RealNetworks Announces Fourth Quarter and Full-Year 2007 Results

RealNetworks Announces Fourth Quarter and Full-Year 2007 Results

Reports Record Annual and Quarterly Revenue of $567.6 Million and $156.9 Million

SEATTLE, Feb. 7 /PRNewswire-FirstCall/ -- Digital entertainment services company RealNetworks(R), Inc. (NASDAQ:RNWK) today announced results for the fourth quarter and year ended December 31, 2007.

Quarterly Highlights:
-- Record revenue of $156.9 million
-- Net income of $2.7 million or $0.02 per diluted share
-- Adjusted EBITDA of $15.7 million

Full-year 2007 Highlights:
-- Record revenue of $567.6 million
-- Net income of $48.3 million or $0.29 per diluted share
-- Adjusted EBITDA of $53.9 million

"2007 was a strong year for RealNetworks," said Rob Glaser, chairman and CEO of Real. "We crossed half a billion dollars in revenue for the first time, and more than doubled our adjusted EBITDA. We formed deep alliances with Viacom's MTV Networks and Verizon Wireless, continued to lead in casual games, and introduced the innovative RealPlayer(R) 11."

For the fourth quarter of 2007, revenue grew 25% to $156.9 million compared with $125.6 million for the fourth quarter of 2006. Revenue growth in the fourth quarter of 2007 compared with the fourth quarter of 2006 was due to: a 29% increase in Games revenue to $30.9 million; a 21% increase in Music revenue to $40.5 million; a 59% increase in Technology Products and Solutions revenue to $59.9 million, due in part to the acquisition of WiderThan during the year-ago fourth quarter; and a 16% decline in Media Software and Services revenue to $25.6 million. Foreign currency exchange rate fluctuations positively affected 2007 fourth quarter revenue by approximately $2.4 million compared with the fourth quarter of 2006.

Net income for the fourth quarter of 2007 was $2.7 million or $0.02 per diluted share, compared with $39.3 million or $0.22 per diluted share in the fourth quarter of 2006. Results for the fourth quarter of 2006 included payments related to Real's antitrust settlement and commercial agreements with Microsoft. The final payment was received under these agreements during the first quarter of 2007. Further information regarding these payments can be found in Real's SEC filings.

Adjusted net income, described below in Real's description of non-GAAP financial measures, was $12.9 million, or $0.08 per diluted share, for the fourth quarter of 2007, compared with $10.2 million, or $0.06 per diluted share, in the fourth quarter of 2006. Adjusted EBITDA for the fourth quarter of 2007 was $15.7 million compared with $9.1 million in the fourth quarter of 2006. A reconciliation of GAAP net income to adjusted net income and adjusted EBITDA is provided in the financial tables that accompany this release.

Gross margin was 61% in the fourth quarter of 2007 compared with 66% in the fourth quarter of 2006. Operating expenses for the fourth quarter of 2007 were $121.1 million, compared with $31.1 million in the fourth quarter of 2006. Operating expenses in the fourth quarter of 2007 included $16.6 million of related party advertising in Rhapsody America, and operating expenses in the fourth quarter of 2006 included benefits related to payments under Real's antitrust settlement and commercial agreements with Microsoft.

As of December 31, 2007, Real had approximately $556.6 million in unrestricted cash, cash equivalents and short-term investments and $100 million of convertible debt.

Under Real's current stock repurchase program, approximately 5.6 million shares were repurchased for $36.6 million during the fourth quarter of 2007, completing the stock repurchase program authorized by Real's Board of Directors.

Full Year 2007 Results

For 2007, revenue grew 44% to $567.6 million compared with $395.3 million for 2006. Revenue growth was due to: a 26% increase in Games revenue to $108.5 million; a 21% increase in Music revenue to $149.1 million; a 185% increase in Technology Products and Solutions revenue to $206.6 million, due largely to the acquisition of WiderThan during the year-ago fourth quarter; and a 9% decline in Media Software and Services revenue to $103.3 million. Foreign currency exchange rate fluctuations positively affected 2007 revenue by approximately $6.2 million compared with 2006.

Net income for 2007 was $48.3 million, or $0.29 per diluted share, compared with $145.2 million, or $0.81 per diluted share, in 2006. Results for 2006 included payments related to Real's antitrust settlement and commercial agreements with Microsoft.

Adjusted net income for 2007 was $41.5 million, or $0.25 per diluted share, compared with $28.2 million, or $0.16 per diluted share, in 2006. Adjusted EBITDA for 2007 was $53.9 million compared with $20.7 million in 2006. A reconciliation of GAAP net income to adjusted net income and adjusted EBITDA is provided in the financial tables that accompany this release.

Gross margin was 62% in 2007 compared with 69% in 2006. Operating expenses for 2007 were $346.8 million, compared with $80.6 million in 2006. Operating expenses in 2007 include $24.4 million of related party advertising in Rhapsody America, and 2006 operating expenses included benefits related to payments under Real's antitrust settlement and commercial agreements with Microsoft.

Business Outlook

The following forward-looking statements reflect Real's expectations as of February 7, 2008. It is not Real's general practice to update these forward-looking statements until its next quarterly results announcement.

