Giamatteo


41


President -- Technology Products and Solutions and International
    OperationsRobert Kimball


44


Senior Vice President, Legal and Business Affairs, General
    Counsel and Corporate SecretaryDan Sheeran


41


Senior Vice President  Corporate Partnerships and
    Business DevelopmentRobert J. Williams


42


Senior Vice President  Music Products of RealNetworksHarold Zeitz


44


Senior Vice President  Games and Media Software and
    Services     magna cum
    laude
       13




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magna
    cum laude
  cum laude
      Item 1A.
    Risk
    Factors  Form 10-K.
  Risks
    Related to Our Music, Games and Media Software and Services
    Businesses
  We
    require the consent of Viacom International Inc. with respect to
    certain matters in the governance and management of our Rhapsody
    America joint venture. Any disagreement with Viacom on such
    matters may have an adverse impact on the business, results of
    operations and financial condition of Rhapsody America and,
    consequently, our business.
  day-to-day
 14




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
    authorizing the annual operating budget and making capital
    expenditures in excess of a certain percentage over the budgeted
    amount for capital expenditures;
    the issuance, sale or repurchase of Rhapsody Americas
    membership interests;
    declaring of or making any distribution by Rhapsody America;
    merging, consolidating or reorganizing Rhapsody America,
    acquiring or selling assets not in the ordinary course of
    business in excess of a certain amount, or acquiring or selling
    businesses valued in excess of a certain amount;
    entering into any transaction with a value in excess of a
    certain amount with our affiliates or affiliates of
    MTVN; and
    the appointment of a new general manager if the existing general
    manager is required to resign as a result of Rhapsody America
    not meeting certain financial tests.      The
    integration strategy we plan to implement with respect to the
    assets that have been combined in Rhapsody America may fail or
    be less successful than anticipated and the management of these
    assets creates operational complexities.
  day-to-day
  period-over-period
 15




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We and
    MTVN have certain contractual rights relating to the purchase
    and sale of MTVNs membership interest in Rhapsody America
    that may be settled in part through the issuance of additional
    shares of our capital stock, which would dilute our other
    shareholders voting and economic interests in us, and may
    require us to pay MTVN a price that exceeds the appraised value
    of their proportionate interest in Rhapsody
    America.
    The
    success of our subscription services businesses depends upon our
    ability to increase subscription revenue.
  free-to-consumer
  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.
    RealPlayer
    11 may not achieve consumer or market acceptance and may be
    subject to legal challenge.
   16




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Music
    publishing royalty rates for music subscription services offered
    through RealNetworks and Rhapsody America are not yet fully
    established; a determination of high royalty rates could
    negatively impact our operating results.
    An
    appeal of, or other industry settlement relating to, the April
    2007 Copyright Royalty Board decision regarding Internet radio
    royalties and minimum payments could result in material expenses
    that would harm our operating results and our ability to provide
    popular radio services.
    Our
    music, games and media software and services businesses face
    substantial competitive challenges that may prevent us from
    being successful in, and negatively impact future growth in,
    those businesses.
  Music. peer-to-peer
 17




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Media Software and Services.
  Games.
  We may
    not be successful in maintaining and growing our distribution of
    digital media products.
    The
    success of music services offered through Rhapsody America
    depend, in part, on interoperability with our customers
    music playback hardware.
   18




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Risks
    Related to Our Technology Products and Solutions
    Business
  Recent
    acquisitions in our Technology Products and Solutions business
    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.
      Our
    traditional system software licensing business has been
    negatively impacted by the effects of our competitors, and our
    settlement agreement with Microsoft may not improve sales of our
    system software products.
    A
    majority of the revenue that we generate in South 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.
   19




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Contracts
    with our carrier customers subject us to significant risks that
    could negatively impact our revenue or otherwise harm our
    operating results.
          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 music-on-demand
 20




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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.
  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. 21




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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.
    We are
    experiencing greater fluctuations in revenue due to seasonality
    than at any time in our past, and we expect this trend to
    continue.
    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.
   22




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Acquisitions
    involve costs and risks that could harm our business and impair
    our ability to realize potential benefits from
    acquisitions.
        
    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;
    diversion of management time and other resources from existing
    operations to integration activities for acquired businesses;
    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.  We
    need to develop relationships and technical standards with
    manufacturers of non-PC media and communication devices to grow
    our business.
   23




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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.
    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.
   24




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We may
    be subject to market risk and legal liability in connection with
    the data collection capabilities of our products and
    services.
    We may
    be subject to assessment of sales and other taxes for the sale
    of our products, license of technology or provision of
    services.
        We may
    be subject to additional income tax assessments.
    We
    donate a portion of our net income to charity.
   25




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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.    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.        Our
    stock price has been volatile in the past and may continue to be
    volatile.
   26




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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      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(2)


78,000



127,000


October 2008Reston, Virginia(2)


35,000



76,000


December 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.(2)
    
    This facility is utilized only by our Technology Products and
    Solutions segment.    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 31,2007


2006High


Low


High


LowFirst Quarter

$
11.17


$
7.55


$
8.60


$
7.20Second Quarter


8.76



7.42



11.05



8.27Third Quarter


8.27



5.45



11.20



9.12Fourth Quarter


7.35



5.74



12.08



10.44
       Total Number of


Average Price PaidPeriod

Shares Repurchased


Per Share(In thousands)7/1/2007  7/31/2007


2,100


$
7.888/1/2007  8/31/2007


842


$
6.439/1/2007  9/30/2007


1,900



6.4711/1/2007  11/30/2007


4,400


$
6.6612/1/2007  12/31/2007


1,180



6.21Total


10,422


$
6.80
    28




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Item 6.
    Selected
    Financial Data    Years Ended December 31,2007


2006


2005


2004


2003(In thousands, except per share data)Consolidated Statements of Operations Data:Net revenue

$
567,620


$
395,261


$
325,059


$
266,719


$
202,377Cost of revenue


213,491



124,108



98,249



97,145



68,343Gross profit


354,129



271,153



226,810



169,574



134,034Operating expenses:Research and development


102,731



77,386



70,731



52,066



47,730Sales and marketing


209,412



165,602



130,515



96,779



77,335Advertising with related party


24,360















General and administrative


67,326



57,332



50,697



31,538



21,160Restructuring charge


3,748















Loss on excess office facilities






738







866



7,098Subtotal operating expenses


407,577



301,058



251,943



181,249



153,323Antitrust litigation (benefit) expenses, net


(60,747
)


(220,410
)


(422,500
)


11,048



1,574Total operating expenses (benefit)


346,830



80,648



(170,557
)


192,297



154,897Operating income (loss)


7,299



190,505



397,367



(22,723
)


(20,863
)Other income (expenses), net


68,472



37,248



32,176



248



(444
)Income (loss) before income taxes


75,771



227,753



429,543



(22,475
)


(21,307
)Income taxes


(27,456
)


(82,537
)


(117,198
)


(522
)


(144
)Net income (loss)

$
48,315


$
145,216


$
312,345


$
(22,997
)

$
(21,451
)Basic net income (loss) per share

$
0.32


$
0.90


$
1.84


$
(0.14
)

$
(0.13
)Diluted net income (loss) per share

$
0.29


$
0.81


$
1.70


$
(0.14
)

