##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-23137
 RealNetworks, Inc.
 (Exact name of registrant as specified in its charter)
 Washington(State of incorporation)
    
    91-1628146(I.R.S. Employer Identification Number)2601 Elliott Avenue, Suite 1000
Seattle, Washington(Address of principal executive offices)
    
    98121(Zip Code)
 (206) 674-2700  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PagePart I. Financial InformationItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    31Part II. Other InformationItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3. Default Upon Senior Securities
    
    
    39Item 4. Removed and Reserved
    
    
    39Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    40Signature
    
    
    41EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 REALNETWORKS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 March 31,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    202,605
    
    
    $
    277,030Short-term investments
    
    
    132,611
    
    
    
    107,870Trade accounts receivable, net of allowances for doubtful accounts and sales returns
    
    
    53,976
    
    
    
    60,937Related party receivable
    
    
    5,994
    
    
    
    Deferred costs, current portion
    
    
    4,038
    
    
    
    5,192Prepaid expenses and other current assets
    
    
    30,239
    
    
    
    30,624Total current assets
    
    
    429,463
    
    
    
    481,653Equipment, software, and leasehold improvements, at cost:Equipment and software
    
    
    139,743
    
    
    
    151,951Leasehold improvements
    
    
    30,448
    
    
    
    31,041Total equipment, software, and leasehold improvements, at cost
    
    
    170,191
    
    
    
    182,992Less accumulated depreciation and amortization
    
    
    120,900
    
    
    
    125,878Net equipment, software, and leasehold improvements
    
    
    49,291
    
    
    
    57,114Restricted cash equivalents and investments
    
    
    13,700
    
    
    
    13,700Equity method investments
    
    
    29,700
    
    
    
    50Available for sale securities
    
    
    20,989
    
    
    
    19,503Other assets
    
    
    3,974
    
    
    
    4,030Deferred costs, non-current portion
    
    
    11,064
    
    
    
    10,182Deferred tax assets, net, non-current portion
    
    
    8,597
    
    
    
    10,001Other intangible assets, net
    
    
    9,434
    
    
    
    10,650Total assets
    
    $
    576,212
    
    
    $
    606,883LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    35,671
    
    
    $
    32,703Accrued and other liabilities
    
    
    102,049
    
    
    
    124,934Deferred revenue, current portion
    
    
    23,184
    
    
    
    31,374Related party payable
    
    
    
    
    
    
    11,216Accrued loss on excess office facilities, current portion
    
    
    2,095
    
    
    
    3,228Total current liabilities
    
    
    162,999
    
    
    
    203,455Deferred revenue, non-current portion
    
    
    966
    
    
    
    1,933Deferred rent
    
    
    4,380
    
    
    
    4,464Deferred tax liabilities, net, non-current portion
    
    
    884
    
    
    
    961Other long-term liabilities
    
    
    12,750
    
    
    
    13,006Total liabilities
    
    
    181,979
    
    
    
    223,819Noncontrolling interest in Rhapsody
    
    
    
    
    
    
    7,253Shareholders equity:Preferred stock, $0.001 par value, no shares issued and outstanding:Series A: authorized 200 shares
    
    
    
    
    
    
    Undesignated series: authorized 59,800 shares
    
    
    
    
    
    
    Common stock, $0.001 par value authorized 1,000,000 shares; issued and outstanding
134,823 shares in 2009 and 134,354 shares in 2008
    
    
    135
    
    
    
    135Additional paid-in capital
    
    
    686,860
    
    
    
    671,606Accumulated other comprehensive loss
    
    
    (38,674
    )
    
    
    (38,614
    )Retained deficit
    
    
    (254,088
    )
    
    
    (257,316
    )Total shareholders equity
    
    
    394,233
    
    
    
    375,811Total liabilities and shareholders equity
    
    $
    576,212
    
    
    $
    606,883
  3




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REALNETWORKS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
 Quarters EndedMarch 31,2010
    
    
    2009Net revenue (A)
    
    $
    128,600
    
    
    $
    140,773Cost of revenue (B)
    
    
    49,159
    
    
    
    56,021Gross profit
    
    
    79,441
    
    
    
    84,752Operating expenses:Research and development
    
    
    34,675
    
    
    
    28,559Sales and marketing
    
    
    37,827
    
    
    
    43,685Advertising with related party
    
    
    1,065
    
    
    
    7,423General and administrative
    
    
    14,921
    
    
    
    22,831Restructuring and other charges
    
    
    5,615
    
    
    
    794Total operating expenses
    
    
    94,103
    
    
    
    103,292Operating loss
    
    
    (14,662
    )
    
    
    (18,540
    )Other income (expenses):Interest income, net
    
    
    380
    
    
    
    1,183Equity in net loss of investments
    
    
    
    
    
    
    (655
    )Gain on sale of equity investments, net
    
    
    
    
    
    
    137Gain on deconsolidation of Rhapsody
    
    
    10,929
    
    
    
    Other income (expense), net
    
    
    99
    
    
    
    855Other income (expenses), net
    
    
    11,408
    
    
    