For the full year 2008, Real expects revenue in the range of $612 million to $632 million. Real expects 2008 GAAP net loss per share of $(0.09) to $(0.04) and EBITDA of $61 million to $73 million, compared with adjusted EBITDA of $53.9 million in 2007. This profitability guidance assumes a net benefit from the Rhapsody America ownership structure of between $17 million and $20 million, representing Viacom's 49% share in the venture and related party advertising. In addition to the minority interest benefit, this also includes the gain on sale of 49% of Real's music business. Real's earnings per share guidance includes interest income of between $13 million and $14 million, an approximate 55% decrease from 2007 due to lower interest rates and a lower cash balance. Real's earnings per share guidance also includes tax expense of between $8 million and $12 million, even though pretax GAAP income will be between a loss of $(6) million and income of $6 million.

For the first quarter of 2008, Real expects revenue in the range of $139 million to $143 million. Real expects first quarter pre-tax income to be between a loss of $(5.7) million and a loss of $(2.7) million, and expects EBITDA of between $9 million and $12 million. Real expects its income tax expense to be between a benefit of $7.5 million and an expense of $(5.1) million, resulting in expected GAAP net income per diluted share of between a loss of $(0.08) and income of $0.02; $0.08 of this $0.10 guidance range is due to Real's estimated income tax range. For 2008, Real expects that small changes in its pre-tax earnings will result in large changes to its GAAP tax rate, which could significantly impact Real's quarterly GAAP results.

Webcast and Conference Call Information

The Company will host a webcast and conference call today at 5:00pm (Eastern)/2:00pm (Pacific). The live webcast featuring slides and audio, will be available at http://investor.realnetworks.com/.

Listeners must use RealPlayer(R) to listen to the conference call, which can be downloaded for free at http://www.real.com/.

The on-demand webcast will be available approximately two hours following the conclusion of the live webcast. Participants may access the conference call by dialing 800-857-5305 (773-681-5857 for international callers). The passcode is "Fourth Quarter Earnings," and the leader is Rob Glaser. A telephonic replay will be available until 8:00pm (Eastern) on February 14, 2008 and may be accessed by dialing 866-308-3945 (203-369-3240 for international callers).

RNWK-F

ABOUT REALNETWORKS

RealNetworks, Inc. delivers digital entertainment services to consumers via PC, portable music player, home entertainment system and mobile phone. Real created the streaming media category in 1995 and has continued to lead the market with pioneering products and services, including: RealPlayer(R), the first mainstream media player to enable one-click downloading and recording of Internet video; the award-winning Rhapsody(R) digital music service, which delivers more than 1 billion songs per year; RealArcade(R), one of the largest casual games destinations on the Web; and a variety of mobile entertainment services, such as ringback tones, offered to consumers through leading wireless carriers around the world. RealNetworks' corporate information is located at http://www.realnetworks.com/company.

About Non-GAAP Financial Measures

To supplement RealNetworks' condensed consolidated financial statements presented in accordance with GAAP, we present investors with certain non-GAAP financial measures, including adjusted net income and adjusted net income per share, adjusted EBITDA, adjusted EBITDA by reporting segment, adjusted cost of revenue and adjusted operating expenses.

-- Adjusted net income consists of net income excluding the impact of the
following: stock-based compensation expense; income and expenses
including charitable contributions related to the Microsoft agreements;
equity investment gains and losses from sales or impairments;
acquisition costs, including amortization of intangible assets (net of
minority interest effect) and expenses for employee stock options that
were converted to cash rights; gain on initial formation of Rhapsody
America; an estimate of the income taxes from the aforementioned items;
and changes in deferred tax asset valuation allowances.
-- Adjusted net income per share is calculated by dividing adjusted net
income by GAAP weighted average diluted shares outstanding.
-- Adjusted EBITDA and adjusted EBITDA by reporting segment consist of net
income excluding the impact of the following: interest income, net;
income taxes; depreciation; amortization (net of minority interest
effect); stock-based compensation; expenses for employee stock options
that were converted to cash rights; equity investment gains and losses
from sales or impairments; income and expenses including charitable
contributions related to the Microsoft agreements; and gain on initial
formation of Rhapsody America.
-- Adjusted cost of revenue consists of GAAP cost of revenue excluding
stock-based compensation expenses, and acquisition costs including
amortization of intangible assets (net of minority interest effect) and
expenses for employee stock options that were converted to cash rights.
-- Adjusted operating expenses consist of GAAP operating expenses
excluding stock-based compensation expenses, antitrust litigation
expenses (benefits) and acquisition costs including amortization of
intangible assets (net of minority interest effect) and expenses for
employee stock options that were converted to cash rights.

RealNetworks believes that the presentation of adjusted net income and adjusted net income per share, adjusted EBITDA, adjusted EBITDA by reporting segment, adjusted cost of revenue and adjusted operating expenses provides important supplemental information to management and investors regarding financial and business trends relating to the company's financial condition and results of operations. Management believes that the use of these non-GAAP financial measures provides consistency and comparability with our past financial reports, and also facilitates comparisons with other companies in our industry, many of which use similar non-GAAP financial measures to supplement their GAAP results. Management has historically used these non- GAAP measures when evaluating operating performance because the inclusion or exclusion of the items described above provides additional useful measures of our operating results and facilitates comparisons of our core operating performance against prior periods and our business model objectives. We have chosen to provide this information to investors in order to enable them to perform additional analyses of past, present and future operating performance, to enable them to compare us to other companies, and as a supplemental means to evaluate our ongoing operations. Externally, we believe that adjusted net income and adjusted EBITDA continue to be useful to investors in their assessment of our operating performance and the valuation of our company.