$
(0.13
)Shares used to compute basic net income (loss) per share


151,665



160,973



169,986



168,907



160,309Shares used to compute diluted net income (loss) per share


166,410



179,281



184,161



168,907



160,309   As of December 31,2007


2006


2005


2004


2003(In thousands)Consolidated Balance Sheets Data:Cash, cash equivalents, and short-term investments

$
556,629


$
678,920


$
781,327


$
363,621


$
373,593Working capital


351,066



584,125



710,804



287,599



310,679Other intangible assets, net


107,677



105,109



7,337



8,383



1,065Goodwill


353,153



309,122



123,330



119,217



97,477Total assets


1,275,442



1,303,416



1,112,997



602,502



580,939Convertible debt


100,000



100,000



100,000



100,000



100,000Shareholders equity


875,104



969,766



841,733



380,805



366,486  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,
    business-to-consumer
 30




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end-to-end
       31




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Years Ended December 31,2007


2006


2005Net revenue


100.0
%


100.0
%


100.0
%Cost of revenue


37.6



31.4



30.2Gross profit


62.4



68.6



69.8Operating expenses:Research and development


18.1



19.6



21.8Sales and marketing


36.9



41.9



40.2Advertising with related party


4.3







General and administrative


11.9



14.5



15.6Restructuring charge


0.6







Loss on excess office facilities






0.2



Subtotal operating expenses


71.8



76.2



77.6Antitrust litigation benefit, net


(10.7
)


(55.8
)


(130.0
)Total operating expenses (benefit)


61.1



20.4



(52.4
)Operating income


1.3



48.2



122.2Other income, net


12.0



9.4



9.9Income before income taxes


13.3



57.6



132.1Income taxes


(4.8
)


(20.9
)


(36.1
)Net income


8.5
%


36.7
%


96.0
%
   Critical
    Accounting Policies and Estimates
    
    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;
    Minority interest;
    Accounting for gains on sale of subsidiary stock; and
    Accounting for income taxes. 32




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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
    SOP No. 97-2. SOP No. 81-1,
  No. 00-21.
  No. 99-19.
    Music Publishing Rights and Music Royalty
    Accruals.
 33




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##### Table of Contents



Recoverability of Deferred Costs.
    Allowances for Doubtful Accounts and Sales
    Returns.
  Accrued Loss on Excess Office Facilities.
  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; 34




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
    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 Accounting for Stock Issued to
    Employees
  Minority Interests. Consolidated
    Financial Statements
  Accounting for Gains on Sale of Subsidiary
    Stock. Accounting for the Sales of Stock of a Subsidiary
  Accounting for Income Taxes.
 35




---



##### Table of Contents



non-U.S. subsidiaries
  Balance at January 1, 2007

$
7.5Increases/(Decreases) related to prior year tax positions


Increases/(Decreases) related to current year tax positions


1.5Settlements


Expiration of the statute of limitations


Balance at December 31, 2007

$
9.0
     Revenue
    by Segment
    2007


Change


2006


Change


2005Music

$
149,126



21
%

$
123,033



21
%

$
101,769Consumer


211,851



6



199,739



12



178,195Technology products and solutions


206,643



185



72,489



61



45,095Total net revenue

$
567,620



44
%

$
395,261



22
%

$
325,059
  36




---



##### Table of Contents



2007


2006


2005Music


26
%


31
%


31
%Consumer


37



51



55Technology products and solutions


37



18



14Total net revenue


100
%


100
%


100
%
   Music.
    Consumer.
      Technology Products and Solutions. music-on-demand, video-on-demand
   37




---



##### Table of Contents



Consumer
    Revenue
    2007


Change


2006


Change


2005Media software and services

$
103,348



(9
)%

$
113,503



(7
)%

$
121,918Games


108,503



26



86,236



53



56,277Total consumer products and services revenue

$
211,851



6
%

$
199,739



12
%

$
178,195
   Media Software and Services.
    Games.
    Geographic
    Revenue
    2007


Change


2006


Change


2005United States

$
360,676



27
%

$
283,433



13
%

$
249,855Europe


84,368



35



62,270



39



44,867Republic of Korea


82,549



344



18,597



n/a



Rest of the World


40,027



29



30,961



2



30,337Total

$
567,620



44
%

$
395,261



22
%

$
325,059
    38




---



##### Table of Contents



License
    and Service Revenue
    2007


Change


2006


Change


2005License fees

$
92,718



2
%

$
90,684



12
%

$
80,785Service revenue


474,902



56



304,577



25



244,274Total net revenue

$
567,620



44
%

$
395,261



22
%

$
325,059
     2007


2006


2005License fees


16
%


23
%


25
%Service revenue


84



77



75Total net revenue


100
%


100
%


100
%
   License Fees.
     39




---



##### Table of Contents



Service Revenue. music-on-demand, video-on-demand,
    Deferred
    Revenue
  music-on-demand, video-on-demand
  Cost of
    Revenue by Segment
    2007Music

$
81,462Consumer


39,840Technology products and solutions


92,189Total cost of revenue

$
213,491
     2007Music


55
%Consumer


19Technology products and solutions


45Total cost of revenue


38
   Cost of Music.
  Cost of Consumer.
 40




---



##### Table of Contents



Cost of Technology Products and
    Solutions.
    Cost of
    License Fees and Service Revenue
    2007


Change


2006


Change


2005License fees

$
34,927



(6
)%

$
37,089



10
%

$
33,770Service revenue


178,564



105



87,019



35



64,479Total cost of revenue

$
213,491



72
%

$
124,108



26
%

$
98,249As a percentage of total net revenue


38
%






31
%






30
%
     2007


2006


2005License fees


37
%


41
%


42
%Service revenue


38



29



26Total cost of revenue


38



31



30
   Cost of License Fees.
    Cost of Service Revenue.
 41




---



##### Table of Contents



Other
    segment and geographical information
      Technology Products


ReconcilingMusic


Consumer


and Solutions


Amounts


ConsolidatedNet revenue

$
149,126


$
211,851


$
206,643


$



$
567,620Cost of revenue


81,462



39,840



92,189







213,491Gross profit


67,664



172,011



114,454







354,129Advertising with related party


24,360















24,360Restructuring charge














3,748



3,748Other operating expenses


103,482



142,749



130,551



(58,060
)


318,722Operating income (loss)


(60,178
)


29,262



(16,097
)


54,312



7,299Other income, net


36,194











32,278



68,472Income (loss) before income taxes

$
(23,984
)

$
29,262


$
(16,097
)

$
86,590


$
75,771
   Operating
    Expenses
  Research
    and Development
  year-over-year
  2007

Change

2006

Change

2005Research and development

$
102,731



33
%

$
77,386



9
%

$
70,731As a percentage of total net revenue


18
%






20
%






22
%
    42




---



##### Table of Contents



Sales
    and Marketing
  year-over-year
  2007

Change

2006

Change

2005Sales and marketing

$
209,412



26
%

$
165,602



27
%

$
130,515As a percentage of total net revenue


37
%






42
%






40
%
       Advertising
    with Related Party
    General
    and Administrative
  year-over-year
  2007

Change

2006

Change

2005General and administrative

$
67,326



17
%

$
57,332



13
%

$
50,697As a percentage of total net revenue


12
%






15
%






16
%
    43




---



##### Table of Contents



Restructuring
    Charges
    Loss
    on Excess Office Facilities
    Antitrust
    Litigation Benefit, net
    Other
    Income, Net
   44




