##### 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,
    2009ORo

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

98121Seattle, Washington

(Zip Code)(Address of principal executive
    offices)   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
    Preferred Share Purchase Rights

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

Accelerated filer þ

Non-accelerated filer o

Smaller reporting company o(Do not check if a smaller reporting company)   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


26Item 2.

Properties


27Item 3.

Legal Proceedings


27Item 4.

Reserved


27PART IIItem 5.

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


28Item 6.

Selected Financial Data


30Item 7.

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


31Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


53Item 8.

Financial Statements and Supplementary Data


56Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


97Item 9A.

Controls and Procedures


97Item 9B.

Other Information


97PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


97Item 11.

Executive Compensation


98Item 12.

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


98Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


99Item 14.

Principal Accountant Fees and Services


99PART IVItem 15.

Exhibits and Financial Statement Schedules


99Signatures


104Exhibit Index


105EX-10.23EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2   2




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PART I.  This Annual Report on
    Form 10-K
    and the documents incorporated herein by reference contain
    forward-looking statements that have been made pursuant to the
    provisions of the Private Securities Litigation Reform Act of
    1995. These forward-looking statements are based on current
    expectations, estimates, and projections about
    RealNetworks industry, products, managements
    beliefs, and certain assumptions made by management. Words such
    as anticipates, expects,
    intends, plans, believes,
    seeks, estimates, and similar
    expressions are intended to identify forward-looking statements.
    All statements contained in this annual report on
    Form 10-K
    that do not relate to matters of historical fact should be
    considered forward-looking statements. Forward-looking
    statements include statements with respect to:
  
    future revenues, income and other taxes, tax benefits, net
    income (loss) per diluted share, acquisition costs and related
    amortization, and other measures of results of operations;
    the effects of our past acquisitions and expectations for
    future acquisitions;
    plans, strategies and expected opportunities for future
    growth, increased profitability and innovation;
    the prospects for creation and growth of strategic
    partnerships and the resulting financial benefits from such
    partnerships;
    the expected financial position, performance, growth and
    profitability of our businesses and the availability of
    resources;
    our involvement in potential claims and legal proceedings,
    the expected course and costs of existing claims and legal
    proceedings, and the potential outcomes and effects of both
    existing and potential claims and legal proceedings on our
    business, prospects, financial condition or results of
    operations;
    the expected completion of the restructuring of Rhapsody
    America;
    our intention to separate our Games and Music businesses and
    to restructure our remaining businesses;
    the expected benefits and other consequences from
    restructuring Rhapsody America, separating our Games and Music
    businesses and restructuring our remaining businesses;
    the cash position, performance, governance, ownership,
    management, accounting and integration of our Rhapsody America
    venture if the restructuring of Rhapsody America is not
    completed;
    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, if the restructuring of Rhapsody
    America is not completed;
    our expected introduction of new products and services across
    our businesses;
    the effects of legislation, regulations, administrative
    proceedings, court rulings, settlement negotiations and other
    factors that may impact music publishing royalty rates;
    the continuation and expected nature of certain customer
    relationships;
    impacts of competition and certain customer relationships on
    the future financial performance and growth of our
    businesses;
    the effects of U.S. and foreign income and other taxes
    on our business, prospects, financial condition or results of
    operations; and
    the effect of economic and market conditions on our business,
    prospects, financial condition or results of operations.  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,
 3




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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 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.
  Item 1.
    Business  Overview
    music-on-demand, video-on-demand
    business-to-consumer
     4




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Technology
    Products and Solutions
  music-on-demand, video-on-demand
    T-Mobile
    Ringback Tones. and/or T-Mobile
  Music-On-Demand. music-on-demand
  Video-On-Demand. video-on-demand and/or
  Messaging.
 5




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e-mail
      Helix Server.
  OEM Licensing.
  Other Software Licensing and Services.
    Media
    Software and Services
      RealPlayer.
 6




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Advertising and Third-Party Software.
  Subscription Revenue.
  Games
  quick-to-learn
    PC Games.
 7




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Games on Other Platforms.
      Music
      Subscription Revenue.
  Advertising Revenue.
  Revenue from Other Music Products and
    Services.
 8




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International Revenue.
  business-to-business
    Research
    and Development
    Customers
    and Seasonality
      Sales,
    Marketing and Distribution
  e-mail
 9




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Technology
    Products and Solutions Marketing
    MSS,
    Games and Music Marketing
  www.real.com,
    www.gamehouse.com, www.zylom.com
    Customer
    Support
  e-mail on-site
  Competition
  and/or
   10




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Technology
    Products and Solutions
  Software
    as a Service
  time-to-market,
    Technology
    Licensing
    Media
    Software and Services
    Games
   11




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Music
  peer-to-peer
    Intellectual
    Property
     12




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Employees
    Position
    on Charitable Responsibility
    Available
    Information
  Form 10-K, Form 10-Q Form 8-K,
  Executive
    Officers of the Registrant
    Name

Age

PositionRobert Kimball


46


President, Acting Chief Executive Officer and DirectorMichael Eggers


38


Senior Vice President, Chief Financial Officer and TreasurerJohn Barbour


50


President, Games DivisionSavino (Sid) Ferrales


59


Senior Vice President, Human ResourcesJohn Giamatteo


43


Chief Operating OfficerMichael Lunsford


42


Executive Vice President, Technology Products and Solutions and
    Media Software and ServicesHenry (Hank) Skorny


45


Senior Vice President, Media Cloud Computing and Services      13




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Item 1A.
    Risk
    Factors  Form 10-K.
 14




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Risks
    Related to Our Technology Products and Solutions
    Business
  Contracts
    with our carrier customers subject us to significant risks that
    could negatively impact our revenue or otherwise harm our
    operating results.
        The
    mobile entertainment market is highly competitive.
    A
    majority of the revenue that we generate in our Technology
    Products and Solutions business is dependent upon our
    relationship with a few customers, including SK Telecom and
    Verizon; any deterioration of these relationships could
    materially harm our business.
   15




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Risks
    Related to Our Media Software and Services, Games and Music
    Businesses
  Our
    Media Software and Services, Games and Music businesses face
    substantial competitive and other challenges that may prevent us
    from being successful in, and negatively impact future growth
    in, those businesses.
    
    reduced prices or margins,
    loss of current and potential customers, or partners and
    potential partners who provide content we distribute to our
    customers,
    changes to our products, services, technologies, licenses or
    business practices or strategies,
    lengthened sales cycles,
    industry-wide changes in content distributions to customers,
    pressure to prematurely release products or product
    enhancements, or
    degradation in our stature and reputation in the market.    Media Software and Services.
  Games.
 16




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Music. peer-to-peer
  The
    success of our subscription services businesses depends upon our
    ability to increase subscription revenue and to license
    compelling content on commercially reasonable
    terms.
    Music
    publishing royalty rates for music subscription services offered
    through RealNetworks and Rhapsody America are not yet fully
    established; an unexpected modification or application of
    settlement terms could negatively impact our operating
    results.
   17




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Copyright
    Royalty Board decisions regarding webcast radio royalties and
    minimum payments could result in material expenses that would
    harm our operating results and our ability to provide popular
    radio services.
    We may
    not be successful in maintaining and growing our distribution of
    digital media products.
    Our
    pending restructuring of our Rhapsody America joint venture may
    not yield the anticipated benefits to us or to Rhapsody
    America.
  business-to-consumer business-to-business
 18




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If the
    pending restructuring of Rhapsody America is not completed, the
    joint venture may not have sufficient funds to continue to
    support its current operations.
  and/or
  Until
    the pending restructuring of Rhapsody America is completed, we
    face risks with respect to certain matters in the governance and
    management of our Rhapsody America joint venture and the
    integration and operation of assets that have been combined to
    form Rhapsody America.
  day-to-day
  day-to-day
 19




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period-over-period
  Until
    the pending restructuring of Rhapsody America is completed, 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 its proportionate interest in Rhapsody
    America.
    Risks
    Related to Our Business in General
  Our
    operating results are difficult to predict and may fluctuate,
    which may contribute to volatility in our stock
    price.
  period-to-period,
  
    impairments of long-lived assets,
    integrating and operating newly acquired businesses and assets,
    the seasonality of our business, which has experienced increased
    revenues in the fourth quarter of our fiscal year, and
    the general difficulty in forecasting our operating results and
    metrics, which could result in actual results that differ
    significantly from expected results.   20




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Uncertainty
    and adverse conditions in the economy could have a material
    adverse impact on our business, financial condition and results
    of operations.
      New
    products and services may not achieve market acceptance or may
    be subject to legal challenge that could negatively affect our
    operating results.
   21




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We
    plan to implement significant strategic and operational
    initiatives to restructure and simplify our business and
    operations. If we are not successful in implementing these
    initiatives, our stock price and business may be adversely
    affected, and we may not realize the anticipated benefits of
    these initiatives.
    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.
      Acquisitions
    involve costs and risks that could harm our business and impair
    our ability to realize potential benefits from
    acquisitions.
     22