    1,520Loss before income taxes
    
    
    (3,254
    )
    
    
    (17,020
    )Income taxes benefit (expense)
    
    
    3,572
    
    
    
    (1,549
    )Net income (loss)
    
    
    318
    
    
    
    (18,569
    )Net loss attributable to noncontrolling interest in Rhapsody
    
    
    2,910
    
    
    
    6,433Net income (loss) attributable to common shareholders
    
    $
    3,228
    
    
    $
    (12,136
    )Basic net income (loss) per share available to common shareholders
    
    $
    0.05
    
    
    $
    (0.10
    )Diluted net income (loss) per share available to common shareholders
    
    $
    0.05
    
    
    $
    (0.10
    )Shares used to compute basic net income (loss) per share available to common shareholders
    
    
    135,130
    
    
    
    134,380Shares used to compute diluted net income (loss) per share available to common shareholders
    
    
    139,573
    
    
    
    134,380Comprehensive income (loss):Net income (loss)
    
    $
    318
    
    
    $
    (18,569
    )Unrealized holding (gains) losses on short-term and equity investments, net of income taxes
    
    
    1,551
    
    
    
    (1,822
    )Foreign currency translation gains (losses)
    
    
    (1,611
    )
    
    
    (7,989
    )Comprehensive loss
    
    
    258
    
    
    
    (28,380
    )Net loss attributable to noncontrolling interest
    
    
    2,910
    
    
    
    6,433Comprehensive income (loss) attributable to common shareholders
    
    $
    3,168
    
    
    $
    (21,947
    )(A) Components of net revenue:License fees
    
    $
    24,172
    
    
    $
    26,179Service revenue
    
    
    104,428
    
    
    
    114,594$
    128,600
    
    
    $
    140,773(B) Components of cost of revenue:License fees
    
    $
    7,549
    
    
    $
    9,246Service revenue
    
    
    41,610
    
    
    
    46,775$
    49,159
    
    
    $
    56,021
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REALNETWORKS, INC. AND SUBSIDIARIES
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Quarters EndedMarch 31,2010
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    318
    
    
    $
    (18,569
    )Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:Depreciation and amortization
    
    
    7,314
    
    
    
    7,776Stock-based compensation
    
    
    3,921
    
    
    
    5,222Gain on disposal of equipment, software, and leasehold improvements
    
    
    (2
    )
    
    
    (33
    )Equity in net loss of investments
    
    
    
    
    
    
    655Gain on sale of equity investments, net
    
    
    
    
    
    
    (137
    )Excess tax benefit from stock option exercises
    
    
    (29
    )
    
    
    (9
    )Gain on deconsolidation of Rhapsody
    
    
    (10,929
    )
    
    
    Deferred income taxes
    
    
    (1,359
    )
    
    
    (212
    )Accrued restructuring and other charges
    
    
    4,455
    
    
    
    (2,951
    )Other
    
    
    
    
    
    
    10Net change in certain operating assets and liabilities, net of acquisitions:Trade accounts receivable
    
    
    (988
    )
    
    
    7,121Prepaid expenses and other assets
    
    
    (3,629
    )
    
    
    76Accounts payable
    
    
    4,578
    
    
    
    12,990Accrued and other liabilities
    
    
    (36,106
    )
    
    
    (7,978
    )Net cash (used in) provided by operating activities
    
    
    (32,456
    )
    
    
    3,961Cash flows from investing activities:Purchases of equipment, software, and leasehold improvements
    
    
    (4,692
    )
    
    
    (3,042
    )Purchases of short-term investments
    
    
    (26,613
    )
    
    
    (52,415
    )Proceeds from sales and maturities of short-term investments
    
    
    1,872
    
    
    
    25,396Decrease in restricted cash equivalents and investments
    
    
    
    
    
    
    (25
    )Payment of acquisition costs, net of cash acquired
    
    
    
    
    
    
    (3,154
    )Purchase of equity investments
    
    
    
    
    
    
    (2,000
    )Payment in connection with the restructuring of Rhapsody
    
    
    (18,000
    )
    
    
    Repayment of temporary funding upon deconsolidation of Rhapsody
    
    
    5,869
    
    
    
    Proceeds from sales of equity investments
    
    
    
    
    
    
    137Net cash used in investing activities
    
    
    (41,564
    )
    
    
    (35,103
    )Cash flows from financing activities:Net proceeds from sale of common stock under employee stock purchase plan and exercise of stock
options
    
    
    341
    
    
    
    12Excess tax benefit from stock option exercises
    
    
    29
    
    
    
    9Payments received on MTVN note
    
    
    1,213
    
    
    
    7,667Capital contribution to Rhapsody from MTVN
    
    
    
    
    
    
    5,000Net cash provided by financing activities
    
    
    1,583
    
    
    
    12,688Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,988
    )
    
    
    (2,805
    )Net decrease in cash and cash equivalents
    
    
    (74,425
    )
    
    
    (21,259
    )Cash and cash equivalents, beginning of period
    
    
    277,030
    
    
    