---



##### Table of Contents



year-over-year
  2007


Change


2006


Change


2005Interest income, net

$
30,874



(18
)%

$
37,622



159
%

$
14,511Gain on sale of equity investments


98



(96
)


2,286



(88
)


19,330Equity in net income (loss) of investments


(440
)


(235
)


326



(131
)


(1,068
)Impairment of equity investments






(100
)


(3,116
)


1,071



(266
)Minority interest in Rhapsody America


19,784



n/a







n/a



Gain on sale of interest in Rhapsody America


16,410



n/a







n/a



Other income (expenses)


1,746



1,243



130



(139
)


(331
)Other income, net

$
68,472



84
%

$
37,248



16
%

$
32,176
       Income
    Taxes
    Recently
    Issued Accounting Standards
  Fair Value Measurements
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
 45




---



##### Table of Contents



Business Combinations
  Noncontrolling Interest in Consolidated Financial
    Statements
  Liquidity
    and Capital Resources
    December 31,2007


2006Working capital

$
351,066


$
584,125Cash, cash equivalents, and short-term investments


556,629



678,920Restricted cash


15,509



17,300       Years Ended December 31,2007


2006


2005Cash provided by operating activities

$
68,409


$
170,920


$
460,753Cash (used in) provided by investing activities


467



(294,065
)


6,989Cash used in financing activities


(113,620
)


(4,764
)


(34,608
)
      46




---



##### Table of Contents



non-U.S. Government non-U.S. Agency
   47




---



##### Table of Contents



Less than


1-3


3-5


AfterContractual Obligations

Total


1 Year


Years


Years


5 Years(In thousands)Office leases

$
65,520


$
15,101


$
26,038


$
14,620


$
9,761Up to



Up toConvertible debt


100,000



100,000











Other contractual obligations


20,420



11,182



9,238







Up to



Up toTotal contractual cash obligations

$
185,940


$
126,283


$
35,276


$
14,620


$
9,761
         Off
    Balance Sheet Arrangements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest Rate Risk.
 48




---



##### Table of Contents



WeightedAverage


Expected Maturity DatesInterest








2010 -


Amortized


EstimatedRate


2008


2009


2012


Cost


Fair ValueShort-term investments:Corporate notes and bonds


5.24
%

$
19,509


$
2,260


$
20,802


$
43,552


$
42,571U.S. Government agency securities


4.71
%


37,361











37,296



37,361Total short-term investments


4.94
%

$
56,870


$
2,260


$
20,802


$
80,848


$
79,932
     WeightedAverage


Expected MaturityInterest


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.
  Foreign Currency Risk.
  (3) non-U.S. dollar
   49




---



##### Table of Contents



50




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  REALNETWORKS,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2007


2006(In thousands, except per share data)ASSETSCurrent assets:Cash and cash equivalents

$
476,697


$
525,232Short-term investments


79,932



153,688Trade accounts receivable, net of allowances for doubtful
    accounts and sales returns of $2,455 in 2007 and $2,490 in 2006


84,674



65,751Deferred costs, current portion


6,408



1,643Deferred tax assets, net, current portion






891Prepaid expenses and other current assets


33,845



21,990Total current assets


681,556



769,195Equipment, software, and leasehold improvements, at cost:Equipment and software


109,621



83,587Leasehold improvements


30,632



29,665Total equipment, software, and leasehold improvements


140,253



113,252Less accumulated depreciation and amortization


83,756



65,509Net equipment, software, and leasehold improvements


56,497



47,743Restricted cash equivalents


15,509



17,300Equity investments


9,976



22,649Other assets


10,161



5,148Deferred tax assets, net, non-current portion


40,913



27,150Other intangible assets, net of accumulated amortization of
    $41,579 in 2007 and $16,637 in 2006


107,677



105,109Goodwill


353,153



309,122Total assets

$
1,275,442


$
1,303,416LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
56,160


$
52,097Accrued and other liabilities


114,136



104,328Deferred revenue, current portion


39,564



24,137Related party payable


17,241



Convertible debt, current portion


100,000



Accrued loss on excess office facilities, current portion


3,389



4,508Total current liabilities


330,490



185,070Deferred revenue, non-current portion


2,663



3,440Accrued loss on excess office facilities, non-current portion


7,311



9,993Deferred rent


4,518



4,331Deferred tax liabilities, net, non-current portion


22,060



27,076Convertible debt, non-current portion






100,000Other long-term liabilities


13,683



3,740Total liabilities


380,725



333,650Minority interest in Rhapsody America ($59.9 million
    redemption value at December 31, 2007)


19,613



Commitments and contingenciesShareholders equity:Preferred stock, $0.001 par value, no shares issued and
    outstanding Series A: authorized 200 shares






Undesignated series: authorized 59,800 shares






Common stock, $0.001 par value authorized
    1,000,000 shares; issued and outstanding
    142,298 shares in 2007 and 163,278 shares in 2006


142



162Additional paid-in capital


653,904



791,108Deferred stock-based compensation






Accumulated other comprehensive income


17,732



23,485Retained earnings


203,326



155,011Total shareholders equity


875,104



969,766Total liabilities and shareholders equity

$
1,275,442


$
1,303,416    51




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  Years Ended December 31,2007


2006


2005(In thousands, except per share data)Net revenue(A)

$
567,620


$
395,261


$
325,059Cost of revenue(B)


213,491



124,108



98,249Gross profit


354,129



271,153



226,810Operating expenses:Research and development


102,731



77,386



70,731Sales and marketing


209,412



165,602



130,515Advertising with related party


24,360







General and administrative


67,326



57,332



50,697Restructuring charge


3,748







Loss on excess office facilities






738



Subtotal operating expenses


407,577



301,058



251,943Antitrust litigation benefit, net


(60,747
)


(220,410
)


(422,500
)Total operating expenses (benefit)


346,830



80,648



(170,557
)Operating income


7,299



190,505



397,367Other income (expenses):Interest income, net


30,874



37,622



14,511Gain on sale of equity investments


98



2,286



19,330Equity in net income (loss) of investments


(440
)


326



(1,068
)Minority interest in Rhapsody America


19,784







Gain on sale of interest in Rhapsody America


16,410







Impairment of equity investments






(3,116
)


(266
)Other income (expenses)


1,746



130



(331
)Other income, net


68,472



37,248



32,176Income before income taxes


75,771



227,753



429,543Income taxes


(27,456
)


(82,537
)


(117,198
)Net income

$
48,315


$
145,216


$
312,345Basic net income per share

$
0.32


$
0.90


$
1.84Diluted net income per share

$
0.29


$
0.81


$
1.70Shares used to compute basic net income per share


151,665



160,973



169,986Shares used to compute diluted net income per share


166,410



179,281



184,161Comprehensive income:Net income

$
48,315


$
145,216


$
312,345Unrealized gain (loss) on investments:Unrealized holding (losses) gains, net of tax


(8,482
)


(14,399
)


17,864Adjustments for gains reclassified to net income










(4,052
)Foreign currency translation gains (losses)