Internally, adjusted net income and adjusted net income per share, adjusted EBITDA, adjusted EBITDA by reporting segment, adjusted cost of revenue, and adjusted operating expenses are significant measures used by management for purposes of:

-- supplementing the financial results and forecasts reported to our board
of directors;
-- evaluating the operating performance of our company which includes
direct and incrementally controllable revenue and costs of operations,
but excludes items considered by management to be either non-cash or
non-operating such as interest income and expense, stock-based
compensation, tax expense, deferred tax valuation allowance changes,
depreciation and amortization;
-- managing and comparing performance internally across our businesses and
externally against our peers;
-- establishing internal operating budgets; and
-- evaluating and valuing potential acquisition candidates.

Adjusted net income is used by RealNetworks as a broad measure of financial performance that encompasses our operating performance, cash, capital structure and investment management, and income tax planning effectiveness. Adjusted EBITDA is used by management as a way to isolate our operating performance and to compare it to that of other companies.

Adjusted net income and adjusted net income per share, adjusted EBITDA, adjusted EBITDA by reporting segment, adjusted cost of revenue, and adjusted operating expenses are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of RealNetworks' results as reported under GAAP. We expect to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. Some of the limitations in relying on our non-GAAP financial measures are:

-- Adjusted net income, adjusted net income per share, adjusted EBITDA and
adjusted EBITDA by reporting segment are measures which we have defined
for internal and investor purposes and are not in accordance with GAAP.
A further limitation associated with these measures is that they do not
include all costs and income that impact our net income and net income
per share. We compensate for these limitations by prominently
disclosing GAAP net income, which we believe is the most directly
comparable GAAP measure, and providing investors with reconciliations
from GAAP net income to adjusted net income, adjusted EBITDA and
adjusted EBITDA by reporting segment.
-- Adjusted cost of revenue is limited in that it does not include
stock-based compensation expenses, and certain costs associated with
our acquisitions. Adjusted operating expenses are limited in that they
do not include stock-based compensation expenses, antitrust litigation
expenses (benefit) and certain costs associated with our acquisitions.
We compensate for these limitations by prominently disclosing the
reported GAAP results and providing investors with a reconciliation
from GAAP to the adjusted amount.

In the financial tables of our earnings press release, RealNetworks has included reconciliations of GAAP net income to adjusted net income and adjusted EBITDA, income before income taxes to adjusted EBITDA by reporting segment, GAAP cost of revenue to adjusted cost of revenue and GAAP operating expenses to adjusted operating expenses for the relevant periods.

Forward-Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to Real's future revenue, GAAP net income (loss) per share, EBITDA, pre-tax income, income tax expense, interest income, depreciation and amortization and stock-based compensation expense. Actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: potentially large changes in Real's GAAP tax rate that could result from even small changes in Real's pretax earnings; development and consumer acceptance of legal online music distribution services generally and RealNetworks' content services in particular because these are relatively new and unproven business models and markets; risks associated with the creation and operation of Rhapsody America; risks associated with acquisitions generally, and the acquisitions of WiderThan, Sony NetServices, GameTrust and Exomi in particular, including the risks of integration, unknown liabilities and operations in new markets and geographies; the potential that we will be unable to continue to enter into commercially attractive agreements with third parties for the provision of compelling content for our subscription service offerings; the emergence of new entrants and competition in the market for digital media subscription offerings and online music sales; the impact on our gross margins of content costs and from the mix of subscribers to subscription offerings with higher content costs than others; competitive risks, including competing technologies, products and services, and the competitive activities of our larger competitors, some of which have strong ties to streaming media users through other products; risks associated with the introduction of new products and services, including the new RealPlayer; risks inherent in strategic relationships, especially with competitors, and technology and service integration efforts; and risks relating to the ability of Real's strategic partners to generate subscribers for Real's digital content services. More information about potential risk factors that could affect RealNetworks' business and financial results is included in RealNetworks' annual report on Form 10-K for the most recent year ended December 31, and its quarterly reports on Form 10-Q and from time to time in other reports filed by RealNetworks with the Securities and Exchange Commission. The preparation of our financial statements and forward-looking financial guidance requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenues and expenses during the reported period. Actual results may differ materially from these estimates under different assumptions or conditions. The Company assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

RealNetworks, Rhapsody and RealPlayer are trademarks or registered trademarks of RealNetworks, Inc. All other companies or products listed herein are trademarks or registered trademarks of their respective owners.