    232,968Cash and cash equivalents, end of period
    
    $
    202,605
    
    
    $
    211,709Supplemental disclosure of cash flow information:Cash received from income tax refunds
    
    $
    118
    
    
    $
    651Cash paid for income taxes
    
    $
    562
    
    
    $
    2,006
  5




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REALNETWORKS, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 2010 and 2009
 Note 1. Summary of Significant Accounting Policies
 Description of Business.
  Basis of Presentation.
    Revenue Recognition.
    6




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Accounting for Gains on Sale of Subsidiary Stock. Non-controlling Interests in
Consolidated Financial Statements, an amendment to ARB No. 51 Consolidation
 Noncontrolling Interests.
 Note 2. Recent Accounting Pronouncements
  Revenue Arrangements with Multiple
Deliverables
 Certain Revenue Arrangements That Include Software Elements)
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Note 3. Stock-Based Compensation
    QuartersEnded March 31,2010
    
    
    2009Expected dividend yield
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    1.94
    %
    
    
    1.60
    %Expected life (years)
    
    
    4.0
    
    
    
    4.2Volatility
    
    
    62
    %
    
    
    63
    %
  QuartersEnded March 31,2010
    
    
    2009Cost of revenue
    
    $
    231
    
    
    $
    630Research and development
    
    
    1,597
    
    
    
    1,824Sales and marketing
    
    
    996
    
    
    
    1,066General and administrative
    
    
    1,097
    
    
    
    1,702Total stock-based compensation expense
    
    $
    3,921
    
    
    $
    5,222
  Note 4. Rhapsody Joint Venture
 Restructuring of Rhapsody
  8




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Noncontrolling interest rollforward
  Noncontrolling interest
    
    
    Total EquityBalances, December 31, 2008
    
    $
    378
    
    
    $
    553,558Net loss
    
    
    (6,433
    )
    
    
    (12,136
    )Contribution and other transactions with owners
    
    
    10,048
    
    
    
    3,732Accretion of MTVNs preferred return in Rhapsody
    
    
    1,434
    
    
    
    (1,434
    )Unrealized holding losses on short-term and equity investments, net of taxes
    
    
    
    
    
    
    (1,822
    )Foreign currency translation losses
    
    
    
    
    
    
    (7,989
    )Stock-based transactions and compensation expense, net of taxes
    
    
    
    
    
    
    5,047Balances, March 31, 2009
    
    $
    5,427
    
    
    $
    538,956
 Noncontrolling interest
    
    
    Total EquityBalances, December 31, 2009
    
    $
    7,253
    
    
    $
    375,811Net loss
    
    
    (2,910
    )
    
    
    3,228Contribution and other transactions with owners
    
    
    616
    
    
    
    619Reversal of MTVNs accretion equity interest in Rhapsody
    
    
    (6,736
    )
    
    
    6,736Reversal of MTVNs preferred return in Rhapsody
    
    
    (3,700
    )
    
    
    3,700Deconsolidation
    
    
    5,477
    
    
    
    Unrealized holding losses on short-term and equity investments, net of taxes
    
    
    
    
    
    
    1,551Foreign currency translation losses
    
    
    
    
    
    
    (1,611
    )Stock-based transactions and compensation expense, net of taxes
    
    
    
    
    
    
    4,199Balances, March 31, 2010
    
    $
    
    
    
    $
    394,233
 Note 5. Fair Value Measurements
  9




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
    
    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 ofMarch 31, 2010Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(In thousands)Cash equivalentsMoney market funds
    
    $
    85,342
    
    
    $
    85,342
    
    
    $
    
    
    
    $
    Corporate notes and bonds
    
    
    63,997
    
    
    
    63,997
    
    
    $
    
    
    
    $
    Short-term investmentsCorporate notes and bonds
    
    
    96,175
    
    
    
    96,175
    
    
    
    
    
    
    
    U.S. government agency securities
    
    
    36,436
    
    
    
    36,436
    
    
    
    
    
    
    
    Restricted cash equivalents and investments
    
    
    13,700
    
    
    
    13,700Available for sale securities
    
    
    20,989
    
    
    
    20,989
    
    
    
    
    
    
    
    Total
    
    $
    316,639
    
    
    $
    316,639
    
    
    $
    
    
    
    $
    
 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 equivalents and investments
    
    
    13,700
    
    
    
    13,700
    
    
    
    
    
    
    
    Available for sale securities
    
    
    19,503
    
    
    
    19,503
    
    
    
    
    
    
    
    Total
    
    $
    364,982
    
    
    $
    364,982
    
    
    $
    
    
    
    $
    
  Items Measured at Fair Value on a Nonrecurring Basis
  Note 6. Cash, Cash Equivalents, Trading Securities, Short-Term Investments, and Restricted Cash
Equivalents and Investments
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Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCash and cash equivalents:Cash
    
    $
    53,266
    
    
    $
    
    
    
    $
    
    
    
    $
    53,266Money market mutual funds
    
    
    85,342
    
    
    
    
    
    
    
    
    
    
    
    85,342Corporate notes and bonds
    
    
    63,997
    
    
    
    
    