2,729



11,160



(1,677
)Comprehensive income

$
42,562


$
141,977


$
324,480(A)Components of net revenue:License fees

$
92,718


$
90,684


$
80,785Service revenue


474,902



304,577



244,274$
567,620


$
395,261


$
325,059(B)Components of cost of revenue:License fees

$
34,927


$
37,089


$
33,770Service revenue


178,564



87,019



64,479$
213,491


$
124,108


$
98,249    52




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2007


2006


2005(In thousands)Cash flows from operating activities:Net income

$
48,315


$
145,216


$
312,345Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


45,225



20,980



16,243Stock-based compensation


23,918



18,151



128Changes in deferred income taxes


(9,549
)


54,986



107,208Impairment of equity investments






3,116



266Loss on disposal of property, software, and leasehold
    improvements


302



276



Excess tax benefit from stock option exercises


(562
)


(39,183
)


Accrued loss on excess office facilities


(3,801
)


(3,515
)


(6,244
)Gain on sale of equity investments


(98
)


(2,286
)


(19,330
)Purchases of trading securities


(270,000
)






Sales and maturities of trading securities


270,000







Equity in net (income) loss of investments


440



(326
)


1,068Minority Interest


(19,784
)






Gain on sale of interest in Rhapsody America


(16,410
)






Accrued loss on content agreement










(2,917
)Other


95



97



804Changes in certain assets and liabilities, net of acquisitions:Trade accounts receivable


(13,083
)


(7,962
)


(1,479
)Prepaid expenses and other assets


(19,710
)


(3,126
)


(3,409
)Accounts payable


(1,329
)


4,276



44Accrued and other liabilities


34,440



(19,780
)


56,026Net cash provided by operating activities


68,409



170,920



460,753Cash flows from investing activities:Purchases of equipment, software, and leasehold improvements


(26,658
)


(13,808
)


(13,782
)Purchases of short-term investments


(133,427
)


(204,841
)


(153,491
)Sales and maturities of short-term investments


207,183



180,973



168,358Purchases of intangible and other assets


(2,796
)






(1,125
)Decrease in restricted cash equivalents


1,805







2,851Proceeds from sale of equity investments


1,615



2,286



19,530Purchases of equity investments


(1,656
)


(834
)


(647
)Cash used in acquisitions, net of cash acquired


(45,599
)


(257,841
)


(14,705
)Net cash (used in) provided by investing activities


467



(294,065
)


6,989Cash flows from financing activities:Net proceeds from sales of common stock under employee stock
    purchase plan and exercise of stock options


15,894



54,929



20,361Repayment of long-term note payable










(648
)Net proceeds from sales of interest in Rhapsody America


48,716







Excess tax benefit from stock option exercises


562



39,183



Repurchase of common stock


(178,792
)


(98,876
)


(54,321
)Net cash used in financing activities


(113,620
)


(4,764
)


(34,608
)Effect of exchange rate changes on cash


(3,791
)


1,170



(589
)Net (decrease) increase in cash and cash equivalents


(48,535
)


(126,739
)


432,545Cash and cash equivalents, beginning of year


525,232



651,971



219,426Cash and cash equivalents, end of year

$
476,697


$
525,232


$
651,971Supplemental disclosure of cash flow information:Cash paid during the year for income taxes

$
36,615


$
16,487


$
149Supplemental disclosure of non-cash investing and financing
    activities:Accrued acquisition consideration

$



$
2,000


$
Payable for repurchase of common stock

$



$



$
5,116    53




---



##### 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, 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



969,766Common stock issued for exercise of stock options, employee
    stock purchase plan, and vesting of restricted shares


2,747



3



15,868



















15,871Common shares repurchased


(23,780
)


(23
)


(178,769
)


















(178,792
)Common shares awarded


40







260



















260Shares issued for director payments


13







74



















74Stock-based compensation










23,918



















23,918Unrealized loss on investments, net of income tax






















(8,482
)






(8,482
)Translation adjustment






















2,729







2,729Tax benefit from stock option exercises










1,445



















1,445Net income


























48,315



48,315Balances, December 31, 2007


142,298


$
142


$
653,904


$



$



$
17,732


$
203,326


$
875,104    54




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 Years ended December 31, 2007, 2006, and 2005
  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.
 55




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Concentration of Credit Risk.
  Deferred costs.
      Depreciation and Amortization.
    Equity Investments. The Equity Method of
    Accounting for Investments in Common Stock
 56




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Other Intangible Assets.
  Goodwill.
  
    poor economic performance relative to historical or projected
    operating results;
    significant negative industry, economic or company specific
    trends;
    changes in the manner of our use of the assets or the plans for
    our business; and
    loss of key personnel.  Long-Lived Assets.
  Fair Value of Financial Instruments.
  Research and Development.
  Restructuring Charges. Accounting for Costs Associated with Exit or Disposal
    Activities. No such amounts were incurred during the years ended
    December 31, 2006 and 2005.
  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
 57




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  versus Net as an Agent
    SOP No. 97-2. SOP No. 81-1,
  No. 00-21.
  No. 99-19.
    Advertising Expenses.
  Foreign Currency.
  Derivative Financial Instruments.
 58




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Accounting for Gains on Sale of Subsidiary
    Stock. Accounting for the Sales of Stock of a
    Subsidiary
  Income Taxes.
    Stock-Based Compensation. Share-Based
    Payment Accounting for
    Stock-Based Compensation Accounting for
    Stock Issued to Employees
 59




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##### 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
    Minority Interests. Consolidated
    Financial Statements
  Net Income Per Share.
  Years Ended December 31,2007


2006


2005Shares used to compute basic net income per share


151,665



160,973



169,986Dilutive potential common shares:Stock options and restricted stock


3,995



7,558



3,425Convertible debt


10,750



10,750



10,750Shares used to compute diluted net income per share


166,410



179,281



184,161
     Accumulated Other Comprehensive Income.
 60




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006Unrealized gains on investments, net of taxes of $470 in 2007
    and $5,243 in 2006

$
5,836


$
14,318Foreign currency translation adjustments


11,896



9,167Accumulated other comprehensive income

$
17,732


$
23,485
   Reclassifications.
  New Accounting Pronouncements. Fair Value
    Measurements
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
  Business Combinations
  Noncontrolling Interest in Consolidated Financial Statements,
    an amendment of ARB No. 51
  Note 2.
    Stock-Based
    Compensation  Share-Based Payment
 61




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##### 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
        Years Ended December 31,2007


2006Cost of service revenue

$
769


$
257Research and development


7,314



6,512Sales and marketing


9,373



7,152General and administrative


6,462



4,230Total stock-based compensation expense

$
23,918


$
18,151
    62




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31, 2005Net income as reported

$
312,345Plus: stock-based employee compensation expense included in
    reported net income, net of related tax effects


128Less: stock-based employee compensation expense determined under
    fair value based methods for all awards, net of related tax
    effects