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
    difficulties and expenses in assimilating the operations,
    products, technology, information systems,
    and/or
    personnel of the acquired company;
    retaining key management or employees of the acquired company;
    entrance into unfamiliar markets, industry segments, or types of
    businesses;
    operating and integrating acquired businesses in remote
    locations;
    integrating and managing businesses based in countries in which
    we have little or no prior experience;
    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 and
    interoperability of our services with these devices to grow our
    business.
    We may
    be unable to adequately protect our proprietary rights or
    leverage our patent portfolio, and may face risks associated
    with third-party claims relating to our intellectual
    property.
   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.
    The
    growth of our business is dependent in part on successfully
    implementing our international expansion strategy.
    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.
   24




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We may
    be subject to additional income tax assessments.
    Risks
    Related to the Securities Markets and Ownership of Our Common
    Stock
  Our
    directors and executive officers beneficially own more than 38%
    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.   25




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Provisions
    of our charter documents, Shareholder Rights Plan, and
    Washington law could discourage our acquisition by a
    third-party.
    
    adopt a plan of merger;
    authorize the sale, lease, exchange or mortgage of assets
    representing more than 50% of the book value of our assets prior
    to the transaction or on which our long-term business strategy
    is substantially dependent;
    authorize our voluntary dissolution; or
    take any action that has the effect of any of the above.          Item 1B.
    Unresolved
    Staff Comments   26




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Item 2.
    Properties      Area leased


MonthlyLocation

(sq. feet)


rent


Lease expirationSeattle, Washington


264,000


$
500,000


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


133,000



435,000


September 2010Seoul, Republic of Korea(2)


62,000



85,000


October 2011Reston, Virginia(2)


35,000



80,000


September 2012     (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.
    Reserved 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 31,2009


2008High


Low


High


LowFirst Quarter

$
3.84


$
1.97


$
6.58


$
5.07Second Quarter


3.12



2.23



7.61



5.82Third Quarter


4.14



2.53



7.28



4.89Fourth Quarter


4.48



3.21



5.12



2.93      28




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Comparison
    of 5 Year Cumulative Total Return Among RealNetworks,
    Inc.,
    the NASDAQ Composite Index and the Dow Jones U.S. Technology
    Index
  
  December 31,

December 31,

December 31,

December 31,

December 31,

December 31,2004

2005

2006

2007

2008

2009RealNetworks, Inc.

$
100


$
117.22


$
165.26


$
91.99


$
53.32


$
56.04NASDAQ Composite Index

$
100


$
101.33


$
114.01


$
123.71


$
73.11


$
105.61Dow Jones U.S. Technology Index

$
100


$
103.31


$
113.75


$
131.60


$
75.19


$
123.67    29




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Item 6.
    Selected
    Financial Data    Years Ended December 31,2009


2008


2007


2006


2005(In thousands, except per share data)Consolidated Statements of Operations Data:Net revenue

$
562,264


$
604,810


$
567,620


$
395,261


$
325,059Cost of revenue


222,142



233,244



213,491



124,108



98,249Impairment of deferred costs and prepaid royalties






19,666











Gross profit


340,122



351,900



354,129



271,153



226,810Operating expenses:Research and development


119,448



113,680



102,731



77,386



70,731Sales and marketing


165,856



211,922



209,412



165,602



130,515Advertising with related party


33,292



44,213



24,360







General and administrative


79,164



69,981



67,326



57,332



50,697Impairment of goodwill and long-lived assets


175,583



192,676











Restructuring and other charges


4,017



6,833



3,748







Loss on excess office facilities














738



Subtotal operating expenses


577,360



639,305



407,577



301,058



251,943Antitrust litigation (benefit) expenses, net










(60,747
)


(220,410
)


(422,500
)Total operating expenses (benefit)


577,360



639,305



346,830



80,648



(170,557
)Operating income (loss)


(237,238
)


(287,405
)


7,299



190,505



397,367Other income, net


(2,470
)


27,800



48,688



37,248



32,176Income (loss) before income taxes


(239,708
)


(259,605
)


55,987



227,753



429,543Income taxes


(3,321
)


(25,828
)


(27,456
)


(82,537
)


(117,198
)Net income (loss)


(243,029
)


(285,433
)


28,531



145,216



312,345Net loss attributable to the noncontrolling interest in Rhapsody
    America


26,265



41,555



19,784







Net income (loss) attributable to common shareholders

$
(216,764
)

$
(243,878
)

$
48,315


$
145,216


$
312,345Basic net income (loss) per share available to common
    shareholders

$
(1.64
)

$
(1.74
)

$
0.32


$
0.90


$
1.84Diluted net income (loss) per share available to common
    shareholders

$
(1.64
)

$
(1.74
)

$
0.29


$
0.81


$
1.70Shares used to compute basic net income (loss) per share
    available to common shareholders


134,612



140,432



151,665



160,973



169,986Shares used to compute diluted net income (loss) per share
    available to common shareholders


134,612



140,432



166,410



179,281



184,161   30




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As of December 31,2009


2008


2007


2006


2005(In thousands)Consolidated Balance Sheets Data:Cash, cash equivalents, and short-term investments

$
384,900


$
370,734


$
556,629


$
678,920


$
781,327Working capital


278,198



266,990



351,066



584,125



710,804Other intangible assets, net


10,650



18,727



107,677



105,109



7,337Goodwill






175,264



353,153



309,122



123,330Total assets


606,883



789,013



1,275,442



1,303,416



1,112,997Convertible debt










100,000



100,000



100,000Shareholders equity


375,811



553,558



875,104



969,766



841,733   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
           31




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sign-ups
    Years Ended December 31,2009


2008


2007Net revenue


100.0
%


100.0
%


100.0
%Cost of revenue


39.5



38.6



37.6Impairment of deferred costs and prepaid royalties






3.2



Gross profit


60.5



58.2



62.4Operating expenses:Research and development


21.3



18.8



18.1Sales and marketing


29.5



35.0



36.9Advertising with related party


5.9



7.3



4.3General and administrative


14.1



11.6



11.9Impairment of goodwill and long-lived assets


31.2



31.9



Restructuring and other charges


0.7



1.1



0.6Subtotal operating expenses


102.7



105.7



71.8Antitrust litigation benefit, net










(10.7
)Total operating expenses


102.7



105.7



61.1Operating income (loss)


(42.2
)


(47.5
)


1.3Other income (expense), net


(0.5
)


4.6



8.5Income (loss) before income taxes


(42.7
)


(42.9
)


9.8Income taxes


(0.6
)


(4.3
)


(4.8
)Net income (loss)


(43.3
)


(47.2
)


5.0Net loss attributable to the noncontrolling interest in Rhapsody
    America


4.7



6.9



3.5Net income (loss) attributable to common shareholders


(38.6
)%


(40.3
)%


8.5
%    32




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Risks Related to our Media
    Software and Services, Games and Music Businesses Risks Related to Our Business in General
  Critical
    Accounting Policies and Estimates
    
    Revenue recognition;
    Estimating music publishing rights and music royalties;
    Estimating 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 long-lived assets;
    Valuation of goodwill;
    Stock-based compensation;
    Noncontrolling interest;
    Accounting for gains on sale of subsidiary stock; and
    Accounting for income taxes.  Revenue Recognition.
        business-to-business
 33




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when-and-if-available
  Estimating Music Publishing Rights and Music Royalty
    Accruals.
  Estimating Recoverability of Deferred
    Costs.
    Estimating Allowances for Doubtful Accounts and Sales
    Returns.
  Estimating Losses on Excess Office
    Facilities.
 34




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Impairment of Investments. other-than-temporary. other-than-temporary
  Valuation of Long-Lived Assets.
  Valuation of Goodwill.
  
    poor economic performance relative to historical or projected
    future operating results;
    significant negative industry, economic or company specific
    trends;
    market and interest rate risk;
    changes in the manner of our use of the assets or the plans for
    our business; and
    loss of key personnel.       35




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Stock-Based Compensation.
  Noncontrolling Interests.
    Accounting for Gains on Sale of Subsidiary
    Stock. Noncontrolling Interests in Consolidated Financial
    Statements, an amendment to ARB No. 51
    ( Consolidation
  Accounting for Income Taxes.
   36




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##### Table of Contents



non-U.S. subsidiaries
   37




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Revenue
    by Segment
    % Total





% Total





% TotalNet





Net





Net


2009-2008


2008-20072009


Revenue


2008


Revenue


2007


Revenue


Change


ChangeTPSLicense

$
20,770






$
25,084






$
18,893







(17
)%


33
%Service


170,715







181,483







187,750







(6
)


(3
)Total net revenue

$
191,485



34
%

$
206,567



34
%

$
206,643



36
%


(7
)%


0
%MSSLicense

$
7,851






$
7,681






$
4,308







2
%


78
%ServiceSubscriptions


41,880







56,113







63,408







(25
)


(12
)Advertising and other


37,357







39,079







35,632







(4
)


10Total service revenue


79,237







95,192







99,040







(17
)


(4
)Total net revenue

$
87,088



15
%

$
102,873



17
%

$
103,348



18
%


(15
)%


0
%GamesLicense

$
52,027






$
60,342






$
48,633







(14
)%


24
%ServiceSubscriptions


45,371







44,220







34,255







3



29Advertising and other


25,426







30,087







25,615







(15
)


17Total service revenue


70,797







74,307







59,870







(5
)