    
    
    
    
    
    
    63,997Total cash and cash equivalents:
    
    
    202,605
    
    
    
    
    
    
    
    
    
    
    
    202,605Short-term investments:Corporate notes and bonds
    
    
    95,469
    
    
    
    719
    
    
    
    (13
    )
    
    
    96,175U.S. Government agency securities
    
    
    36,497
    
    
    
    5
    
    
    
    (66
    )
    
    
    36,436Total short-term investments:
    
    
    131,966
    
    
    
    724
    
    
    
    (79
    )
    
    
    132,611Total cash, cash equivalents and short-term investments
    
    $
    334,571
    
    
    $
    724
    
    
    $
    (79
    )
    
    $
    335,216Restricted cash equivalents and investments
    
    $
    13,700
    
    
    $
    
    
    
    $
    
    
    
    $
    13,700
  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 and investments
    
    $
    13,700
    
    
    $
    
    
    
    $
    
    
    
    $
    13,700
     Amortized
    
    
    EstimatedCost
    
    
    Fair ValueWithin one year
    
    $
    52,185
    
    
    $
    52,262Between one year and five years
    
    
    78,279
    
    
    
    78,846Between five years and fifteen years
    
    
    1,502
    
    
    
    1,503Total available-for-sale investments
    
    $
    131,966
    
    
    $
    132,611
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Note 7. Allowance for Doubtful Accounts Receivable and Sales Returns
  Allowance ForDoubtfulAccounts
    
    
    SalesReceivable
    
    
    ReturnsBalances, December 31, 2009
    
    $
    2,912
    
    
    $
    1,012Additions charged to expenses
    
    
    835
    
    
    
    1,178Amounts written off
    
    
    (359
    )
    
    
    (1,283
    )Balances, March 31, 2010
    
    $
    3,388
    
    
    $
    907
  Note 8. Equity Method Investments and Available for Sale Securities
   March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    
    
    
    
    CarryingCost
    
    
    Value
    
    
    Cost
    
    
    ValueAvailable for sale securities
    
    $
    10,765
    
    
    $
    20,989
    
    
    $
    10,765
    
    
    $
    19,503Equity method investments
    
    
    30,150
    
    
    
    29,700
    
    
    
    500
    
    
    
    50Total investments
    
    $
    40,915
    
    
    $
    50,689
    
    
    $
    11,265
    
    
    $
    19,553
 Note 9. Other Intangible Assets
  Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetCustomer relationships
    
    $
    31,359
    
    
    $
    23,510
    
    
    $
    7,849Developed technology
    
    
    29,208
    
    
    
    27,654
    
    
    
    1,554Patents, trademarks and tradenames
    
    
    5,730
    
    
    
    5,699
    
    
    
    31Service contracts and other
    
    
    6,081
    
    
    
    6,081
    
    
    
    Total other intangible assets, March 31, 2010
    
    $
    72,378
    
    
    $
    62,944
    
    
    $
    9,434Total other intangible assets, December 31, 2009
    
    $
    78,128
    
    
    $
    67,478
    
    
    $
    10,650
   2010 (remaining nine months)
    
    $
    3,2022011
    
    
    2,3062012
    
    
    2,0502013
    
    
    1,6372014
    
    
    169Thereafter
    
    
    70Total
    
    $
    9,434
  12




---



##### Table of Contents



Note 10. Accrued and Other Liabilities
  March 31,
    
    
    December 31,2010
    
    
    2009Royalties and other fulfillment costs
    
    $
    42,679
    
    
    $
    53,693Employee compensation, commissions and benefits
    
    
    20,983
    
    
    
    20,077Sales, VAT and other taxes payable
    
    
    15,163
    
    
    
    16,907Legal fees and contingent legal fees
    
    
    3,166
    
    
    
    5,251Other
    
    
    20,058
    
    
    
    29,006Total
    
    $
    102,049
    
    
    $
    124,934
 Note 11. Loss on Excess Office Facilities
   Accrued loss on excess office facilities, December 31, 2009
    
    $
    3,228Less amounts amortized from the accrued loss on excess office facilities
    
    
    (1,133
    )Accrued loss on excess office facilities, March 31, 2010
    
    $
    2,095
 Note 12. Earnings Per Share
  Quarters EndedMarch 31,2010
    
    
    2009Net income (loss) available to common shareholders:Net income (loss) attributable to common shareholders
    
    $
    3,228
    
    
    $
    (12,136
    )Less accretion of MTVNs preferred return in Rhapsody
    
    
    3,700
    
    
    
    (1,434
    )Net income (loss) available to common shareholders
    
    $
    6,928
    
    
    $
    (13,570
    )Weighted average common shares outstanding used to compute basic net income (loss) per share available to common shareholders
    
    
    135,130
    
    
    
    134,380Dilutive potential common shares:Stock options and restricted stock
    
    
    4,443
    
    
    
    Shares used to compute diluted net income (loss) per share available to common shareholders
    
    
    139,573
    
    
    
    134,380Basic net income (loss) per share available to common shareholders
    
    $
    0.05
    
    
    $
    (0.10
    )Diluted net income (loss) per share available to common shareholders
    