(14,860
)Pro forma net income

$
297,613Net income per share:Basic  as reported

$
1.84Diluted  as reported

$
1.70Basic  pro forma

$
1.75Diluted  pro forma

$
1.62     Note 3.
    Rhapsody
    America  Formation
  business-to-consumer
  
    RealNetworks contributed its Rhapsody service subscribers,
    certain RadioPass subscribers, cash of $16.4 million,
    contracts, revenue from existing Rhapsody subscribers, marketing
    materials, player hardware, rhapsody.com and related URLs,
    certain liabilities, and distribution arrangements in exchange
    for a 51% equity interest in Rhapsody America. RealNetworks also
    licensed certain assets to Rhapsody America, including Rhapsody
    content, Rhapsody technology, the Rhapsody brands and related
    materials.
    MTVN contributed its URGE service subscribers, cash, contracts,
    marketing materials, revenue from existing URGE subscribers,
    certain liabilities, plus the note payable described below, in
    exchange for a 49% equity interest in Rhapsody America. MTVN has
    also licensed certain assets to Rhapsody America, including URGE
    content, brands and related materials.
    In addition to the assets described above, MTVN also contributed
    a $230 million five-year note payable in consideration for
    acquiring MTVNs interest in the venture. Rhapsody America
    must use the proceeds from the note solely to purchase
    advertising from MTVN. As MTVN makes payments on the note,
    Rhapsody America records equity and RealNetworks realizes an
    immediate appreciation in the carrying value of the
    Companys interests in the venture and recognizes a gain if
    the gain is reasonably assured in accordance with
    SAB No. 51. As of December 31, 2007,
    $25.0 million in payments were made on the note and
    RealNetworks realized and recorded a gain of $12.8 million
    during the year ended December 31, 2007 as all of the
    SAB No. 51 gain recognition criteria were met.   63




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Trade Name and Trademarks

$
4,000Existing Technology


1,900Existing Subscribers


1,680Total Identifiable Intangible Assets

$
7,580
       Call/Put
    Rights
  ccounting for Derivatives and Hedging Activities Accounting for Certain financial
    Instruments with Characteristics of Both Liabilities and
    Equity
     64




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 4.
    Business
    Combinations  Business
    Combinations in 2007
          Cash paid at acquisition

$
20,225Estimated direct acquisition costs


304Total

$
20,529
       Current assets

$
747Property and equipment


34Intangible assets subject to amortization:Technology


4,540Customer relationships


950Trade name and trademarks


190Goodwill


15,859Other long-term assets


589Total assets acquired


22,909Liabilities


(2,380
)Net assets acquired

$
20,529
    65




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        end-to-end
    Cash paid at acquisition

$
12,795Estimated direct acquisition costs


902Total

$
13,697
       Current assets

$
5,110Property and equipment


2,351Intangible assets subject to amortization:Technology


1,760Customer relationships


1,610Goodwill


10,212Total assets acquired


21,043Current liabilities


(7,346
)Net assets acquired

$
13,697
          66




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##### Table of Contents



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

$
10,745Estimated direct acquisition costs


468Total

$
11,213
       Current assets

$
5,409Property and equipment


265Other long-term assets


109Intangible assets subject to amortization:Customer relationships


3,270Technology


2,545Tradenames and trademarks


287Non-compete agreements


80Goodwill


2,852Total assets acquired


14,817Current liabilities


(1,761
)Net deferred tax liabilities


(1,472
)Other long-term liabilities


(371
)Total liabilities assumed


(3,604
)Net assets acquired

$
11,213
      67




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Business
    Combinations in 2006
            Cash paid at acquisition

$
7,922Additional payments related to initial purchase price


2,000Additional accruals and payments for achievement of performance
    criteria and modification of the purchase agreement


12,471Direct acquisition costs


293Total

$
22,686
    68




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##### Table of Contents



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

$
1,830Property and equipment


166Intangible assets subject to amortization:Distributor and customer relationships


1,290Technology and games


570Tradenames and trademarks


560Non-compete agreements


180Goodwill


20,639Total assets assumed


25,235Current liabilities


(1,781
)Net deferred tax liabilities


(768
)Total liabilities assumed


(2,549
)Net assets acquired

$
22,686
           music-on-demand,
   69




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##### Table of Contents



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

$
336,652Direct acquisition costs


6,036Total purchase price

$
342,688
       Current assets

$
144,732Property and equipment


11,148Other long-term assets


4,407Other intangible assets subject to amortization:Customer relationships


67,000Developed technology


24,000Tradenames and trademarks


3,800Service contracts


3,400Goodwill


165,198Total assets acquired


423,685Current liabilities


(55,885
)Long-term liabilities


(1,110
)Net deferred tax liabilities


(24,002
)Total liabilities acquired


(80,997
)Net assets acquired

$
342,688
    70




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 5.
    Cash,
    Cash Equivalents, Short-Term Investments, and Restricted Cash
    Equivalents    Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueCash and cash equivalents:Cash

$
105,615


$



$



$
105,615Money market mutual funds


198,148











198,148Corporate notes and bonds


172,934











172,934Total cash and cash equivalents


476,697











476,697Short-term investments:Corporate notes and bonds


43,552







(981
)


42,571U.S. Government agency securities


37,296



65







37,361Total short-term investments


80,848



65



(981
)


79,932Total cash, cash equivalents, and short-term investments

$
557,545


$
65


$
(981
)

$
556,629Restricted cash equivalents

$
15,509


$



$



$
15,509
     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
     available-for-sale
 71




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##### Table of Contents



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


EstimatedCost


Fair ValueWithin one year

$
56,785


$
56,870Between one year and five years


24,063



23,062Total short-term investments

$
80,848


$
79,932
     Note 6.
    Allowance
    for Doubtful Accounts Receivable and Sales Returns    Years Ended December 31,2007


2006


2005Balance, beginning of year

$
1,101


$
1,340


$
1,145Additions charged to expenses


278



596



377Amounts written off


(265
)


(835
)


(182
)Effects of foreign currency translation


3







Balance, end of year

$
1,117


$
1,101


$
1,340
     Years Ended December 31,2007


2006


2005Balance, beginning of year

$
1,389


$
1,633


$
2,141Additions charged to revenue


2,980



4,898



6,560Amounts written off


(3,048
)


(5,142
)


(7,068
)Effects of foreign currency translation


17







Balance, end of year

$
1,338


$
1,389


$
1,633
      72




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 7.
    Deferred
    Costs    December 31,2007


2006Deferred costs

$
12,482


$
2,170Less current portion


6,408



1,643Deferred costs, non-current portion

$
6,074


$
527
   Note 8.
    Equity
    Investments      Consolidation of Variable Interest
    Entities
    2007


2006Carrying





CarryingCost


Value


Cost


ValuePublicly traded investments

$
933


$
8,085


$
913


$
20,235Privately held investments


2,740



1,891



1,879



2,414Total equity investments

$
3,673


$
9,976


$
2,792


$
22,649
     available-for-sale.
 73




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    other-than-temporary
  Note 9.
    Other
    Intangible Assets    Gross


AccumulatedAmount


Amortization


NetCustomer relationships

$
80,435


$
15,273


$
65,162Developed technology


48,173



18,539



29,634Patents, trademarks and tradenames


13,833



5,000



8,833Service contracts


6,815



2,767



4,048Total other intangible assets, December 31, 2007

$
149,256


$
41,579


$
107,677Total other intangible assets, December 31, 2006

$
121,746


$
16,637


$
105,109
       2008

$
27,1222009


24,1522010


19,4792011


13,4812012


12,672Thereafter


10,771Total

$
107,677
  74




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 10.
    Goodwill    2007


2006Balance, beginning of year

$
309,122


$
123,330Increases due to current year acquisitions


28,924



179,313Adjustments to the purchase price for WiderThan


(1,727
)