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

Quarters Ended Years Ended
December 31, December 31,
2007 2006 2007 2006
(in thousands, except per share data)

Net revenue $156,882 $125,574 $567,620 $395,261

Cost of revenue 61,705 42,320 213,491 124,108

Gross profit 95,177 83,254 354,129 271,153

Operating expenses:
Research and development 27,719 22,259 102,731 77,386
Sales and marketing 56,819 53,998 209,412 165,602
Advertising with related party(A) 16,613 - 24,360 -
General and administrative 16,159 15,746 67,326 57,332
Restructuring charge 3,748 - 3,748 -
Loss on excess office facilities(B) - - - 738

Subtotal operating expenses 121,058 92,003 407,577 301,058

Antitrust litigation
benefit, net(C) - (60,856) (60,747) (220,410)

Total operating expenses 121,058 31,147 346,830 80,648

Operating (loss) income (25,881) 52,107 7,299 190,505

Other income (expenses):
Interest and other, net 6,417 9,644 30,874 37,622
Gain (loss) on sale of equity
investments (34) - 98 2,286
Equity in net income (loss) of
investments (308) 326 (440) 326
Impairment of equity investments - (3,116) - (3,116)
Minority interest in Rhapsody
America (D) 13,318 - 19,784 -
Gain on initial formation of
Rhapsody America (E) - - 3,866 -
Gain on sale of interest in
Rhapsody America (F) 8,464 - 12,544 -
Other income 756 (302) 1,746 130

Other income, net 28,613 6,552 68,472 37,248

Income before income taxes 2,732 58,659 75,771 227,753
Income taxes (47) (19,357) (27,456) (82,537)

Net income $2,685 $39,302 $48,315 $145,216

Basic net income per share $0.02 $0.24 $0.32 $0.90
Diluted net income per share $0.02 $0.22 $0.29 $0.81

Shares used to compute basic net
income per share 144,387 162,130 151,665 160,973
Shares used to compute diluted
net income per share 157,626 180,919 166,409 179,281

(A) Consists of advertising purchased by Rhapsody America from MTV
Networks (MTVN). MTVN has a 49% ownership interest in Rhapsody
America.

(B) The loss on unoccupied excess office facilities represents an increase
in the estimate of loss from building operating costs that are not
expected to be recovered.

(C) Consists of amounts received under the Settlement and Commercial
agreements with Microsoft, net of certain legal fees, personnel costs,
public relations and other professional service fees incurred related
to antitrust complaints against Microsoft, including proceedings in
the European Union.

(D) Minority interest reflects MTVN's 49% ownership interest in the losses
of Rhapsody America.

(E) Consists of gains realized from MTVN's asset contributions to Rhapsody
America.

(F) Consists of gains realized from MTVN's note payments to Rhapsody
America.

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

December 31, December 31,
2007 2006
(in thousands)
ASSETS

Current assets:
Cash and cash equivalents $476,697 $525,232
Short-term investments 79,932 153,688
Trade accounts receivable, net 84,674 65,751
Deferred costs, current portion 6,408 1,643
Deferred tax assets, net, current portion - 891
Prepaid expenses and other current assets 26,492 21,990

Total current assets 674,203 769,195

Equipment, software, and leasehold
improvements, at cost:
Equipment and software 109,621 83,587
Leasehold improvements 30,632 29,665
Total equipment, software, and leasehold
improvements 140,253 113,252
Less accumulated depreciation and
amortization 83,756 65,509

Net equipment, software, and leasehold
improvements 56,497 47,743

Restricted cash equivalents 15,509 17,300
Equity investments 9,976 22,649
Other assets 10,161 5,148
Deferred tax assets, net, non-
current portion 40,913 27,150
Other intangible assets, net 107,677 105,109
Goodwill 353,153 309,122

Total assets $1,268,089 $1,303,416

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $56,160 $52,097
Accrued and other liabilities 106,783 104,328
Deferred revenue, current portion 39,564 24,137
Related party payable (A) 17,241 -
Convertible debt, current portion 100,000 -
Accrued loss on excess office facilities,
current portion 3,389 4,508

Total current liabilities 323,137 185,070

Deferred revenue, non-current portion 2,663 3,440
Accrued loss on excess office facilities,
non-current portion 7,311 9,993
Deferred rent 4,518 4,331
Deferred tax liabilities, net, non-current
portion 22,060 27,076
Convertible debt, non-current portion - 100,000
Other long-term liabilities 13,683 3,740

Total liabilities 373,372 333,650

Minority interest (B) 19,613 -

Shareholders' equity 875,104 969,766

Total liabilities and shareholders'
equity $1,268,089 $1,303,416

(A) Related party payable reflects amounts owed to MTVN.

(B) Minority interest reflects MTVN's 49% ownership in the net assets of
Rhapsody America.

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Years Ended December 31,
2007 2006
(in thousands)

Cash flows from operating activities:
Net income $48,315 $145,216
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 45,225 20,980
Stock-based compensation 23,918 18,151
Loss on disposal of equipment, software,
and leasehold improvements 302 276
Equity in net loss of investments 440 (326)
Gain on sale of equity investments (98) (2,286)
Impairment of equity investments - 3,116
Excess tax benefit from stock option
exercises (562) (39,183)
Accrued loss on excess office facilities (3,801) (3,515)
Deferred income taxes (15,052) 54,986
Minority interest in Rhapsody America (19,784) -
Gain on sale of interest in Rhapsody
America (16,410) -
Other 95 97
Net change in certain assets and
liabilities, net of acquisitions 1,162 (26,592)

Net cash provided by operating activities 63,750 170,920

Cash flows from investing activities:
Purchases of equipment, software,
and leasehold improvements (26,658) (13,808)
Purchases of short-term investments (133,427) (204,841)
Proceeds from sales and maturities
of short-term investments 207,183 180,973
Purchases of intangible assets (2,796) -
Proceeds from the sales of equity
investments 1,615 2,286
Purchase of equity investments (1,656) (834)
Decrease in restricted cash equivalents 1,805 -
Cash used in acquisitions, net of cash
acquired (45,599) (257,841)