24Total net revenue

$
122,824



22
%

$
134,649



22
%

$
108,503



19
%


(9
)%


24
%MusicLicense

$
20,348






$
20,883






$
20,884







(3
)%


0
%ServiceSubscriptions


128,833







126,148







115,254







2



9Advertising and other


11,686







13,690







12,988







(15
)


5Total service revenue


140,519







139,838







128,242







0



9Total net revenue

$
160,867



29
%

$
160,721



27
%

$
149,126



26
%


0
%


8
%Total net revenueLicense

$
100,996






$
113,990






$
92,718







(11
)%


23
%Service


461,268







490,820







474,902







(6
)


3Total net revenue

$
562,264



100
%

$
604,810



100
%

$
567,620



100
%


(7
)%


7
%   Technology Products and Solutions.
   38




---



##### Table of Contents



Media Software and Services.
      Games.
     39




---



##### Table of Contents



Music.
      Geographic
    Revenue
    2009


Change


2008


Change


2007United States

$
374,283



(7
)%

$
403,799



12
%

$
360,676Europe


96,146



(10
)


107,223



27



84,368Rest of the World


91,835



(2
)


93,788



(23
)


122,576Total

$
562,264



(7
)%

$
604,810



7
%

$
567,620    40




---



##### Table of Contents



41




---



##### Table of Contents



Cost of
    Revenue by Segment
    % of





% of





% ofSegment





Segment





Segment


2009-2008


2008-20072009


Revenue


2008


Revenue


2007


Revenue


Change


ChangeTPSLicense

$
426






$
1,206






$
2,434







(65
)%


(50
)%Service


75,461







95,457







89,755







(21
)


6Total cost of revenue

$
75,887



40
%

$
96,663



47
%

$
92,189



45
%


(21
)%


5
%MSSLicense

$
2,802






$
3,083






$
2,247







(9
)%


37
%Service


11,302







13,338







11,769







(15
)


13Total cost of revenue

$
14,104



16
%

$
16,421



16
%

$
14,016



14
%


(14
)%


17
%GamesLicense

$
18,141






$
29,751






$
14,088







(39
)%


111
%Service


15,353







18,008







11,736







(15
)


53Total cost of revenue

$
33,494



27
%

$
47,759



35
%

$
25,824



24
%


(30
)%


85
%MusicLicense

$
14,481






$
16,057






$
16,158







(10
)%


(1
)%Service


84,176







76,010







65,304







11



16Total cost of revenue

$
98,657



61
%

$
92,067



57
%

$
81,462



55
%


7
%


13
%Total cost of revenueLicense

$
35,850






$
50,097






$
34,927







(28
)%


43
%Service


186,292







202,813







178,564







(8
)


14Total cost of revenue

$
222,142



40
%

$
252,910



42
%

$
213,491



38
%


(12
)%


18
%   Cost of Technology Products and
    Solutions.
     42




---



##### Table of Contents



Cost of Media Software and Services
    Revenue.
      Cost of Games Revenue.
      Cost of Music Revenue.
     43




---



##### Table of Contents



Impairment
    of Deferred Costs and Prepaid Royalties
      Operating
    Expenses
  Research
    and Development
  year-over-year
  2009

Change

2008

Change

2007Research and development

$
119,448



5
%

$
113,680



11
%

$
102,731As a percentage of total net revenue


21
%






19
%






18
%      44




---



##### Table of Contents



Sales
    and Marketing
  year-over-year
  2009

Change

2008

Change

2007Sales and marketing

$
165,856



(22
)%

$
211,922



1
%

$
209,412As a percentage of total net revenue


29
%






35
%






37
%       Advertising
    with Related Party
    General
    and Administrative
  year-over-year
  2009

Change

2008

Change

2007General and administrative

$
79,164



13
%

$
69,981



4
%

$
67,326As a percentage of total net revenue


14
%






12
%






12
%  45




---



##### Table of Contents



Impairment
    of Goodwill and Long-Lived Assets
             46




---



##### Table of Contents



Restructuring
    and Other Charges
        Loss
    on Excess Office Facilities
    Antitrust
    Litigation Benefit, net
    Other
    Income, Net
   47




---



##### Table of Contents



year-over-year
  2009


Change


2008


Change


2007Interest income, net

$
3,969



(70
)%

$
13,453



(56
)%

$
30,874Gain on sale of equity investments


688



228



210



114



98Equity in net income (loss) of investments


(1,313
)


89



(695
)


58



(440
)Impairment of equity investments


(5,020
)


n/a







n/a



Gain on sale of interest in Rhapsody America






n/a



14,502



(12
)


16,410Other income (expenses)


(794
)


(341
)


330



(81
)


1,746Other income, net

$
(2,470
)


(109
)%

$
27,800



(43
)%

$
48,688       Income
    Taxes
    Recently
    Issued Accounting Standards
  Form 10-K
  No. 142-3, Determination of the Useful Life of Intangible Assets No. 142-3) Intangibles  Goodwill and Other and/or
  Business Combinations
 48




---



##### Table of Contents



Business Combinations
  Noncontrolling
    Interests in Consolidated Financial Statements, an amendment to
    ARB No. 51 Consolidation Net Income
    Per Share
  14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash Upon Conversion (Including Partial Cash
    Settlement) (FSP 14-1) Debt
  The FASB Accounting Standards
    Codification (Codification) and the Hierarchy of Generally
    Accepted Accounting Principles- a replacement of Financial
    Statement No. 162 Generally
    Accepted Accounting Principles
  2009-13 2009-13) No. 08-1, Revenue Arrangements with Multiple Deliverables (EITF 08-1)). 2009-13 EITF 00-21 2009-13 2009-13 2009-13
 49




---



##### Table of Contents



2009-14 2009-14) No. 09-3, Certain Revenue Arrangements That Include Software
    Elements) 2009-14 2009-14 2009-13. 2009-14
  Liquidity
    and Capital Resources
    December 31,2009


2008Working capital

$
278,198


$
266,990Cash, cash equivalents, and short-term investments


384,900



370,734Restricted cash


13,700



14,742       Years Ended December 31,2009


2008


2007Cash (used in) provided by operating activities

$
(9,304
)

$
(29,286
)

$
68,409Cash (used in) provided by investing activities


9,821



(113,218
)


467Cash (used in) provided by financing activities


39,492



(95,862
)


(113,620
)          50




---



##### Table of Contents



51




---



##### Table of Contents



non-U.S. government non-U.S. agency
      Less than


1-3


3-5


AfterContractual Obligations

Total


1 Year


Years


Years


5 Years(In thousands)Office leases

$
43,072


$
14,345


$
16,773


$
11,954


$
Other contractual obligations


23,213



22,963



250







Total contractual cash obligations

$
66,285


$
37,308


$
17,023


$
11,954


$
        52




---



##### Table of Contents



Off
    Balance Sheet Arrangements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest Rate Risk.
    WeightedAverage


Expected Maturity DatesInterest








2012-


Amortized


EstimatedRate


2010


2011


2021


Cost


Fair ValueShort-term investments:Corporate notes and bonds


1.50
%

$
5,362


$
56,506


$
11,594


$
72,731


$
73,462U.S. government agency securities


1.48
%


22,094



3,776



8,538



34,560



34,408Total short-term investments


1.49
%

$
27,456


$
60,282


$
20,132


$
107,291


$
107,870
  53




---



##### Table of Contents



WeightedAverage


Expected Maturity DatesInterest








2011-


Amortized


EstimatedRate


2009


2010


2012


Cost


Fair ValueShort-term investments:Corporate notes and bonds


2.61
%

$
1,493


$
19,938


$
32,005


$
54,685


$
53,436U.S. government agency securities


1.43
%


84,330











83,920



84,330Total short-term investments


2.18
%

$
85,823


$
19,938


$
32,005


$
138,605


$
137,766
   Investment Risk. available-for-sale, other-than-temporary other-than-temporary, other-than-temporary
  Foreign Currency Risk.
  (3) non-U.S. dollar
  mark-to-market
 54




---



##### Table of Contents



55




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  REALNETWORKS,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2009


2008(In thousands, except per share data)ASSETSCurrent assets:Cash and cash equivalents

$
277,030


$
232,968Short-term investments


107,870



137,766Trade accounts receivable, net of allowances for doubtful
    accounts and sales returns of $3,924 in 2009 and $4,631 in 2008


60,937



70,201Deferred costs, current portion


5,192



4,026Deferred tax assets, net, current portion


1,146



749Prepaid expenses and other current assets


29,478



33,850Total current assets


481,653



479,560Equipment, software, and leasehold improvements, at cost:Equipment and software


151,951



135,788Leasehold improvements


31,041



30,719Total equipment, software, and leasehold improvements


182,992



166,507Less accumulated depreciation and amortization


125,878



103,500Net equipment, software, and leasehold improvements


57,114



63,007Restricted cash equivalents


13,700



14,742Equity investments


19,553



18,582Other assets


14,212



9,895Deferred tax assets, net, non-current portion


10,001



9,236Other intangible assets, net of accumulated amortization of
    $67,478 in 2009 and $56,217 in 2008