    $
    0.05
    
    
    $
    (0.10
    )
  13




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Note 13. Commitments and Contingencies
 Borrowing Arrangements
    Litigation
  14




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##### Table of Contents



Note 14. Segment Information
      15




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##### Table of Contents



MediaSoftware and
    
    
    Technology Products
    
    
    ReconcilingMusic
    
    
    Games
    
    
    Services
    
    
    and Solutions
    
    
    Amounts
    
    
    ConsolidatedNet revenue
    
    $
    35,733
    
    
    $
    30,236
    
    
    $
    20,739
    
    
    $
    41,892
    
    
    $
    
    
    
    $
    128,600Cost of revenue
    
    
    21,930
    
    
    
    7,812
    
    
    
    2,764
    
    
    
    16,653
    
    
    
    
    
    
    
    49,159Gross profit
    
    
    13,803
    
    
    
    22,424
    
    
    
    17,975
    
    
    
    25,239
    
    
    
    
    
    
    
    79,441Operating expenses
    
    
    19,673
    
    
    
    27,793
    
    
    
    14,364
    
    
    
    26,620
    
    
    
    5,653
    
    
    
    94,103Operating income (loss)
    
    
    (5,870
    )
    
    
    (5,369
    )
    
    
    3,611
    
    
    
    (1,381
    )
    
    
    (5,653
    )
    
    
    (14,662
    )Total non-operating income, net
    
    
    10,929
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    479
    
    
    
    11,408Income (loss) before income taxes
    
    
    5,059
    
    
    
    (5,369
    )
    
    
    3,611
    
    
    
    (1,381
    )
    
    
    (5,174
    )
    
    
    (3,254
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,572
    
    
    
    3,572Net income (loss)
    
    
    5,059
    
    
    
    (5,369
    )
    
    
    3,611
    
    
    
    (1,381
    )
    
    
    (1,602
    )
    
    
    318Net income (loss)
attributable to
noncontrolling interest in
Rhapsody
    
    
    2,910
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,910Net income (loss) attributable
to common shareholders
    
    $
    7,969
    
    
    $
    (5,369
    )
    
    $
    3,611
    
    
    $
    (1,381
    )
    
    $
    (1,602
    )
    
    $
    3,228
  MediaSoftware
    
    
    Technology Products
    
    
    ReconcilingMusic
    
    
    Games
    
    
    and Services
    
    
    and Solutions
    
    
    Amounts
    
    
    ConsolidatedNet revenue
    
    $
    44,053
    
    
    $
    32,823
    
    
    $
    20,318
    
    
    $
    43,579
    
    
    $
    
    
    
    $
    140,773Cost of revenue
    
    
    27,300
    
    
    
    8,564
    
    
    
    3,707
    
    
    
    16,450
    
    
    
    
    
    
    
    56,021Gross profit
    
    
    16,753
    
    
    
    24,259
    
    
    
    16,611
    
    
    
    27,129
    
    
    
    
    
    
    
    84,752Operating expenses
    
    
    29,516
    
    
    
    26,846
    
    
    
    19,882
    
    
    
    26,216
    
    
    
    832
    
    
    
    103,292Operating income (loss)
    
    
    (12,763
    )
    
    
    (2,587
    )
    
    
    (3,271
    )
    
    
    913
    
    
    
    (832
    )
    
    
    (18,540
    )Total non-operating income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,520
    
    
    
    1,520Income (loss) before income taxes
    
    
    (12,763
    )
    
    
    (2,587
    )
    
    
    (3,271
    )
    
    
    913
    
    
    
    688
    
    
    
    (17,020
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,549
    )
    
    
    (1,549
    )Net income (loss)
    
    
    (12,763
    )
    
    
    (2,587
    )
    
    
    (3,271
    )
    
    
    913
    
    
    
    (861
    )
    
    
    (18,569
    )Net income (loss)
attributable to
noncontrolling interest in
Rhapsody
    
    
    6,433
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,433Net income (loss) attributable
to common shareholders
    
    $
    (6,330
    )
    
    $
    (2,587
    )
    
    $
    (3,271
    )
    
    $
    913
    
    
    $
    (861
    )
    
    $
    (12,136
    )
  Quarters EndedMarch 31,2010
    
    
    2009United States
    
    $
    84,550
    
    
    $
    96,666Europe
    
    
    22,482
    
    
    
    22,665Rest of the World
    
    
    21,568
    
    
    
    21,442Total net revenue
    
    $
    128,600
    
    
    $
    140,773
  March 31,
    
    
    December 31,2010
    
    
    2009United States
    
    $
    42,536
    
    
    $
    51,367Republic of Korea
    
    
    6,918
    
    
    
    7,196Europe
    
    
    6,085
    
    
    
    5,745Rest of the World
    
    
    3,186
    
    
    
    3,456Total long-lived assets
    
    $
    58,725
    
    
    $
    67,764
 16




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##### Table of Contents



March 31,
    
    
    December 31,2010
    
    
    2009United States
    
    $
    332,232
    
    
    $
    320,412Republic of Korea
    
    
    12,657
    
    
    