Net cash provided by (used in) investing
activities 467 (294,065)

Cash flows from financing activities:
Net proceeds from sales of common stock
under employee stock purchase plan and
exercise of stock options 15,894 54,929
Net proceeds from sales of interest in
Rhapsody America 48,716 -
Excess tax benefit from stock option
exercises 562 39,183
Repurchase of common stock (178,792) (98,876)

Net cash used in financing activities (113,620) (4,764)

Effect of exchange rate changes on cash 868 1,170

Net decrease in cash and cash equivalents (48,535) (126,739)

Cash and cash equivalents, beginning of
period 525,232 651,971

Cash and cash equivalents, end of period $476,697 $525,232

RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)

2007
Q4 Q3 Q2 Q1
(in thousands)
Net Revenue by Line of
Business:
Consumer products and services
(A) $96,998 $91,824 $87,115 $85,040
Technology products and
solutions (B) 59,884 53,271 49,056 44,432

Total net revenue $156,882 $145,095 $136,171 $129,472

Consumer Products and Services:
Subscriptions (C) $54,784 $55,551 $51,091 $51,490
Media properties (D) 20,438 16,071 17,748 15,932
E-commerce and other (E) 21,776 20,202 18,276 17,618

Total consumer products and
services revenue $96,998 $91,824 $87,115 $85,040

Consumer Products and Services:
Music (F) $40,540 $37,658 $36,801 $34,127
Media software and services (G) 25,572 25,346 25,419 27,011
Games (H) 30,886 28,820 24,895 23,902

Total consumer products and
services revenue $96,998 $91,824 $87,115 $85,040

Net Revenue by Geography:
United States $96,806 $91,281 $88,035 $84,554
Rest of world 60,076 53,814 48,136 44,918

Total net revenue $156,882 $145,095 $136,171 $129,472

Subscribers (presented as
greater than) *:
Total subscribers (I) 30,200 29,250 26,150 24,550
Technology products and
solutions application
services subscribers (J) 27,600 26,600 23,600 21,900

Music subscribers:
Consumer music subscribers (K) 1,900 1,925 1,850 1,875
Technology products and
solutions application
services music subscribers (L) 825 825 825 800
Total Music Subscribers** 2,725 2,750 2,675 2,675

2006
Q4 Q3 Q2 Q1
(in thousands)
Net Revenue by Line of Business:
Consumer products and services (A) $88,022 $82,497 $77,442 $74,811
Technology products and solutions
(B) 37,552 11,179 11,967 11,791

Total net revenue $125,574 $93,676 $89,409 $86,602

Consumer Products and Services:
Subscriptions (C) $50,835 $50,878 $47,452 $47,832
Media properties (D) 18,815 13,883 11,546 9,484
E-commerce and other (E) 18,372 17,736 18,444 17,495

Total consumer products and
services revenue $88,022 $82,497 $77,442 $74,811

Consumer Products and Services:
Music (F) $33,623 $30,375 $30,118 $28,918
Media software and services (G) 30,513 29,586 26,127 27,277
Games (H) 23,886 22,536 21,197 18,616

Total consumer products and
services revenue $88,022 $82,497 $77,442 $74,811

Net Revenue by Geography:
United States $81,758 $69,433 $66,542 $65,700
Rest of world 43,816 24,243 22,867 20,902

Total net revenue $125,574 $93,676 $89,409 $86,602

Subscribers (presented as greater
than) *:
Total subscribers (I) 22,700 2,450 2,400 2,400
Technology products and solutions
application services
subscribers(J) 20,200

Music subscribers:
Consumer music subscribers (K) 1,725 1,650 1,625 1,575
Technology products and solutions
application services music
subscribers (L) 800
Total Music Subscribers** 2,525 1,650 1,625 1,575

*Beginning the quarter ended December 31, 2006, total subscribers reflect the inclusion of subscribers related to wireless carrier application subscription services. Total music subscribers includes subscribers from our technology products and solutions application subscription services, such as music-on-demand, as well as our consumer music services, such as Rhapsody and Premium Radio. Although music-on-demand subscribers are included in the technology products and solutions application services subscribers and total music subscribers, these subscribers are only counted once as part of our total subscribers.

** Prior periods have been changed to reflect current period presentation. Totals may not equal due to rounding convention.

(A) Revenue is derived from consumer digital media subscription services,
RealPlayer Plus and related products, sales and distribution of third
party software products, content such as games and music and
advertising.

(B) Revenue is derived from carrier application services such as ringback
tones and music-on-demand, media delivery system software, support
and maintenance services, broadcast hosting services and consulting
services.

(C) Revenue is derived from consumer digital media subscription services
including: SuperPass, RadioPass, Rhapsody, GamePass and stand-alone
subscriptions.

(D) Revenue is derived from advertising and through the distribution of
third party products.

(E) Revenue is derived from RealPlayer Plus and related products, sales
of third party software products, and content such as games and
music.

(F) Revenue is derived from Rhapsody and RadioPass subscription services
and sales of music content, advertising generated from our music and
music related websites and the distribution of third party products.

(G) Revenue is derived from SuperPass subscriptions, RealPlayer Plus and
related products, stand-alone subscription services, sales and
distribution of third-party software products and advertising related
to our non-game and non-music related web properties.