10,650



18,727Goodwill






175,264Total assets

$
606,883


$
789,013LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
32,703


$
36,575Accrued and other liabilities


124,934



118,688Deferred revenue, current portion


31,374



39,835Related party payable


11,216



13,155Accrued loss on excess office facilities, current portion


3,228



4,317Total current liabilities


203,455



212,570Deferred revenue, non-current portion


1,933



1,961Accrued loss on excess office facilities, non-current portion






2,893Deferred rent


4,464



4,614Deferred tax liabilities, net, non-current portion


961



1,379Other long-term liabilities


13,006



11,660Total liabilities


223,819



235,077Minority interest in Rhapsody America (see Note 3 for
    redemption value)


7,253



378Commitments and contingenciesShareholders equity:Preferred stock, $0.001 par value, no shares issued and
    outstandingSeries A: authorized 200 shares






Undesignated series: authorized 59,800 shares






Common stock, $0.001 par value authorized
    1,000,000 shares; issued and outstanding
    135,057 shares in 2009 and 134,354 shares in 2008


135



134Additional paid-in capital


647,562



635,324Sale of non-controlling interest in Rhapsody America


24,044



7,381Accumulated other comprehensive loss


(38,614
)


(48,729
)Retained deficit


(257,316
)


(40,552
)Total shareholders equity


375,811



553,558Total liabilities and shareholders equity

$
606,883


$
789,013    56




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
    (LOSS)
  Years Ended December 31,2009


2008


2007(In thousands, except per share data)Net revenue(A)

$
562,264


$
604,810


$
567,620Cost of revenue(B)


222,142



233,244



213,491Impairment of deferred costs and prepaid royalties(B)






19,666



Gross profit


340,122



351,900



354,129Operating expenses:Research and development


119,448



113,680



102,731Sales and marketing


165,856



211,922



209,412Advertising with related party


33,292



44,213



24,360General and administrative


79,164



69,981



67,326Impairment of goodwill and long-lived assets


175,583



192,676



Restructuring and other charges


4,017



6,833



3,748Subtotal operating expenses


577,360



639,305



407,577Antitrust litigation benefit, net










(60,747
)Total operating expenses


577,360



639,305



346,830Operating income (loss)


(237,238
)


(287,405
)


7,299Other income (expenses), net:Interest income, net


3,969



13,453



30,874Gain on sale of equity investments


688



210



98Equity in net income (loss) of investments


(1,313
)


(695
)


(440
)Gain on sale of interest in Rhapsody America






14,502



16,410Impairment of equity investments


(5,020
)






Other income (expense)


(794
)


330



1,746Other income (expense), net


(2,470
)


27,800



48,688Income (loss) before income taxes


(239,708
)


(259,605
)


55,987Income taxes


(3,321
)


(25,828
)


(27,456
)Net income (loss)


(243,029
)


(285,433
)


28,531Net loss attributable to the noncontrolling interest in Rhapsody
    America


26,265



41,555



19,784Net income (loss) attributable to common shareholders

$
(216,764
)

$
(243,878
)

$
48,315Basic net income (loss) per share available to common
    shareholders

$
(1.64
)

$
(1.74
)

$
0.32Diluted net income (loss) per share available to common
    shareholders

$
(1.64
)

$
(1.74
)

$
0.29Shares used to compute basic net income (loss) per share
    available to common shareholders


134,612



140,432



151,665Shares used to compute diluted net income (loss) per share
    available to common shareholders


134,612



140,432



166,410Comprehensive income (loss):Net income (loss)

$
(243,029
)

$
(285,433
)

$
28,531Unrealized gain (loss) on investments:Unrealized holding losses, net of tax


6,667



(2,320
)


(8,482
)Foreign currency translation gains (losses)


3,448



(64,141
)


2,729Comprehensive income (loss)

$
(232,914
)

$
(351,894
)

$
22,778(A) Components of net revenue:License fees

$
100,996


$
113,990


$
92,718Service revenue


461,268



490,820



474,902$
562,264


$
604,810


$
567,620(B) Components of cost of revenue:License fees

$
35,850


$
50,097


$
34,927Service revenue


186,292



202,813



178,564$
222,142


$
252,910


$
213,491    57




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2009


2008


2007(In thousands)Cash flows from operating activities:Net income (loss)

$
(243,029
)

$
(285,433
)

$
28,531Adjustments to reconcile net income (loss) to net cash (used in)
    provided by operating activities:Depreciation and amortization


31,454



45,968



45,225Stock-based compensation


21,460



23,531



23,918Changes in deferred income taxes


4,255



11,583



(9,549
)Impairment of equity investments


5,020







Loss on disposal of equipment, software, and leasehold
    improvements


502



10



302Excess tax benefit from stock option exercises


(15
)


(127
)


(562
)Accrued loss on excess office facilities


(3,982
)


(3,490
)


(3,801
)Gain on sale of equity investments


(688
)


(210
)


(98
)Purchases of trading securities










(270,000
)Sales and maturities of trading securities










270,000Equity in net (income) loss of investments


1,313



695



440Gain on sale of interest in Rhapsody America






(14,502
)


(16,410
)Impairment of goodwill and long-lived assets


175,583



192,676



Accrued restructuring and other charges


(2,773
)


5,524



Other


48



111



95Changes in certain assets and liabilities, net of acquisitions:Trade accounts receivable


10,720



9,518



(13,083
)Prepaid expenses and other assets


1,789



(5,040
)


(19,710
)Accounts payable


(4,879
)


(13,709
)


(1,329
)Accrued and other liabilities


(6,082
)


3,609



34,440Net cash (used in) provided by operating activities


(9,304
)


(29,286
)


68,409Cash flows from investing activities:Purchases of equipment, software, and leasehold improvements


(16,807
)


(29,530
)


(26,658
)Purchases of short-term investments


(143,273
)


(251,887
)


(133,427
)Sales and maturities of short-term investments


173,169



194,053



207,183Purchases of intangible and other assets






(2,839
)


(2,796
)Decrease in restricted cash equivalents


1,042



768



1,805Proceeds from sale of equity investments


1,014



1,140



1,615Purchases of equity investments


(2,000
)


(14,731
)


(1,656
)Cash used in acquisitions, net of cash acquired


(3,324
)


(10,192
)


(45,599
)Net cash (used in) provided by investing activities


9,821



(113,218
)


467Cash flows from financing activities:Net proceeds from sales of common stock under employee stock
    purchase plan and exercise of stock options


1,455



9,570



15,894Repayment of convertible debt






(100,000
)


Net proceeds from sales of interest in Rhapsody America


38,022



44,640



48,716Excess tax benefit from stock option exercises


15



127



562Repurchase of common stock






(50,199
)


(178,792
)Net cash provided by (used in) financing activities


39,492



(95,862
)


(113,620
)Effect of exchange rate changes on cash


4,053



(5,363
)


(3,791
)Net increase (decrease) in cash and cash equivalents


44,062



(243,729
)


(48,535
)Cash and cash equivalents, beginning of year


232,968



476,697



525,232Cash and cash equivalents, end of year

$
277,030


$
232,968


$
476,697Supplemental disclosure of cash flow information:Cash received from income tax refunds

$
7,888


$



$
Cash paid for income taxes

$
5,697


$
12,110


$
36,615    58




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS EQUITY AND NONCONTROLLING
    INTEREST
   Sale ofNoncontrolling











Noncontrolling


AccumulatedInterest in








Additional


Interest in


Other


Retained


TotalRhapsody


Common Stock


Paid-In


Rhapsody


Comprehensive


Earnings


ShareholdersAmerica


Shares


Amount


Capital


America


Income (Loss)


(Deficit)


Equity(In thousands)Balances, 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















1,445Contributions and other transactions with owners


39,397



























Net income


(19,784
)






















48,315



48,315Balances, December 31, 2007


19,613



142,298



142



653,904







17,732



203,326



875,104Common stock issued for exercise of stock options, employee
    stock purchase plan, and vesting of restricted shares






1,990



2



9,547















9,549Common shares repurchased






(9,955
)


(10
)


(50,189
)














(50,199
)Common shares awarded






6







21















21Shares issued for director payments






15







110















110Stock-based compensation














23,531















23,531Unrealized loss on investments, net of income tax






















(2,320
)






(2,320
)Translation adjustment






















(64,141
)






(64,141
)Tax deficiency from stock option exercises














(1,600
)














(1,600
)Sale of non-controlling interest in Rhapsody America


















7,381











7,381Contributions and other transactions with owners


22,321



























Net loss


(41,555
)






















(243,878
)


(243,878
)Balances, December 31, 2008

$
378



134,354


$
134


$
635,324


$
7,381


$
(48,729
)

$
(40,552
)

$
553,558Common stock issued for exercise of stock options, employee
    stock purchase plan, and vesting of restricted shares






688



1



1,166















1,167Shares issued for director payments






15







48















48Stock-based compensation














21,460















21,460Unrealized gain on investments, net of income tax






















6,667







6,667Translation adjustment






















3,448







3,448Sale of non-controlling interest in Rhapsody America


















16,663











16,663Accretion of Rhapsody America redemption value


10,436











(10,436
)














(10,436
)Contributions and other transactions with owners


22,704



























Net loss


(26,265
)






















(216,764
)