    10,581Europe
    
    
    36,606
    
    
    
    34,784Rest of the World
    
    
    12,738
    
    
    
    10,034Total net assets
    
    $
    394,233
    
    
    $
    375,811
 Note 15. Related Party Transactions
 Transactions with MTVN.
  Transactions with LoEn Entertainment, Inc.
 Note 16. Income Taxes
   17




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This Quarterly Report on Form 10-Q 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 report 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;
    
    our intention to separate our Games businesses and to restructure our remaining
businesses;
    
    the expected benefits and other consequences from restructuring Rhapsody, separating our
Games business and restructuring our remaining businesses;
    
    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 in section Item 1 of
Part II entitled Legal Proceedings and Item 1A of Part II entitled Risk Factors. RealNetworks
undertakes no obligation to update publicly any forward-looking statements as a result of new
information, future events or otherwise, unless required by law. Readers should, however, carefully
review the risk factors included in other reports or documents filed by RealNetworks from time to
time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q
and any Current Reports on Form 8-K .
 Overview
  18




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Risks Related to Our Business in General
 Critical Accounting Policies and Estimates
 19




---



##### Table of Contents




    
    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.
      20




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##### Table of Contents



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.
 Impairment of Investments.
 Valuation of Long-Lived Assets.
 21




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##### Table of Contents



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.
    Stock-Based Compensation.
 Noncontrolling Interests.
 22




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##### Table of Contents



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.
 Results of Operations
 Revenue by Segment
  Quarter Ended
    
    
    % Total
    
    
    Quarter Ended
    
    
    % TotalMarch, 31,
    
    
    Net
    
    
    March, 31,
    
    
    Net2010
    
    
    Revenue
    
    
    2009
    
    
    Revenue
    
    
    ChangeTPSLicense
    
    $
    5,571
    
    
    
    
    
    
    $
    4,522
    
    
    
    
    
    
    
    23
    %Service
    
    
    36,321
    
    
    
    
    
    
    
    39,057
    
    
    
    
    
    
    
    (7
    )Total net revenue
    
    $
    41,892
    
    
    
    33
    %
    
    $
    43,579
    
    
    
    31
    %
    
    
    (4
    )%MSSLicense
    
    $
    2,147
    
    
    
    
    
    
    $
    2,052
    
    
    
    
    
    
    
    5
    %ServiceSubscriptions
    
    
    9,312
    
    
    
    
    
    
    
    11,113
    
    
    
    
    
    
    
    (16
    )Advertising and other
    
    
    9,280
    
    
    
    
    
    
    
    7,153
    
    
    
    
    
    
    
    30Total service revenue
    
    
    18,592
    
    
    
    
    
    
    
    18,266
    
    
    
    
    
    
    
    2Total net revenue
    
    $
    20,739
    
    
    
    16
    %
    
    $
    20,318
    
    
    
    15
    %
    
    
    2
    %GamesLicense
    
    $
    12,540
    
    
    
    
    
    
    $
    14,011
    
    
    
    
    
    
    
    (10
    )%ServiceSubscriptions
    
    
    12,006
    
    
    
    
    
    
    
    12,126
    
    
    
    
    
    
    
    (1
    )Advertising and other
    
    
    5,690
    
    
    
    
    
    
    
    6,686
    
    
    
    
    
    
    
    (15
    )Total service revenue
    
    
    17,696
    
    
    
    
    
    
    
    18,812
    
    
    
    
    
    
    
    (6
    )Total net revenue
    
    $
    30,236
    
    
    
    23
    %
    
    $
    32,823
    
    
    
    23
    %
    
    
    (8
    )%MusicLicense
    
    $
    3,914
    
    
    
    
    
    
    $
    5,594
    
    
    
    
    
    
    
    (30
    )%ServiceSubscriptions
    
    
    28,483
    
    
    
    
    
    
    
    35,716
    
    
    
    
    
    
    
    (20
    )Advertising and other
    
    
    3,336
    
    
    
    
    
    
    
    2,743
    
    
    
    
    
    
    
    22Total service revenue
    
    
    31,819
    
    
    
    
    
    
    
    38,459
    
    
    
    
    
    
    
    (17
    )Total net revenue
    
    $
    35,733
    
    
    
    28
    %
    
    $
    44,053
    
    
    
    31
    %
    
    
    (19
    )%Total net revenueLicense
    
    $
    24,172
    
    
    
    
    
    
    $
    26,179
    
    
    
    
    
    
    
    (8
    )%Service
    
    
    104,428
    
    
    
    
    
    
    
    114,594
    
    
    
    
    
    
    
    (9
    )Total net revenue
    
    $
    128,600
    
    
    
    100
    %
    
    $
    140,773
    
    
    
    100
    %
    
    
    (9
    )%
 23




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##### Table of Contents



Technology Products and Solutions.
  Media Software and Services.
  Games.
  Music.
  24




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##### Table of Contents



Geographic Revenue
  Quarters EndedMarch 31,2010
    
    
    Change
    
    
    2009United States
    
    $
    84,550
    
    
    