(H) Revenue is derived from GamePass subscription service, sales of
games, advertising generated from our games and game-related websites
and the distribution of third-party products.

(I) Total subscribers include technology products and solutions
application services and consumer subscription services including:
ringback tones, music-on-demand, video-on-demand, Rhapsody, Rhapsody-
to-Go, RadioPass, SuperPass, GamePass, and stand-alone subscriptions.

(J) Technology products and solutions application service subscribers
include: ringback tones, music-on-demand and video-on-demand.

(K) Consumer music subscribers include: Rhapsody, Rhapsody-to-Go, premium
radio, and music-on-demand.

(L) Technology products and solutions application services music
subscribers include subscribers from application services including
music-on-demand.

RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)

Reconciliation of GAAP net income
to adjusted net income is as follows:

Quarters Ended
December September June March
31, 30, 30, 31,
2007 2007 2007 2007
(In thousands, except per share data)

Net income in accordance with GAAP $2,685 $4,342 $1,327 $39,961
Stock-based compensation 6,627 5,984 5,622 5,685
Loss (gain) on equity investments 34 - (132) -
Conversion of WiderThan stock options
to a cash equivalent 190 413 614 845
Acquisitions related intangible asset
amortization* (net of minority
interest effect) 6,639 5,583 5,311 5,312
Gain on initial formation of Rhapsody
America - (3,866) - -
Expenses (benefit) related to
antitrust litigation:
Income - - - (61,000)
Expenses 179 201 202 471
Charitable contributions - - - 1,921
Tax impact of above pro forma items* (3,568) (3,187) (3,858) 20,051
Change in income tax valuation
allowance 83 (255) (143) (2,805)

Adjusted net income $12,869 $9,215 $8,943 $10,441

GAAP basic net income per share $0.02 $0.03 $0.01 $0.25
GAAP diluted net income per share $0.02 $0.03 $0.01 $0.22

Adjusted basic net income per share* $0.09 $0.06 $0.06 $0.06
Adjusted diluted net income per
share* $0.08 $0.06 $0.05 $0.06

Shares used to compute basic net
income per share 144,387 149,667 153,880 161,350
Shares used to compute diluted net
income per share 157,626 163,094 169,033 178,053

Quarters Ended
December September June March
31, 30, 30, 31,
2006 2006 2006 2006
(In thousands, except per share data)

Net income in accordance with GAAP $39,302 $42,153 $38,878 $24,883
Stock-based compensation 5,819 5,021 3,673 3,638
Loss (gain) on equity investments 3,116 - (2,286) -
Conversion of WiderThan stock options
to a cash equivalent 641 - - -
Acquisitions related intangible asset
amortization* (net of minority
interest effect) 3,530 569 445 727
Gain on initial formation of Rhapsody
America - - - -
Expenses (benefit) related to
antitrust litigation:
Income (61,000) (62,000) (58,000) (40,000)
Expenses 1,026 1,000 997 971
Charitable contributions 2,009 1,889 1,805 1,225
Tax impact of above pro forma items* 18,428 20,370 19,569 12,446
Change in income tax valuation
allowance (2,662) - - -

Adjusted net income $10,209 $9,002 $5,081 $3,890

GAAP basic net income per share $0.24 $0.26 $0.24 $0.15
GAAP diluted net income per share $0.22 $0.24 $0.22 $0.14

Adjusted basic net income per share* $0.06 $0.06 $0.03 $0.02
Adjusted diluted net income per
share* $0.06 $0.05 $0.03 $0.02

Shares used to compute basic net
income per share 162,130 160,578 159,938 160,887
Shares used to compute diluted net
income per share 180,919 178,913 177,337 176,923

Reconciliation of GAAP net income
to adjusted EBITDA is as follows:

Quarters Ended
December September June March
31, 30, 30, 31,
2007 2007 2007 2007
(in thousands)

Net income in accordance with GAAP $2,685 $4,342 $1,327 $39,961
Interest income, net (6,417) (7,290) (8,065) (9,102)
Stock-based compensation 6,627 5,984 5,622 5,685
Loss (gain) on equity investments 34 - (132) -
Conversion of WiderThan stock options
to a cash equivalent 190 413 614 845
Depreciation and amortization 5,703 6,210 5,661 4,621
Acquisitions related intangible asset
amortization* (net of minority
interest effect) 6,639 5,583 5,311 5,312
Gain on initial formation of Rhapsody
America - (3,866) - -
Expenses (benefit) related to
antitrust litigation:
Income - - - (61,000)
Expenses 179 201 202 471
Charitable contributions - - - 1,921
Income taxes 47 2,012 2,178 23,219

Adjusted EBITDA $15,687 $13,589 $12,718 $11,933

Quarters Ended
December September June March
31, 30, 30, 31,
2006 2006 2006 2006
(in thousands)

Net income in accordance with GAAP $39,302 $42,153 $38,878 $24,883
Interest income, net (9,644) (10,618) (9,381) (7,979)
Stock-based compensation 5,819 5,021 3,673 3,638
Loss (gain) on equity investments 3,116 - (2,286) -
Conversion of WiderThan stock options
to a cash equivalent 641 - - -
Depreciation and amortization 4,970 3,692 3,522 3,525
Acquisitions related intangible asset
amortization* (net of minority
interest effect) 3,530 569 445 727
Gain on initial formation of Rhapsody
America - - - -
Expenses (benefit) related to
antitrust litigation:
Income (61,000) (62,000) (58,000) (40,000)
Expenses 1,026 1,000 997 971
Charitable contributions 2,009 1,889 1,805 1,225
Income taxes 19,357 25,908 22,521 14,751
Adjusted EBITDA $9,126 $7,614 $2,174 $1,741

* 2006 results have been restated to include acquisition related intangible asset amortization and related tax impact to conform to the pro forma presentation for 2007.