(216,764
)Balances, December 31, 2009

$
7,253



135,057


$
135


$
647,562


$
24,044


$
(38,614
)

$
(257,316
)

$
375,811    59




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 Years ended December 31, 2009, 2008 and 2007
  Note 1.
    Description
    of Business and Summary of Significant Accounting
    Policies  Description of Business.
    Basis of Presentation.
  business-to-consumer
    Use of Estimates.
  Cash, Cash Equivalents, and Short-Term
    Investments.
  available-for-sale Available-for-sale other-than-temporary available-for-sale available-for-sale
 60




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Trade Accounts Receivable.
  Concentration of Credit Risk.
  Depreciation and Amortization.
    Equity Investments.
  Other Intangible Assets.
  Goodwill.
  
    poor economic performance relative to historical or projected
    future operating results;
    significant negative industry, economic or company specific
    trends;
    market and interest rate risk; 61




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    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 and Other Charges. Exit or Disposal Cost Obligations.
 62




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Revenue Recognition.
        business-to-business
    when-and-if-available
  Advertising Expenses.
  Foreign Currency.
  Derivative Financial Instruments.
 63




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Accounting for Gains on Sale of Subsidiary
    Stock. Non-controlling Interests in Consolidated
    Financial Statements, an amendment to ARB No. 51 Consolidation
  Accounting for Taxes Collected from
    Customers.
  Income Taxes.
    Stock-Based Compensation.
 64




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Noncontrolling Interest.
  Net Income Per Share.
  Years Ended December 31,2009


2008


2007Net income (loss) available to common shareholders:Net income (loss) attributable to common shareholders

$
(216,764
)

$
(243,878
)

$
48,315Less accretion of MTVNs preferred return in Rhapsody
    America


(3,700
)






Net income (loss) available to common shareholders

$
(220,464
)

$
(243,878
)

$
48,315Weighted average common shares outstanding used to compute basic
    net income (loss) per share available to common shareholders


134,612



140,432



151,665Dilutive potential common shares:Stock options and restricted stock










3,995Convertible debt










10,750Shares used to compute diluted net income (loss) per share
    available to common shareholders


134,612



140,432



166,410Basic net income (loss) per share available to common
    shareholders

$
(1.64
)

$
(1.74
)

$
0.32Diluted net income (loss) per share available to common
    shareholders

$
(1.64
)

$
(1.74
)

$
0.29
  65




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accumulated Other Comprehensive Income
    (loss).
    December 31,2009


2008Unrealized gains on investments, net of taxes of $(846) in 2009
    and $(846) in 2008

$
10,183


$
3,516Foreign currency translation adjustments


(48,797
)


(52,245
)Accumulated other comprehensive income (loss)

$
(38,614
)

$
(48,729
)
   Reclassifications.
  Recently Issued Accounting Standards. Form 10-K
  Business Combinations Business
    Combinations
  No. 142-3, Determination of the Useful Life of Intangible Assets No. 142-3) Intangibles  Goodwill and Other and/or
 66




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Noncontrolling Interests in Consolidated Financial
    Statements, an amendment to ARB No. 51 Consolidation Rhapsody America Net Income Per
    Share Description of Business and
    Summary of Significant Accounting Policies
  14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash Upon Conversion (Including Partial Cash
    Settlement) (FSP 14-1) Debt
  The FASB Accounting Standards
    Codification (Codification) and the Hierarchy of Generally
    Accepted Accounting Principles- a replacement of Financial
    Statement No. 162 Generally
    Accepted Accounting Principles
  2009-13 2009-13) No. 08-1, Revenue Arrangements with Multiple Deliverables (EITF 08-1)). 2009-13 EITF 00-21 2009-13 2009-13 2009-13
  2009-14 2009-14) No. 09-3, Certain Revenue Arrangements That Include Software
    Elements) 2009-14 2009-14 2009-13. 2009-14
  Note 2.
    Stock-Based
    Compensation   67




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Years Ended December 31,2009


2008


2007Expected dividend yield


0
%


0
%


0
%Risk-free interest rate


1.78
%


2.60
%


4.47
%Expected term (years)


4.2



4.2



4.1Volatility


63
%


45
%


42
%
     Years Ended December 31,2009


2008


2007Cost of service revenue

$
1,653


$
2,570


$
769Research and development


8,327



8,410



7,314Sales and marketing


4,830



5,860



9,373General and administrative


6,650



6,691



6,462Total stock-based compensation expense

$
21,460


$
23,531


$
23,918
     Shareholders
    Equity
  Note 3.
    Rhapsody
    America  Formation
  business-to-consumer
  
    RealNetworks contributed its Rhapsody service subscribers,
    RadioPass subscribers, cash, 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, and revenue from existing URGE subscribers,
    certain liabilities, plus the note payable described below, in
    exchange 68




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    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. In February 2009,
    RealNetworks and MTVN signed an amendment to the Rhapsody
    America venture agreement to
    true-up the
    original fair values contributed to the venture. The amendment
    reduced the MTVN note payable from $230.0 million to
    $213.8 million over the same five-year term. In February
    2010, RealNetworks and MTVN signed an agreement to restructure
    the Rhapsody America joint venture. Upon the closing of the
    restructuring transactions expected to occur at the end of the
    first quarter of 2010, MTVNs previous note payable will be
    cancelled and replaced with a $33.0 million note payable to
    be paid to Rhapsody America through 2011. Rhapsody America must
    use the proceeds from the note solely to purchase advertising
    from MTVN. Prior to October 1, 2008, and consistent with
    the provisions of SAB 51  Accounting for
    Sales of Stock by a Subsidiary(SAB 51) (primarily
    codified into FASB ASC 810  Consolidation), as
    MTVN made payments on the note, Rhapsody America recorded equity
    and RealNetworks realized an immediate appreciation in the
    carrying value of the Companys interests in the venture in
    the consolidated statement of operations. 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 51 gain recognition criteria were met.
    For the first nine months of the year ended December 31,
    2008, RealNetworks realized and recorded a gain of
    $14.5 million as all of the SAB 51 gain recognition
    criteria were met.      Call/Put
    Rights
     69




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Net
    Income Per Share Description of
    Business and Summary of Significant Accounting Policies
   70




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 4.
    Fair
    Value Measurements    
    Level 1:  Observable inputs such as quoted prices
    in active markets for identical assets or liabilities
    Level 2:  Inputs other than quoted prices that
    are observable for the asset or liability, either directly or
    indirectly; these include quoted prices for similar assets or
    liabilities in active markets and quoted prices for identical or
    similar assets or liabilities in markets that are not active
    Level 3:  Unobservable inputs that reflect the
    reporting entitys own assumptions  Items Measured
    at Fair Value on a Recurring Basis
    Fair Value Measurements as ofDecember 31, 2009Total


Level 1


Level 2


Level 3(In thousands)Cash equivalentsMoney market funds

$
223,909


$
223,909


$



$
Short-term investmentsCorporate notes and bonds


73,462



73,462







U.S. government agency securities


34,408



34,408







Restricted cash


13,700



13,700Equity investmentsPublicly traded investments


19,503



19,503







Total

$
364,982


$
364,982


$



$

   Fair Value Measurements as ofDecember 31, 2008Total


Level 1


Level 2


Level 3(In thousands)Cash equivalentsMoney market funds

$
157,063


$
157,063


$



$
U.S. government agency securities


4,292



4,292







Short-term investmentsU.S. government agency securities


84,330



84,330







Corporate notes and bonds


53,436



53,436







Restricted cash


14,742



14,742Equity investmentsPublicly traded investments


13,903



13,903







Total

$
327,766


$
327,766


$



$
  71




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Items Measured
    at Fair Value on a Nonrecurring Basis
  Goodwill
  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

$
53,121


$



$



$
53,121Money market mutual funds


223,909











223,909Total cash and cash equivalents


277,030











277,030Short-term investments:Corporate notes and bonds


72,731



732



(1
)


73,462U.S. Government agency securities


34,560



5



(157
)


34,408Total short-term investments


107,291



737



(158
)


107,870Total cash, cash equivalents, and short-term investments

$
384,321


$
737


$
(158
)

$
384,900Restricted cash equivalents

$
13,700


$



$



$
13,700
  72




---



##### Table of Contents



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


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueCash and cash equivalents:Cash

$
71,613


$



$



$
71,613Money market mutual funds


156,803



260







157,063U.S. government agency securities


4,203



89







4,292Total cash and cash equivalents


232,619



349







232,968Short-term investments:Corporate notes and bonds


54,685



154



(1,403
)


53,436U.S. Government agency securities


83,920



410







84,330Total short-term investments


138,605



564



(1,403
)


137,766Total cash, cash equivalents, and short-term investments

$
371,224


$
913


$
(1,403
)

$
370,734Restricted cash equivalents

$
14,742


$



$



$
14,742
     available-for-sale
    available-for-sale
  Amortized


EstimatedCost


Fair ValueWithin one year

$
27,432


$
27,456Between one year and five years


78,348



78,895Between five year and fifteen years


1,511



1,519Total short-term investments

$
107,291


$
107,870
  73




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 6.
    Allowance
    for Doubtful Accounts Receivable and Sales Returns    Years Ended December 31,2009