Purchase of additional shares of WiderThan


1,160



Increases for accruals and payments related to the acquisition
    of Zylom


12,471



Effects of foreign currency translation


3,203



6,479Balance, end of year

$
353,153


$
309,122
   Note 11.
    Accrued
    and Other Liabilities    December 31,2007


2006Royalties and costs of sales and fulfillment

$
37,554


$
29,968Employee compensation, commissions and benefits


21,639



25,244Sales, VAT and other taxes payable


18,156



13,364Income taxes payable


1,819



8,455Legal fees and contingent legal fees


3,439



4,075Accrued charitable donations


268



2,048Other


31,261



21,174Total

$
114,136


$
104,328
   Note 12.
    Loss on
    Excess Office Facilities    Accrued loss, December 31, 2006

$
14,501Less amounts paid on accrued loss on excess office facilities,
    net of sublease income


3,801Accrued loss, December 31, 2007


10,700Less current portion


3,389Accrued loss, non-current portion

$
7,311
   Note 13.
    Convertible
    Debt   75




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  5-year
  Note 14.
    Shareholders
    Equity  Preferred Stock.
    Shareholder Rights Plan.
  Equity Compensation Plans.
 76




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Restricted Stock Units.
    Shares


Options Outstanding


WeightedAvailable


Number


Weighted


Average Fairfor Grant


of Shares


Average


Valuein (000s)


in (000s)


Exercise Price


GrantsBalances, December 31, 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
)










11.38Options exercised






(8,854
)


5.99Options canceled


3,953



(3,953
)


6.81Balances, December 31, 2006


5,385



35,728


$
8.31Additional shares authorized in the 2005 Plan(2)


12,048Options granted at common stock price


(14,937
)


14,937



7.02



2.71Stock awards granted


(109
)










6.58Restricted stock units cancelled


35Options exercised






(2,447
)


5.77Options canceled


5,723



(5,723
)


10.23Balances, December 31, 2007


8,145



42,495


$
7.76
     (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.(2)
    
    At the June 25, 2007 Annual Meeting of Shareholders, the
    Companys shareholders approved an amended and restated
    2005 Stock Incentive Plan that authorized a total of
    15 million shares, including any shares that were available
    for grant prior to the approval. 77




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Years Ended December 31,2007


2006


2005Expected dividend yield


0
%


0
%


0
%Risk-free interest rate


4.47
%


4.75
%


3.76
%Expected life (years)


4.1



4.3



4.4Volatility


42
%


49
%


54
%
     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$0.02  $5.07


4,893



7.42


$
4.37



3,374


$
4.10$5.08  $5.78


5,135



8.71



5.66



1,367



5.53$5.81  $6.05


4,298



10.99



5.89



1,455



5.92$6.07  $6.80


4,661



10.18



6.32



1,607



6.27$6.81  $7.33


4,275



11.92



7.19



3,558



7.22$7.62  $8.00


4,420



5.35



7.81



905



7.90$8.04  $9.49


4,485



6.32



8.50



1,716



8.75$9.59  $10.30


4,306



5.94



10.02



1,968



10.02$10.31  $11.38


4,915



5.92



10.94



1,272



10.92$11.49  $46.19


1,107



9.56



21.72



894



24.1442,495



8.09


$
7.76



18,116


$
7.90
     Employee Stock Purchase Plan.
  Repurchase of Common Stock.
 78




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 15.
    Income
    Taxes    Years Ended December 31,2007


2006


2005United States operations

$
77,167


$
228,668


$
430,549Foreign operations


(1,396
)


(915
)


(1,006
)Income before income taxes

$
75,771


$
227,753


$
429,543
     Years Ended December 31,2007


2006


2005Current:United States Federal

$
31,266


$
20,683


$
8,055State and local


1,291



3,643



1,362Foreign


4,448



3,225



549Total current


37,005



27,551



9,966Deferred:United States Federal


(6,298
)


53,648



106,981State and local


(58
)


3,206



748Foreign


(3,193
)


(1,868
)


(497
)Total deferred


(9,549
)


54,986



107,232Total income tax expense

$
27,456


$
82,537


$
117,198
     Years Ended December 31,2007


2006


2005United States federal tax expense at statutory rate

$
26,520


$
79,714


$
150,340State taxes, net of United States federal tax benefit


1,233



3,127



3,497Change in valuation allowance


(2,262
)


1,757



(41,993
)Non-deductible stock compensation


1,601



912



Other


364



(2,973
)


5,354Total income tax expense

$
27,456


$
82,537


$
117,198
  79




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006Deferred tax assets:United States Federal net operating loss carryforwards

$
20,332


$
17,521Deferred expenses


14,542



17,290Net unrealized loss on investments


10,924



10,772Capital loss carryforwards


2,359



7,713Accrued loss on excess office facilities


3,874



5,212Stock-based compensation


11,431



5,023State net operating loss carryforwards


3,973



2,636Foreign net operating loss carryforwards


8,378



1,766Cash rights liability


166



1,483Deferred revenue


4,494



715Equipment, software, and leasehold improvements


4,436



3,476Other


2,278



3,667Gross deferred tax assets


87,187



77,274Less valuation allowance


39,742



35,222Gross deferred tax assets, net of valuation allowance


47,445



42,052Deferred tax liabilities:Other intangible assets


(27,232
)


(28,957
)Net unrealized gains on investments


(2,250
)


(6,973
)Other


(94
)


(2,973
)Prepaid expenses


(2,664
)


(2,184
)Gross deferred tax liabilities


(32,240
)


(41,087
)Net deferred tax assets

$
15,205


$
965
      80




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    non-U.S. subsidiaries
  Accounting for
    Uncertainty in Income Taxes
      Balance at January 1, 2007

$
7.5Increases/(Decreases) related to prior year tax positions


Increases/(Decreases) related to current year tax positions


1.5Settlements


Expiration of the statute of limitations


Balance at December 31, 2007

$
9.0
   Note 16.
    Commitments
    and Contingencies  Commitments.
 81




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


ContractualLeases


Obligations


Total2008

$
15,101


$
11,182


$
26,2832009


13,845



6,658



20,5032010


12,193



2,580



14,7732011


7,823







7,8232012


6,797







6,797Thereafter


9,761







9,761Total minimum payments


65,520



20,420



85,940Less future minimum receipts under subleases


7,880







7,880Net

$
57,640


$
20,420


$
78,060
           Borrowing Arrangements.
     82




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      401(k) Retirement Savings Plan.
  Litigation.
     83




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    and/or
  Note 17.
    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 18.
    Segment
    Information  Disclosures about Segments of an
    Enterprise and Related Information
 84




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          music-on-demand, video-on-demand,
   85




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##### Table of Contents



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


ReconcilingMusic


Consumer


and Solutions


Amounts


ConsolidatedNet revenue

$
149,126


$
211,851


$
206,643


$



$
567,620Cost of revenue


81,462



39,840



92,189







213,491Gross profit


67,664



172,011



114,454







354,129Operating expenses


127,842



142,749



130,551



(54,312
)


346,830Operating income (loss)


(60,178
)


29,262



(16,097
)


54,312



7,299Total non-operating income, net


36,194











32,278



68,472Income (loss) before income taxes

$
(23,984
)

$
29,262


$
(16,097
)