RealNetworks, Inc. and Subsidiaries
Segment Results of Operations
(Unaudited)

Quarter Ended December 31, 2007
Grand
Music(A) Consumer(B) TPS(C) Other Total
(in thousands)

Net revenue $40,540 $56,458 $59,884 $- $156,882

Cost of revenue 21,892 10,950 28,863 - 61,705

Gross profit 18,648 45,508 31,021 - 95,177
Gross margin 46% 81% 52% - 61%

Operating expenses:
Advertising with related
party 16,613 - - - 16,613
Restructuring charge - - - 3,748 3,748
Other operating expenses 28,817 38,246 33,489 145 100,697
Total operating expenses 45,430 38,246 33,489 3,893 121,058

Income (loss) from operations (26,782) 7,262 (2,468) (3,893) (25,881)

Other income (expenses):
Interest income, net - - - 6,417 6,417
Minority interest 13,318 - - - 13,318
Gain on initial formation of
Rhapsody America - - - - -
Gain on sale of interest in
Rhapsody America 8,464 - - - 8,464
Other income - - - 414 414

Other income, net 21,782 - - 6,831 28,613

Income (loss) before income
taxes $(5,000) $7,262 $(2,468) $2,938 $2,732

Reconciliation of segment GAAP
income before taxes to segment adjusted
EBITDA is as follows:

Income (loss) before income
taxes $(5,000) $7,262 $(2,468) $2,938 $2,732
Interest income, net - - - (6,417) (6,417)
Stock-based compensation 1,296 2,283 3,048 - 6,627
Conversion of WiderThan stock
options to a cash equivalent - - 190 - 190
Acquisition related
intangible amortization (D) 384 911 5,344 - 6,639
Loss (gain) on equity
investments - - - 34 34
Gain on initial formation of
Rhapsody America - - - - -
Depreciation and amortization 1,187 1,928 2,588 - 5,703
Expenses (benefit) related to
antitrust litigation:
Income - - - - -
Expenses - - - 179 179
Charitable contributions - - - - -
Adjusted EBITDA $(2,133) $12,384 $8,702 $(3,266) $15,687

Year Ended December 31, 2007
Grand
Music(A) Consumer(B) TPS(C) Other Total
(in thousands)

Net revenue $149,126 $211,851 $206,643 $- $567,620

Cost of revenue 81,462 39,840 92,189 - 213,491

Gross profit 67,664 172,011 114,454 - 354,129
Gross margin 45% 81% 55% - 62%

Operating expenses:
Advertising with related
party 24,360 - - - 24,360
Restructuring charge - - - 3,748 3,748
Other operating expenses 103,482 142,749 130,551 (58,060) 318,722
Total operating
expenses 127,842 142,749 130,551 (54,312) 346,830

Income (loss) from
operations (60,178) 29,262 (16,097) 54,312 7,299

Other income (expenses):
Interest income, net - - - 30,874 30,874
Minority interest 19,784 - - - 19,784
Gain on initial formation
of Rhapsody America 3,866 - - - 3,866
Gain on sale of interest
in Rhapsody America 12,544 - - - 12,544
Other income - - - 1,404 1,404

Other income, net 36,194 - - 32,278 68,472

Income (loss) before
income taxes $(23,984) $29,262 $(16,097) $86,590 $75,771

Reconciliation of segment
GAAP income before taxes
to segment adjusted EBITDA
is as follows:

Income (loss) before income
taxes $(23,984) $29,262 $(16,097) $86,590 $75,771
Interest income, net - - - (30,874) (30,874)
Stock-based compensation 4,595 9,048 10,275 - 23,918
Conversion of WiderThan
stock options to a cash
equivalent - - 2,062 - 2,062
Acquisition related
intangible amortization
(D) 601 2,633 19,611 - 22,845
Loss (gain) on equity
investments - - - (98) (98)
Gain on initial formation
of Rhapsody America (3,866) - - - (3,866)
Depreciation and
amortization 4,894 6,384 10,917 - 22,195
Expenses (benefit) related
to antitrust litigation:
Income - - - (61,000) (61,000)
Expenses - - - 1,053 1,053
Charitable contributions - - - 1,921 1,921
Adjusted EBITDA $(17,760) $47,327 $26,768 $(2,408) $53,927

Note: Cost of revenue and operating expenses of the segments shown above include costs directly attributable to those segments and an allocation of general and administrative and other common or shared costs.

(A) The Music segment primarily includes revenue and related costs from:
Rhapsody America's Rhapsody and RadioPass subscription services; sales
of digital music content through the Rhapsody service and the
RealPlayer music store; and advertising from music websites.