2008


2007Balance, beginning of year

$
3,532


$
1,117


$
1,101Additions charged to expenses


1,523



2,759



278Amounts written off


(2,117
)


(469
)


(265
)Effects of foreign currency translation


(28
)


125



3Balance, end of year

$
2,912


$
3,532


$
1,117
     Years Ended December 31,2009


2008


2007Balance, beginning of year

$
1,099


$
1,338


$
1,389Additions charged to revenue


2,840



3,102



2,980Amounts written off


(2,927
)


(3,347
)


(3,048
)Effects of foreign currency translation






6



17Balance, end of year

$
1,012


$
1,099


$
1,338
       Note 7.
    Deferred
    Costs    December 31,2009


2008Deferred costs

$
15,374


$
10,146Less current portion


5,192



4,026Deferred costs, non-current portion

$
10,182


$
6,120
      74




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 8.
    Equity
    Investments        2009


2008Carrying





CarryingCost


Value


Cost


ValuePublicly traded investments

$
10,765


$
19,503


$
10,765


$
13,903Privately held investments


500



50



5,695



4,679Total equity investments

$
11,265


$
19,553


$
16,460


$
18,582
     available-for-sale.
 75




---



##### Table of Contents



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


AccumulatedAmount


Amortization


NetCustomer relationships

$
35,902


$
27,470


$
8,432Developed technology


29,582



27,403



2,179Patents, trademarks and tradenames


6,617



6,579



38Service contracts


6,027



6,026



1Total other intangible assets, December 31, 2009

$
78,128


$
67,478


$
10,650Total other intangible assets, December 31, 2008

$
74,944


$
56,217


$
18,727
       2010

$
4,4872011


2,2832012


2,0162013


1,6112014


179Thereafter


74Total

$
10,650
      76




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 10.
    Goodwill    2009


2008Balance, beginning of yearGoodwill

$
310,334


$
353,153Accumulated impairment losses


(135,070
)


175,264



353,153Increases due to current year acquisitions






781Adjustments to the purchase price for Game Trust






(475
)Adjustments to the purchase price for SNS






(872
)Adjustments for accruals and payments related to the acquisition
    of Zylom






(172
)Impairment of goodwill


(175,583
)


(135,070
)Effects of foreign currency translation


319



(42,081
)Balance, end of yearGoodwill


310,653



310,334Accumulated impairment losses


(310,653
)


(135,070
)$



$
175,264
          77




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 11.
    Accrued
    and Other Liabilities    December 31,2009


2008Royalties and costs of sales and fulfillment

$
53,693


$
55,247Employee compensation, commissions and benefits


20,077



21,679Sales, VAT and other taxes payable


16,907



16,801Legal fees and contingent legal fees


5,251



3,290Other


29,006



21,671Total

$
124,934


$
118,688
   Note 12.
    Loss on
    Excess Office Facilities    Accrued loss, December 31, 2008

$
7,210Less amounts paid on accrued loss on excess office facilities,
    net of sublease income


3,982Accrued loss, December 31, 2009

$
3,228
   Note 13.
    Convertible
    Debt  5-year
 78




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 14.
    Shareholders
    Equity  Preferred Stock.
    Shareholder Rights Plan.
  Equity Compensation Plans.
  Restricted Stock Units and Awards.
 79




---



##### Table of Contents



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


Options Outstanding


WeightedAvailable


Number


Weighted


Average Fairfor Grant


of Shares


Average


Valuein (000s)


in (000s)


Exercise Price


GrantsBalances, December 31, 2006


5,385



35,728


$
8.31Additional shares authorized in the 2005 Plan(1)


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 cancelled


5,723



(5,723
)


10.23Balances, December 31, 2007


8,145



42,495



7.76Options granted at common stock price


(7,397
)


7,397



6.08



2.38Stock awards and restricted stock units granted


(2,038
)










6.08Stock awards and restricted stock units cancelled


171Options exercised






(1,526
)


5.23Options cancelled


8,831



(8,831
)


8.22Balances, December 31, 2008


7,712



39,535



7.41Options granted at common stock price


(3,247
)


3,247



3.00



1.50Stock awards and restricted stock units granted


(109
)










2.77Stock awards and restricted stock units cancelled


225Options cancelled as part of stock option exchange(2)


5,097



(18,939
)


7.90Options granted as part of stock option exchange(2)






8,064



3.63Options exercised






(36
)


1.49Options cancelled


5,773



(5,773
)


7.51Balances, December 31, 2009


15,451



26,098


$
6.11
     (1)
    
    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.(2)
    
    The Companys stock option exchange program and the amended
    and restated 2005 Stock Incentive Plan used a specific
    calculation to determine the number of shares available for
    grant immediately after the exchange. Based on this calculation,
    the number of shares available as of December 17, 2009 was 80




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  15.9 million shares. This resulted in an increase of the
    previously outstanding number available for grant by
    approximately 5.1 million shares.    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  $3.61


2,708



6.47


$
2.51



697


$
1.86$3.63  $3.63


8,017



6.94



3.63







$3.67  $5.01


3,225



6.41



4.29



1,965



4.52$5.03  $5.85


3,326



5.26



5.56



2,419



5.50$5.89  $6.45


2,750



6.50



6.07



1,696



6.05$6.49  $7.69


3,203



6.30



7.13



2,144



7.17$7.70  $11.38


2,678



3.16



8.99



2,345



8.96$11.62  $23.78


64



7.83



20.96



63



21.11$30.56  $30.56


7



9.15



30.56



7



30.56$46.00  $46.00


120



9.32



46.00



120



46.0026,098



6.11


$
5.32



11,456


$
6.74
     Employee Stock Purchase Plan.
  Repurchase of Common Stock.
  Stock Option Exchange.
 81




---



##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 15.
    Income
    Taxes    Years Ended December 31,2009


2008


2007United States operations

$
(191,738
)

$
(88,292
)

$
57,383Foreign operations


(47,970
)


(171,313
)


(1,396
)Income (loss) before income taxes

$
(239,708
)

$
(259,605
)

$
55,987
     Years Ended December 31,2009


2008


2007Current:United States federal

$
(3,400
)

$
6,360


$
31,266State and local


457



(2,449
)


1,291Foreign


2,009



10,333



4,448Total current


(934
)


14,244



37,005Deferred:United States federal


5,741



33,603



(6,298
)State and local


(741
)


1,044



(58
)Foreign


(745
)


(23,063
)


(3,193
)Total deferred


4,255



11,584



(9,549
)Total income tax expense

$
3,321


$
25,828


$
27,456
  82




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2009


2008


2007United States federal tax expense (benefit) at statutory rate

$
(83,898
)

$
(90,862
)

$
19,595State taxes, net of United States federal tax benefit


(284
)


(1,405
)


1,233Change in valuation allowance


16,207



50,154



(2,262
)Non-deductible stock compensation


1,551



1,758



1,601Non-deductible goodwill impairment charge


54,740



38,750



Impact of
    non-U.S.
    jurisdictional tax rate difference


5,206



13,666



182Non-taxable income attributable to noncontrolling interest


9,193



14,544



6,925Other


606



(777
)


182Total income tax expense

$
3,321


$
25,828


$
27,456
     December 31,2009


2008Deferred tax assets:United States federal net operating loss carryforwards

$
18,740


$
18,740Deferred expenses


20,634



19,509Net unrealized loss on investments


10,924



10,924Capital loss carryforwards


9,910



9,910Accrued loss on excess office facilities


1,199



2,650Stock-based compensation


17,688



14,977State net operating loss carryforwards


4,611



4,756Foreign net operating loss carryforwards


6,157



6,524Deferred revenue


493



627Equipment, software, and leasehold improvements


6,304



8,514Basis difference in majority owned partnership


4,853



3,355Intangibles


3,426



Other


8,348



5,382Gross deferred tax assets


113,287



105,868Less valuation allowance


101,025



90,986Gross deferred tax assets, net of valuation allowance


12,262



14,882Deferred tax liabilities:Other intangible assets


(1,408
)


(4,521
)Net unrealized gains on investments


(1,121
)


(1,043
)Other


(1,380
)


(446
)Prepaid expenses


(2,522
)


(3,053
)Capitalized software development costs


(4,267
)


Gross deferred tax liabilities


(10,698
)


(9,063
)Net deferred tax assets

$
1,564


$
5,819
  83




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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 Income
    Taxes Income Taxes 2001-2007,
      Years Ended December 31,2009


2008


2007Balance, beginning of year

$
10,455


$
8,931


$
7,501Increases related to prior year tax positions






586



Decreases related to prior year tax positions


(820
)


(241
)


Increases related to current year tax positions


50,191



1,179



1,430Settlements










Expiration of the statue of limitations










Balance, end of year

$
59,826


$
10,455


$
8,931
  84




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 16.
    Commitments
    and Contingencies  Commitments.
  OtherOffice


ContractualLeases


Obligations


Total2010

$
14,345


$
22,963


$
37,3082011


9,277



250



9,5272012


7,496







7,4962013


6,705







6,7052014


5,249







5,249Thereafter










Total minimum payments


43,072



23,213



66,285Less future minimum receipts under subleases


2,084







2,084Net

$
40,998


$
23,213


$
64,211
           Borrowing Arrangements.
   85




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      401(k) Retirement Savings Plan.
  Litigation.
   86