    (13
    )%
    
    $
    96,666Europe
    
    
    22,482
    
    
    
    (1
    )
    
    
    22,665Rest of the world
    
    
    21,568
    
    
    
    1
    
    
    
    21,442Total net revenue
    
    $
    128,600
    
    
    
    (9
    )%
    
    $
    140,773
   Cost of Revenue by Segment
  Quarter
    
    
    
    
    
    
    QuarterEnded
    
    
    % of
    
    
    Ended
    
    
    % ofMarch 31,
    
    
    Segment
    
    
    March 31,
    
    
    Segment2010
    
    
    Revenue
    
    
    2009
    
    
    Revenue
    
    
    ChangeTPSLicense
    
    $
    10
    
    
    
    
    
    
    $
    105
    
    
    
    
    
    
    
    (90
    )%Service
    
    
    16,643
    
    
    
    
    
    
    
    16,345
    
    
    
    
    
    
    
    2Total cost of revenue
    
    $
    16,653
    
    
    
    40
    %
    
    $
    16,450
    
    
    
    38
    %
    
    
    1
    %MSSLicense
    
    $
    707
    
    
    
    
    
    
    $
    737
    
    
    
    
    
    
    
    (4
    )%Service
    
    
    2,057
    
    
    
    
    
    
    
    2,970
    
    
    
    
    
    
    
    (31
    )Total cost of revenue
    
    $
    2,764
    
    
    
    13
    %
    
    $
    3,707
    
    
    
    18
    %
    
    
    (25
    )%GamesLicense
    
    $
    4,147
    
    
    
    
    
    
    $
    4,464
    
    
    
    
    
    
    
    (7
    )%Service
    
    
    3,665
    
    
    
    
    
    
    
    4,100
    
    
    
    
    
    
    
    (11
    )Total cost of revenue
    
    $
    7,812
    
    
    
    26
    %
    
    $
    8,564
    
    
    
    26
    %
    
    
    (9
    )%MusicLicense
    
    $
    2,685
    
    
    
    
    
    
    $
    3,940
    
    
    
    
    
    
    
    (32
    )%Service
    
    
    19,245
    
    
    
    
    
    
    
    23,360
    
    
    
    
    
    
    
    (18
    )Total cost of revenue
    
    $
    21,930
    
    
    
    61
    %
    
    $
    27,300
    
    
    
    62
    %
    
    
    (20
    )%Total cost of revenueLicense
    
    $
    7,549
    
    
    
    
    
    
    $
    9,246
    
    
    
    
    
    
    
    (18
    )%Service
    
    
    41,610
    
    
    
    
    
    
    
    46,775
    
    
    
    
    
    
    
    (11
    )Total cost of revenue
    
    $
    49,159
    
    
    
    38
    %
    
    $
    56,021
    
    
    
    40
    %
    
    
    (12
    )%
 Cost of Technology Products and Solutions.
  Cost of Media Software and Services Revenue.
  25




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##### Table of Contents



Cost of Games Revenue.
  Cost of Music Revenue.
  Operating Expenses
 Research and Development
  Quarters EndedMarch 31,2010
    
    Change
    
    2009Research and development
    
    $
    34,675
    
    
    
    21
    %
    
    $
    28,559As a percentage of total net revenue
    
    
    27
    %
    
    
    
    
    
    
    20
    %
  Sales and Marketing
  Quarters EndedMarch 31,2010
    
    Change
    
    2009Sales and marketing
    
    $
    37,827
    
    
    
    (13
    )%
    
    $
    43,685As a percentage of total net revenue
    
    
    29
    %
    
    
    
    
    
    
    31
    %
 26




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##### Table of Contents



Advertising with Related Party
  General and Administrative
  Quarters EndedMarch 31,2010
    
    Change
    
    2009General and administrative
    
    $
    14,921
    
    
    
    (35
    )%
    
    $
    22,831As a percentage of total net revenue
    
    
    12
    %
    
    
    
    
    
    
    16
    %
  Restructuring and Other Charges
  Other Income (Expenses), Net
  Quarters EndedMarch 31,2010
    
    
    Change
    
    
    2009Interest income, net
    
    $
    380
    
    
    
    (68
    )%
    
    $
    1,183Equity in net loss of investments
    
    
    
    
    
    
    (100
    )
    
    
    (655
    )Gain on sale of equity investments, net
    
    
    
    
    
    
    (100
    )
    
    
    137Gain on deconsolidation of Rhapsody
    
    
    10,929
    
    
    
    n/a
    
    
    
    Other income, net
    
    
    99
    
    
    
    (88
    )
    
    
    855Other income, net
    
    $
    11,408
    
    
    
    651
    %
    
    $
    1,520
 27




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Income Taxes
    New Accounting Pronouncements
  Liquidity and Capital Resources
  March 31,
    
    December 31,2010
    
    2009Working capital
    
    $
    266,464
    
    
    $
    278,198Cash, cash equivalents, and short-term investments
    
    
    335,216
    
    
    
    384,900Restricted cash
    
    
    13,700
    
    
    
    13,700
   Quarter EndedMarch 31,2010
    
    2009Cash used in operating activities
    
    $
    (32,456
    )
    
    $
    3,961Cash used in investing activities
    
    
    (41,564
    )
    
    
    (35,103
    )Cash provided by financing activities
    
    
    1,583
    
    
    
    12,688
 28




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29




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Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk.
 Investment Risk.
 30




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Foreign Currency Risk.
     