$
86,590


$
75,771     Years Ended December 31,2007


2006


2005Music

$
149,126


$
123,033


$
101,769Consumer


211,851



199,739



178,195Technology Products and Solutions


206,643



72,489



45,095Total net revenue

$
567,620


$
395,261


$
325,059
     Years Ended December 31,2007


2006


2005United States

$
360,676


$
283,433


$
249,855Europe


84,368



62,270



44,867Republic of Korea


82,549



18,597



Rest of the World


40,027



30,961



30,337Total

$
567,620


$
395,261


$
325,059
     December 31,2007


2006United States

$
186,665


$
172,846Republic of Korea


235,728



256,032Europe


87,181



26,807Rest of the World


7,753



6,289Total long-lived assets

$
517,327


$
461,974
  86




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006United States

$
576,994


$
621,532Republic of Korea


228,153



314,106Europe


79,410



26,298Rest of the World


10,160



7,830Total

$
894,717


$
969,766
     December 31,2007


2006Music

$
37,029


$
37,029Consumer


129,621



94,968Technology products and solutions


186,503



177,125Total goodwill

$
353,153


$
309,122
   Note 19.
    Related
    Party Transactions  Transactions with MTVN.
       87




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 20.
    Quarterly
    Information (Unaudited)    Total


Dec. 31


Sept. 30


June 30


Mar. 312007:Net revenue

$
567,620


$
156,882


$
145,095


$
136,171


$
129,472Gross profit


354,129



95,177



88,451



86,972



83,529Operating income (loss)


7,299



(25,881
)


(15,386
)


(5,177
)


53,743Net income


48,315



2,685



4,342



1,327



39,961Basic net income per share(1)


0.32



0.02



0.03



0.01



0.25Diluted net income per share(1)


0.29



0.02



0.03



0.01



0.222006: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



0.14
     (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. 88




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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
  Internal Control  Integrated
    Framework
      89




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Internal Control 
    Integrated Framework form 10-K.
        Internal Control  Integrated Framework
    KPMG
    LLP
    90




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##### 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
  Internal Control 
    Integrated Framework
    Changes
    in Internal Control over Financial Reporting
  Rules 13a-15 15d-15
  Item 9B.
    Other
    Information   PART III.  Item 10.
    Directors,
    Executive Officers and Corporate Governance   91




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##### Table of Contents



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


Weighted-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


42,044


$
7.71



8,138Equity compensation plans not approved by security holders


451


$
10.61



Total


42,495


$
7.74



8,138
     (1)
    
    Two performance-based stock option awards are outstanding under
    the 2005 Plan. These awards must be earned based on the
    achievement of certain financial targets on or before specified
    dates, and if earned, the awards will vest according to a
    time-based vesting schedule applicable to each award. Each of
    these 92




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##### Table of Contents



awards will be canceled and forfeited in the event they are not
    earned on or before the specified dates for performance
    achievement as set forth in the agreement evidencing each award.
    The weighted-average exercise price in Column (b) does not
    take into account the shares issuable upon vesting of these
    awards.(2)
    
    On December 31, 2007, the 1998 ESPP expired upon the
    conclusion of the final offering period under the 1998 ESPP, and
    no shares remained available for future issuances following such
    expiration. On January 1, 2008, the 2007 ESPP became
    effective. Column (c) above excludes the
    1,500,000 shares of the Companys common stock that
    are authorized for future issuances pursuant to the 2007 ESPP
    effective January 1, 2008. Approximately
    157,145 shares were subject to purchase during the open
    purchase period under the 1998 ESPP as of the end of fiscal 2007.(3)
    
    Includes shares available for future issuances pursuant to the
    Real Networks, Inc. 2007 Director Compensation Stock Plan
    (2007 Director Plan), a
    sub-plan
    that operates and is administered under the 2005 Plan. Under the
    2007 Director Plan, outside directors may elect to receive
    all or a portion of his or her quarterly director compensation
    in shares of the Companys common stock in lieu of cash.
    Shares issued to directors under the 2007 Director Plan are
    issued from the shares reserved under the 2005 Plan.  Equity Compensation Plans Not Approved By Security
    Holders.
  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence  Directors-Director
  Item 14.
    Principal
    Accountant Fees and Services   PART IV.  Item 15.
    Exhibits
    and Financial Statement Schedules  Index to Consolidated Financial Statements
         93




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##### Table of Contents



Financial Statement Schedules
   (a)(3) 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 adopted April 24, 2007
    (incorporated by reference from Exhibit 3.1 to
    RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    April 27, 2007)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) 94




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##### Table of Contents



ExhibitNumber

Description10
.2

RealNetworks, Inc. 1996 Stock Option Plan, as amended and
    restated on June 1, 2001 (incorporated by reference from
    Exhibit 10.1 to RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2001 filed with the
    Securities and Exchange Commission on August 13, 2001)10
.3

RealNetworks, Inc. 2000 Stock Option Plan, as amended and
    restated on June 1, 2001 (incorporated by reference from
    Exhibit 10.2 to RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2001 filed with the
    Securities and Exchange Commission on August 13, 2001)10
.4

RealNetworks, Inc. 2002 Director Stock Option Plan
    (incorporated by reference from Exhibit 10.2 to
    RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2002 filed with the
    Securities and Exchange Commission on July 25, 2002)10
.5

Form of Stock Option Agreement under the RealNetworks, Inc. 1996
    Stock Option Plan, as amended and restated (incorporated by
    reference from Exhibit 10.1 to RealNetworks Quarterly
    Report on
    Form 10-Q
    for the quarterly period ended September 30, 2002 filed
    with the Securities and Exchange Commission on November 14,
    2002)10
.6

Form of Stock Option Agreement under the RealNetworks, Inc. 2000
    Stock Option Plan, as amended and restated (incorporated by
    reference from Exhibit 10.2 to RealNetworks Quarterly
    Report on
    Form 10-Q
    for the quarterly period ended September 30, 2002 filed
    with the Securities and Exchange Commission on November 14,
    2002)10
.7

Forms of Stock Option Agreement under the RealNetworks, Inc.
    2002 Director Stock Option Plan (incorporated by reference
    from Exhibit 10.3 to RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended September 30, 2002 filed
    with the Securities and Exchange Commission on November 14,
    2002)10
.8

RealNetworks, Inc. 2007 Employee Stock Purchase Plan
    (incorporated by reference from Exhibit 10.2 to
    RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2007 filed with the
    Securities and Exchange Commission on August 8, 2007)10
.9

RealNetworks, Inc. 2007 Director Compensation Stock Plan10
.10

RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and
    restated effective June 25, 2007 (incorporated by reference
    from Exhibit 10.1 to RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    June 29, 2007)10
.11

Form of Non-Qualified Stock Option Terms and Conditions for use
    under the RealNetworks, Inc. 2005 Stock Incentive Plan
    (incorporated by reference from Exhibit 10.11 to
    RealNetworks Annual Report on
    Form 10-K
    for the year ended December 31, 2006 filed with the
    Securities and Exchange Commission on March 1, 2007)10
.12

Form of Restricted Stock Units Terms and Conditions for use
    under the RealNetworks, Inc. 2005 Stock Incentive Plan
    (incorporated by reference from Exhibit 10.12 to
    RealNetworks Annual Report on
    Form 10-K
    for the year ended December 31, 2006 filed with the
    Securities and Exchange Commission on March 1, 2007)10
.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) 95




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##### Table of Contents



ExhibitNumber

Description10
.18

Offer Letter dated September 18, 2003 between RealNetworks,
    Inc. and Dan Sheeran (incorporated by reference from
    Exhibit 10.18 to RealNetworks Annual Report on
    form 10-K
    for the year ended December 31, 2005 filed with the
    Securities and Exchange Commission on March 16, 2005)10
.19