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      T-Mobile T-Mobile
     87




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      and/or
  Note 17.
    Guarantees  Guarantees
    Note 18.
    Segment
    Information   88




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Description of Business and Summary of Significant Accounting
    Policies
              ReconcilingMusic


Games


MSS


TPS


Amounts


ConsolidatedNet revenue

$
160,868


$
122,824


$
87,088


$
191,484


$



$
562,264Cost of revenue


98,657



33,492



14,106



75,887







222,142Gross profit


62,211



89,332



72,982



115,597







340,122Advertising with related party


33,292



















33,292Impairment of goodwill and long-lived assets


37,029



41,247



46,776



50,531







175,583Other operating expenses


80,294



110,549



73,506



104,213



(77
)


368,485Operating income (loss)


(88,404
)


(62,464
)


(47,300
)


(39,147
)


77



(237,238
)Other income, net


















(2,470
)


(2,470
)Income (loss) before income taxes


(88,404
)


(62,464
)


(47,300
)


(39,147
)


(2,393
)


(239,708
)Income taxes


















(3,321
)


(3,321
)Net income (loss)


(88,404
)


(62,464
)


(47,300
)


(39,147
)


(5,714
)


(243,029
)Net income (loss) attributable to noncontrolling interest in
    Rhapsody America


26,265



















26,265Net income (loss) attributable to common shareholders

$
(62,139
)

$
(62,464
)

$
(47,300
)

$
(39,147
)

$
(5,714
)

$
(216,764
)  89




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##### Table of Contents



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


Games


MSS


TPS


Amounts


ConsolidatedNet revenue

$
160,721


$
134,649


$
102,873


$
206,567


$



$
604,810Cost of revenue


91,067



39,930



16,421



85,826







233,244Impairment of deferred costs and prepaid royalties


1,000



7,829







10,837







19,666Gross profit


68,654



86,890



86,452



109,904







351,900Advertising with related party


44,213



















44,213Impairment of goodwill and long-lived assets


4,753



45,889



167



141,867







192,676Other operating expenses


102,338



109,861



63,361



125,951



905



402,416Operating income (loss)


(82,650
)


(68,860
)


22,924



(157,914
)


(905
)


(287,405
)Other income, net


14,502















13,298



27,800Income (loss) before income taxes


(68,148
)


(68,860
)


22,924



(157,914
)


5,560



(259,605
)Income taxes


















(25,827
)


(25,827
)Net income (loss)


(68,148
)


(68,860
)


22,924



(157,914
)


(13,434
)


(285,432
)Net income (loss) attributable to noncontrolling interest in
    Rhapsody America


41,555



















41,555Net income (loss) attributable to common shareholders

$
(26,593
)

$
(68,860
)

$
22,924


$
(157,914
)

$
(13,434
)

$
(243,877
)  90




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##### Table of Contents



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


Games


MSS


TPS


Amounts


ConsolidatedNet revenue

$
149,126


$
108,503


$
103,348


$
206,643


$



$
567,620Cost of revenue


81,462



25,824



14,016



92,189







213,491Gross profit


67,664



82,679



89,332



114,454







354,129Advertising with related party


24,360



















24,360Other operating expenses


103,599



90,329



53,690



132,912



(58,060
)


322,470Operating income (loss)


(60,295
)


(7,650
)


35,642



(18,458
)


58,060



7,299Total non-operating income, net


16,410















32,278



48,688Income (loss) before income taxes


(43,885
)


(7,650
)


35,642



(18,458
)


90,338



55,987Income taxes


















(27,456
)


(27,456
)Net income (loss)


(43,885
)


(7,650
)


35,642



(18,458
)


62,882



28,531Net income (loss) attributable to noncontrolling interest in
    Rhapsody America


19,784



















19,784Net income (loss) attributable to common shareholders

$
(24,101
)

$
(7,650
)

$
35,642


$
(18,458
)

$
62,882


$
48,315     Years Ended December 31,2009


2008


2007United States

$
374,283


$
403,799


$
360,676Europe


96,146



107,223



84,368Rest of the World


91,835



93,788



122,576Total

$
562,264


$
604,810


$
567,620
     December 31,2009


2008


2007United States

$
51,367


$
163,730


$
186,665Republic of Korea


7,196



51,508



235,728Europe


5,745



37,315



87,181Rest of the World


3,456



4,445



7,753Total long-lived assets

$
67,764


$
256,998


$
517,327
  91




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2009


2008


2007United States

$
320,412


$
463,209


$
557,381Republic of Korea


10,581



64,824



228,153Europe


34,784



20,201



79,410Rest of the World


10,034



5,324



10,160Total

$
375,811


$
553,558


$
875,104
     December 31,2009


2008


2007Music

$



$
37,029


$
37,029Games






41,526



82,845Media Software and Services






46,776



46,776Technology products and solutions






49,933



186,503Total goodwill

$



$
175,264


$
353,153
   Note 19.
    Related
    Party Transactions  Transactions with MTVN.
    Transactions with LoEn Entertainment,
    Inc. marked-to-market music-on-demand, video-on-demand,
 92




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 20.
    Subsequent
    Events  business-to-consumer
       93




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##### Table of Contents



REALNETWORKS,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 21.
    Quarterly
    Information (Unaudited)    Total


Dec. 31


Sept. 30


June 30


Mar. 312009:Net revenue

$
562,264


$
145,502


$
140,264


$
135,725


$
140,773Gross profit


340,122



88,681



86,578



80,111



84,752Operating loss


(237,238
)


(17,050
)


(4,277
)


(192,871
)


(18,540
)Net income (loss) available to common shareholders


(216,764
)


(13,319
)


1,520



(188,329
)


(12,136
)Basic net income (loss) per share available to common
    shareholders(1)


(1.64
)


(0.11
)


0.00



(1.40
)


(0.10
)Diluted net income (loss) per share available to common
    shareholders(1)


(1.64
)


(0.11
)


0.00



(1.40
)


(0.10
)2008:Net revenue

$
604,810


$
152,644


$
151,955


$
152,648


$
147,563Gross profit


351,900



72,936



89,791



97,003



92,170Operating loss


(287,405
)


(236,199
)


(26,971
)


(12,693
)


(11,542
)Net income (loss) available to common shareholders


(243,878
)


(240,499
)


(4,500
)


(1,305
)


2,426Basic net income (loss) per share available to common
    shareholders(1)


(1.74
)


(1.78
)


(0.03
)


(0.01
)


0.02Diluted net income (loss) per share available to common
    shareholders(1)


(1.74
)


(1.78
)


(0.03
)


(0.01
)


0.02
     (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 use of weighted average quarterly shares and the effects of
    rounding. 94




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  The Board of Directors and Shareholders
 RealNetworks, Inc.:
          KPMG
    LLP
    95




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     form 10-K.
            KPMG
    LLP
    96




---



##### 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
  Rule 13a-15(f). 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   97




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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


26,045


$
6.72



15,451
(1)(2)Equity compensation plans not approved by security holders


53



10.45



Total


26,098


$
6.74



15,451     (1)
    
    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 issuance
    pursuant to the 2007 ESPP. 98




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##### Table of Contents



(2)
    
    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
               99




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##### Table of Contents



Financial Statement Schedules
    Index to Exhibits
  ExhibitNumber

Description2
.1

Agreement and Plan of Merger and Reorganization by and among
    RealNetworks, Inc., Symphony Acquisition Corp. I, Symphony
    Acquisition Corp. II, Listen.Com, Inc., Mellon Investor Services
    LLC, as Escrow Agent and Robert Reid, as Shareholder
    Representative dated as of April 21, 2003 (incorporated by
    reference from Exhibit 2.1 to RealNetworks, Inc.s
    Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2003 filed with the
    Securities and Exchange Commission on August 14, 2003)2
.2

Combination Agreement by and among RealNetworks, Inc., RN
    International Holdings B.V. and WiderThan Co., Ltd. dated as of
    September 12, 2006 (incorporated by reference from
    Exhibit 2.1 to RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    September 14, 2006)3
.1

Amended and Restated Articles of Incorporation (incorporated by
    reference from Exhibit 3.1 to RealNetworks Quarterly
    Report on
    Form 10-Q
    for the quarterly period ended June 30, 2000 filed with the
    Securities and Exchange Commission on August 11, 2000)3
.2

Amended and Restated Bylaws 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

Amended and Restated Shareholder Rights Plan dated as of
    December 2, 2008, by and between RealNetworks, Inc. and
    Mellon Investor Services LLC including the form of Certificate
    of Designation, the form of Rights Certificate and the Summary
    of Rights attached thereto as Exhibits A, B and C,
    respectively (incorporated by reference from Exhibit 4.1 to
    RealNetworks
    Form 8-K
    filed with the Securities and Exchange Commission on
    December 3, 2008)4
.2

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

Amendment No. 1 to the RealNetworks, Inc. 1996 Stock Option
    Plan, as amended and restated on June 1, 2001 (incorporated
    by reference from Exhibit 10.3 to RealNetworks
    Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    December 21, 2009)10
.4