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Controls.
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  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.
 31




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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.
  Risks Related to Our Media Software and Services and Games Businesses
 Our Media Software and Services and Games businesses face substantial competitive and other
challenges that may prevent us from being successful in, and negatively impact future growth in,
those businesses.
  32




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##### Table of Contents




    
    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.
 The success of our subscription services businesses depends upon our ability to increase
subscription revenue and to license compelling content on commercially reasonable terms.
  We may not be successful in maintaining and growing our distribution of digital media products.
 33




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##### Table of Contents



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.
  
    
    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.
  Uncertainty and adverse conditions in the economy could have a material adverse impact on our
business, financial condition and results of operations.
   34




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##### Table of Contents



New products and services may not achieve market acceptance or may be subject to legal challenge
that could negatively affect our operating results.
  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, our operating results and financial condition may be
adversely affected by fixed costs we cannot easily reduce in the short-term, and we may not realize
the anticipated benefits of these initiatives.
  The restructuring of Rhapsody may not yield the anticipated benefits to us or to Rhapsody.
  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.
 35




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##### Table of Contents



Acquisitions involve costs and risks that could harm our business and impair our ability to realize
potential benefits from acquisitions.
    
    
    difficulties and expenses in assimilating the operations, products, technology,
information systems, and/or personnel of the acquired company;
    
    retaining key management or employees of the acquired company;
    
    entrance into unfamiliar markets, industry segments, or types of businesses;
    
    operating and integrating acquired businesses in remote locations;
    
    integrating and managing businesses based in countries in which we have little or no
prior experience;
    
    diversion of management time and other resources from existing operations to integration
activities for acquired businesses;
    
    impairment of relationships with employees, affiliates, advertisers or content providers
of our business or acquired business; and
    
    assumption of known and unknown liabilities of the acquired company, including
intellectual property claims.
 We need to develop relationships and technical standards with manufacturers of non-PC media and
communication devices and interoperability of our services with these devices to grow our business.
  36




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##### Table of Contents



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.
   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 managing our international
operations.
  We may be subject to market risk and legal liability in connection with the data collection
capabilities of our products and services.
  37




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##### Table of Contents



We may be subject to assessment of sales and other taxes for the sale of our products, license of
technology or provision of services.
    We may be subject to additional income tax assessments.
  Risks Related to the Securities Markets and Ownership of Our Common Stock
 Our Chairman of the Board beneficially owns more than 38% of our stock, which gives him 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 Chairman 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.
  38




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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 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
 Item 3. Default Upon Senior Securities
  
 Item 4. Removed and Reserved
  
 Item 5. Other Information
  39




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##### Table of Contents



Item 6. Exhibits
  ExhibitNumber
    
    Description2.1
    
    Transaction, Contribution and Purchase Agreement dated as of February 9, 2010 among
Rhapsody America LLC, RealNetworks, Inc., RealNetworks Digital Music of California, Inc.,
Viacom International Inc. and DMS Holdco Inc. (incorporated by reference from Exhibit 2.1
to RealNetworks Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 6, 2010)10.1
    
    Stockholder Agreement dated as of March 31, 2010 among Rhapsody International Inc.,
RealNetworks, Inc., RealNetworks Digital Music of California, Inc., Viacom International
Inc. and DMS Holdco Inc.10.2
    
    Form of MBO Plan Document under the RealNetworks, Inc. 2010 Executive Compensation Program10.3
    
    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)10.4
    
    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)10.5
    
    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)10.6
    
    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)10.7
    
    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)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 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 40




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##### Table of Contents



SIGNATURE
  REALNETWORKS, INC.By:
    /s/ Michael EggersMichael EggersTitle:
    Senior Vice President, 
Chief Financial Officer and Treasurer 
(Principal Financial and
Accounting Officer) 41




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description2.1
    
    Transaction, Contribution and Purchase Agreement dated as of February 9, 2010 among
Rhapsody America LLC, RealNetworks, Inc., RealNetworks Digital Music of California, Inc.,
Viacom International Inc. and DMS Holdco Inc. (incorporated by reference from Exhibit 2.1
to RealNetworks Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 6, 2010)10.1
    
    Stockholder Agreement dated as of March 31, 2010 among Rhapsody International Inc.,
RealNetworks, Inc., RealNetworks Digital Music of California, Inc., Viacom International
Inc. and DMS Holdco Inc.10.2
    
    Form of MBO Plan Document under the RealNetworks, Inc. 2010 Executive Compensation Program10.3
    
    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)10.4
    
    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)10.5
    
    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)10.6
    
    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)10.7
    
    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)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 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 42