Offer Letter dated February 13, 2006 between RealNetworks,
    Inc. and Michael Eggers (incorporated by reference from
    Exhibit 10.19 to RealNetworks Annual Report on
    form 10-K
    for the year ended December 31, 2005 filed with the
    Securities and Exchange Commission on March 16, 2006)10
.20

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
.21

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
.22*

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)10
.23*

Transaction, Contribution and Purchase Agreement dated as of
    August 20, 2007 by and among Rhapsody America LLC,
    RealNetworks, Inc., RealNetworks Digital Music of California,
    Inc., Viacom International Inc. and DMS Holdco Inc.
    (incorporated by reference from Exhibit 10.1 to
    RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended September 30, 2007 filed
    with the Securities and Exchange Commission on November 9,
    2007)10
.24*

Limited Liability Company Agreement of Rhapsody America LLC
    dated as of August 20, 2007 among RealNetworks, Inc.,
    RealNetworks Digital Music of California, Inc., Viacom
    International Inc. and DMS Holdco Inc. (incorporated by
    reference from Exhibit 10.2 to RealNetworks Quarterly
    Report on
    Form 10-Q
    for the quarterly period ended September 30, 2007 filed
    with the Securities and Exchange Commission on November 9,
    2007)10
.25

Stockholder Agreement by and between Viacom International Inc.
    and RealNetworks, Inc. dated as of August 20, 2007
    (incorporated by reference from Exhibit 10.3 to
    RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended September 30, 2007 filed
    with the Securities and Exchange Commission on November 9,
    2007)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 this exhibit are omitted and were filed separately
    with the Securities and Exchange Commission pursuant to the
    Companys application requesting confidential treatment
    under
    Rule 24b-2
    of the Securities Exchange Act of 1934, as amended. 96




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##### Table of Contents



SIGNATURES      By:
    /s/  ROBERT
    GLASER     POWER OF
    ATTORNEY
      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  97




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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 adopted April 24, 2007
    (incorporated by reference from Exhibit 3.1 to
    RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    April 27, 2007)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)10
.3

RealNetworks, Inc. 2000 Stock Option Plan, as amended and
    restated on June 1, 2001 (incorporated by reference from
    Exhibit 10.2 to RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2001 filed with the
    Securities and Exchange Commission on August 13, 2001)10
.4

RealNetworks, Inc. 2002 Director Stock Option Plan
    (incorporated by reference from Exhibit 10.2 to
    RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2002 filed with the
    Securities and Exchange Commission on July 25, 2002)




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##### Table of Contents



ExhibitNumber

Description10
.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. 2007 Employee Stock Purchase Plan
    (incorporated by reference from Exhibit 10.2 to
    RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2007 filed with the
    Securities and Exchange Commission on August 8, 2007)10
.9

RealNetworks, Inc. 2007 Director Compensation Stock Plan10
.10

RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and
    restated effective June 25, 2007 (incorporated by reference
    from Exhibit 10.1 to RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    June 29, 2007)10
.11

Form of Non-Qualified Stock Option Terms and Conditions for use
    under the RealNetworks, Inc. 2005 Stock Incentive Plan
    (incorporated by reference from Exhibit 10.11 to
    RealNetworks Annual Report on
    Form 10-K
    for the year ended December 31, 2006 filed with the
    Securities and Exchange Commission on March 1, 2007)10
.12

Form of Restricted Stock Units Terms and Conditions for use
    under the RealNetworks, Inc. 2005 Stock Incentive Plan
    (incorporated by reference from Exhibit 10.12 to
    RealNetworks Annual Report on
    Form 10-K
    for the year ended December 31, 2006 filed with the
    Securities and Exchange Commission on March 1, 2007)10
.13

Lease dated January 21, 1998 between RealNetworks, Inc. as
    Lessee and 2601 Elliott, LLC, as amended (incorporated by
    reference from Exhibit 10.1 to RealNetworks Quarterly
    Report on
    Form 10-Q
    for the quarterly period ended September 30, 2004 filed
    with the Securities and Exchange Commission on November 9,
    2004)10
.14

Form of Director and Officer Indemnification Agreement
    (incorporated by reference from Exhibit 10.14 to
    RealNetworks Registration Statement on
    Form S-1
    filed with the Securities and Exchange Commission on
    September 26, 1997 (File
    No. 333-36553))10
.15

Voting Agreement dated September 25, 1997 by and among
    RealNetworks, Robert Glaser, Accel IV L.P., Mitchell Kapor
    and Bruce Jacobsen (incorporated by reference from
    Exhibit 10.17 to RealNetworks Registration Statement
    on
    Form S-1
    filed with the Securities and Exchange Commission on
    September 26, 1997 (File
    No. 333-36553))10
.16

Agreement dated September 26, 1997 by and between
    RealNetworks and Robert Glaser (incorporated by reference from
    Exhibit 10.18 to RealNetworks Registration Statement
    on
    Form S-1
    filed with the Securities and Exchange Commission on
    September 26, 1997 (File
    No. 333-36553))10
.17

Offer Letter dated March 31, 2005 between RealNetworks,
    Inc. and John Giamatteo (incorporated by reference from
    Exhibit 10.1 to RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    June 6, 2005)10
.18

Offer Letter dated September 18, 2003 between RealNetworks,
    Inc. and Dan Sheeran (incorporated by reference from
    Exhibit 10.18 to RealNetworks Annual Report on
    form 10-K
    for the year ended December 31, 2005 filed with the
    Securities and Exchange Commission on March 16, 2005)10
.19

Offer Letter dated February 13, 2006 between RealNetworks,
    Inc. and Michael Eggers (incorporated by reference from
    Exhibit 10.19 to RealNetworks Annual Report on
    form 10-K
    for the year ended December 31, 2005 filed with the
    Securities and Exchange Commission on March 16, 2006)10
.20

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)




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##### Table of Contents



ExhibitNumber

Description10
.21

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
.22*

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)10
.23*

Transaction, Contribution and Purchase Agreement dated as of
    August 20, 2007 by and among Rhapsody America LLC,
    RealNetworks, Inc., RealNetworks Digital Music of California,
    Inc., Viacom International Inc. and DMS Holdco Inc.
    (incorporated by reference from Exhibit 10.1 to
    RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended September 30, 2007 filed
    with the Securities and Exchange Commission on November 9,
    2007)10
.24*

Limited Liability Company Agreement of Rhapsody America LLC
    dated as of August 20, 2007 among RealNetworks, Inc.,
    RealNetworks Digital Music of California, Inc., Viacom
    International Inc. and DMS Holdco Inc. (incorporated by
    reference from Exhibit 10.2 to RealNetworks Quarterly
    Report on
    Form 10-Q
    for the quarterly period ended September 30, 2007 filed
    with the Securities and Exchange Commission on November 9,
    2007)10
.25

Stockholder Agreement by and between Viacom International Inc.
    and RealNetworks, Inc. dated as of August 20, 2007
    (incorporated by reference from Exhibit 10.3 to
    RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended September 30, 2007 filed
    with the Securities and Exchange Commission on November 9,
    2007)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 this exhibit are omitted and were filed separately
    with the Securities and Exchange Commission pursuant to the
    Companys application requesting confidential treatment
    under
    Rule 24b-2
    of the Securities Exchange Act of 1934, as amended.