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
.5

Amendment No. 1 to the RealNetworks, Inc. 2000 Stock Option
    Plan, as amended and restated on June 1, 2001 (incorporated
    by reference from Exhibit 10.2 to RealNetworks
    Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    December 21, 2009)10
.6

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
.7

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) 100




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##### Table of Contents



ExhibitNumber

Description10
.8

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
.9

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
.10

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
.11

RealNetworks, Inc. 2007 Director Compensation Stock Plan
    (incorporated by reference from Exhibit 10.9 to
    RealNetworks Annual Report on
    Form 10-K
    for the year ended December 31, 2007 filed with the
    Securities and Exchange Commission on February 29, 2008)10
.12

RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and
    restated effective December 17, 2009 (incorporated by
    reference from Exhibit 10.1 to RealNetworks Current
    Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    December 21, 2009)10
.13

Form of Non-Qualified Stock Option Terms and Conditions for use
    under the RealNetworks, Inc. 2005 Stock Incentive Plan, as
    amended and restated (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
.14

Form of Restricted Stock Units Terms and Conditions for use
    under the RealNetworks, Inc. 2005 Stock Incentive Plan, as
    amended and restated (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
.15

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
.16

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
.17

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
.18

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
.19

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
.20

Offer Letter dated July 1, 2008 between RealNetworks, Inc.
    and John Giamatteo (incorporated by reference from
    Exhibit 10.1 to RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2008 filed with the
    Securities and Exchange Commission on August 11, 2008)10
.21

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
.22

Offer Letter dated January 23, 2009 between RealNetworks,
    Inc. and Bob Kimball (incorporated by reference from
    Exhibit 10.21 to RealNetworks Annual Report on
    Form 10-K
    for the year ended December 31, 2008 filed with the
    Securities and Exchange Commission on March 2, 2009) 101




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##### Table of Contents



ExhibitNumber

Description10
.23

Offer Letter dated January 17, 2008 between RealNetworks,
    Inc. and Michael Lunsford10
.24

Offer Letter dated October 28, 2008 between RealNetworks,
    Inc. and John Barbour (incorporated by reference from
    Exhibit 10.1 to RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    November 3, 2008)10
.25

Retention Letter dated February 24, 2010 between
    RealNetworks, Inc. and Robert Kimball (incorporated by reference
    from Exhibit 10.1 to RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    February 26, 2010)10
.26

Retention Letter dated February 24, 2010 between
    RealNetworks, Inc. and Michael Eggers (incorporated by reference
    from Exhibit 10.2 to RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    February 26, 2010)10
.27

Retention Letter dated February 24, 2010 between
    RealNetworks, Inc. and Michael Lunsford (incorporated by
    reference from Exhibit 10.3 to RealNetworks Current
    Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    February 26, 2010)10
.28

Change in Control and Severance Agreement dated
    February 24, 2010 between RealNetworks, Inc. and Robert
    Kimball (incorporated by reference from Exhibit 10.4 to
    RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    February 26, 2010)10
.29

Form of Change in Control and Severance Agreement dated
    February 24, 2010 between RealNetworks, Inc. and each of
    Michael Eggers and Michael Lunsford (incorporated by reference
    from Exhibit 10.5 to RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    February 26, 2010)10
.30

Form of MBO Plan Document under the RealNetworks, Inc. 2009
    Executive Compensation Program (incorporated by reference from
    Exhibit 10.26 to RealNetworks Annual Report on
    Form 10-K
    for the year ended December 31, 2008 filed with the
    Securities and Exchange Commission on March 2, 2009)10
.31*

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
.32*

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
.33*

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
.34

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 Kimball, President and Acting 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 2002 102




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##### Table of Contents



ExhibitNumber

Description31
.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 Kimball, President and Acting 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. 103




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##### Table of Contents



SIGNATURES      By:
    /s/  ROBERT
    KIMBALL     POWER OF
    ATTORNEY
      Signature

Title/s/  ROBERT
    KIMBALLRobert
    Kimball

President and Acting Chief Executive Officer
    (Principal Executive Officer)/s/  MICHAEL
    EGGERSMichael
    Eggers

Senior Vice President, Chief Financial Officer and Treasurer
    (Principal Financial and Accounting Officer)/s/  ROBERT
    GLASERRobert
    Glaser

Chairman of the Board/s/  ERIC
    A. BENHAMOUEric
    A. Benhamou

Director/s/  EDWARD
    BLEIEREdward
    Bleier

Director/s/  PRADEEP
    JOTWANIPradeep
    Jotwani

Director/s/  JONATHAN
    D. KLEINJonathan
    D. Klein

Director/s/  KALPANA
    RAINAKalpana
    Raina

Director  104




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##### Table of Contents



Exhibits 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

Amended and Restated Shareholder Rights Plan dated as of
    December 2, 2008, by and between RealNetworks, Inc. and
    Mellon Investor Services LLC including the form of Certificate
    of Designation, the form of Rights Certificate and the Summary
    of Rights attached thereto as Exhibits A, B and C,
    respectively (incorporated by reference from Exhibit 4.1 to
    RealNetworks
    Form 8-K
    filed with the Securities and Exchange Commission on
    December 3, 2008)4
.2

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

Amendment No. 1 to the RealNetworks, Inc. 1996 Stock Option
    Plan, as amended and restated on June 1, 2001 (incorporated
    by reference from Exhibit 10.3 to RealNetworks
    Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    December 21, 2009)10
.4

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
.5

Amendment No. 1 to the RealNetworks, Inc. 2000 Stock Option
    Plan, as amended and restated on June 1, 2001 (incorporated
    by reference from Exhibit 10.2 to RealNetworks
    Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    December 21, 2009)10
.6

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
.7

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
.8

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) 105




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##### Table of Contents



ExhibitNumber

Description10
.9

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
.10

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
.11

RealNetworks, Inc. 2007 Director Compensation Stock Plan
    (incorporated by reference from Exhibit 10.9 to
    RealNetworks Annual Report on
    Form 10-K
    for the year ended December 31, 2007 filed with the
    Securities and Exchange Commission on February 29, 2008)10
.12

RealNetworks, Inc. 2005 Stock Incentive Plan, as amended and
    restated effective December 17, 2009 (incorporated by
    reference from Exhibit 10.1 to RealNetworks Current
    Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    December 21, 2009)10
.13

Form of Non-Qualified Stock Option Terms and Conditions for use
    under the RealNetworks, Inc. 2005 Stock Incentive Plan, as
    amended and restated (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
.14

Form of Restricted Stock Units Terms and Conditions for use
    under the RealNetworks, Inc. 2005 Stock Incentive Plan, as
    amended and restated (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
.15

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
.16

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
.17

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
.18

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
.19

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
.20

Offer Letter dated July 1, 2008 between RealNetworks, Inc.
    and John Giamatteo (incorporated by reference from
    Exhibit 10.1 to RealNetworks Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2008 filed with the
    Securities and Exchange Commission on August 11, 2008)10
.21

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
.22

Offer Letter dated January 23, 2009 between RealNetworks,
    Inc. and Bob Kimball (incorporated by reference from
    Exhibit 10.26 to RealNetworks Annual Report on
    Form 10-K
    for the year ended December 31, 2008 filed with the
    Securities and Exchange Commission on March 2, 2009)10
.23

Offer Letter dated January 17, 2008 between RealNetworks,
    Inc. and Michael Lunsford10
.24

Offer Letter dated October 28, 2008 between RealNetworks,
    Inc. and John Barbour (incorporated by reference from
    Exhibit 10.1 to RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    November 3, 2008) 106




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##### Table of Contents



ExhibitNumber

Description10
.25

Retention Letter dated February 24, 2010 between
    RealNetworks, Inc. and Robert Kimball (incorporated by reference
    from Exhibit 10.1 to RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    February 26, 2010)10
.26

Retention Letter dated February 24, 2010 between
    RealNetworks, Inc. and Michael Eggers (incorporated by reference
    from Exhibit 10.2 to RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    February 26, 2010)10
.27

Retention Letter dated February 24, 2010 between
    RealNetworks, Inc. and Michael Lunsford (incorporated by
    reference from Exhibit 10.3 to RealNetworks Current
    Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    February 26, 2010)10
.28

Change in Control and Severance Agreement dated
    February 24, 2010 between RealNetworks, Inc. and Robert
    Kimball (incorporated by reference from Exhibit 10.4 to
    RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    February 26, 2010)10
.29

Form of Change in Control and Severance Agreement dated
    February 24, 2010 between RealNetworks, Inc. and each of
    Michael Eggers and Michael Lunsford (incorporated by reference
    from Exhibit 10.5 to RealNetworks Current Report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    February 26, 2010)10
.30

Form of MBO Plan Document under the RealNetworks, Inc. 2009
    Executive Compensation Program (incorporated by reference from
    Exhibit 10.26 to RealNetworks Annual Report on
    Form 10-K
    for the year ended December 31, 2008 filed with the
    Securities and Exchange Commission on March 2, 2009)10
.31*

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
.32*

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
.33*

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
.34

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 Kimball, President and Acting 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 2002 107




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##### Table of Contents



ExhibitNumber

Description32
.1

Certification of Robert Kimball, President and Acting 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. 108