(B) The Consumer segment primarily includes revenue and related costs
from: the sale of individual games through our RealArcade service and
our Games related websites including GameHouse, Mr. Goodliving, Zylom
(acquired in January 2006), and Atrativa (acquired in November 2006);
our GamePass and FunPass subscription service; our SuperPass and
stand-alone premium video subscription services; RealPlayer Plus and
related products; sales and distribution of third-party software
products; and all advertising other than that related directly to our
Music businesses.

(C) TPS comprises our Technology Products and Solutions segment which
includes revenue and related costs from: sales of ringback tone,
music-on-demand, video-on-demand, messaging, and information services;
sales of media delivery system software, including Helix system
software and related authoring and publishing tools, both directly to
customers and indirectly through original equipment manufacturer (OEM)
channels; support and maintenance services sold to customers who
purchase software products; broadcast hosting services; and consulting
and professional services that are offered to customers.

(D) Net of minority interest effect within our Music segment.

RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)

Quarter Ended December 31, 2007
Acqui- Wider-
sitions Than
Related Options
Intan- Conve- Anti-
Stock- gible rted to Trust
Based Asset a Cash Liti-
As Compen- Amorti- Equiv- gation Adju-
Reported sation zation(A) alent Related sted
(in thousands)
Expenses in
accordance with GAAP

Cost of revenue $61,705 $(249) $(2,479) $(15) $- $58,962

Operating expenses:
Research and
development $27,719 $(2,161) $- $(40) $- $25,518
Sales and
marketing 56,819 (2,388) (4,160) (135) - 50,136
Advertising with
related party 16,613 - - - - 16,613
General and
administrative 16,159 (1,829) - - (179) 14,151
Restructuring
charge 3,748 - - - - 3,748

Total adjusted
operating
expenses,
net $121,058 $(6,378) $(4,160) $(175) $(179) $110,166

Quarter Ended December 31, 2006
Aqui-
sitions
Related
Intan-
Stock gible
Based Asset Antitrust
As Compen- Amorti- Litigation
Reported sation zation(B) Related Adjusted
(in thousands)
Expenses in accordance
with GAAP

Cost of revenue (B) $42,320 $(108) $(1,391) $- $40,821

Operating expenses:
Research and development $22,259 $(1,946) $- $- $20,313
Sales and Marketing (B) 53,998 (2,440) (2,139) - 49,419
General and administrative 15,746 (1,325) - (2,891) 11,530
Antitrust litigation
benefit, net (60,856) - - 60,856 -

Total adjusted operating
expenses, net (B) $31,147 $(5,711) $(2,139) $57,965 $81,262

Year Ended December 31, 2007
Acqui- Wider-
sitions Than
Related Options
Intan- Conve- Anti-
Stock- gible rted to Trust
Based Asset a Cash Liti-
As Compen- Amorti- Equiv- gation Adju-
Reported sation zation(A) alent Related sted
(in thousands)

Expenses in accordance
with GAAP

Cost of revenue $213,491 $(769) $(8,572) $(324) $- $203,826

Operating expenses:
Research and
development $102,731 $(7,314) $- $(398) $- $95,019
Sales and
marketing 209,412 (9,373) (14,273) (973) - 184,793
Advertising
with related
party 24,360 - - - - 24,360
General and
administrative 67,326 (4,633) - (368) (2,542) 59,783
Restructuring
charge 3,748 - - - - 3,748
Antitrust
litigation
benefit, net (60,747) - - - 60,747 -

Total
adjusted
operating
expenses,
net $346,830 $(21,320) $(14,273) $(1,739) $58,205 $367,703

Year Ended December 31, 2006
Aqui-
sitions
Related
Intan-
Stock gible
Based Asset Antitrust
As Compen- Amorti- Litigation
Reported sation zation(B) Related Adjusted
(in thousands)
Expenses in accordance
with GAAP

Cost of revenue (B) $124,108 $(257) $(2,201) $- $121,650

Operating expenses:
Research and
development $77,386 $(6,512) $- $- $70,874
Sales and
Marketing (B) 165,602 (7,152) (3,070) - 155,380
General and
administrative 57,332 (4,230) - (10,332) 42,770
Loss on excess office
facilities 738 - - - 738
Antitrust litigation
benefit, net (220,410) - - 220,410 -

Total adjusted
operating
expenses, net (B) $80,648 $(17,894) $(3,070) $210,078 $269,762

(A) - Net of minority interest effect within our Music segment.
(B) - 2006 results have been restated to include acquisition related
intangible asset amortization to conform to the pro forma
presentation for 2007.

RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)

A reconciliation of GAAP net income guidance for the quarter ending
March 31, 2008 and the full year ending December 31, 2008 to EBITDA
guidance is as follows:

Quarter Ending Year Ending
March 31, 2008 December 31, 2008
Low High Low High
(in millions)
Net income in accordance with GAAP $(13.2) $2.4 $(14.0) $(5.0)
Interest income, net & other (4.5) (4.8) (13.0) (14.0)
Stock-based compensation and
conversion of WiderThan stock
options to a cash equivalent 5.8 7.3 24.0 30.0
Depreciation and amortization,
including acquisitions related
intangible asset amortization (net
of minority interest effect) 13.4 12.2 56.0 51.0
Income taxes 7.5 (5.1) 8.0 11.0
Total EBITDA $9.0 $12.0 $61.0 $73.0

Source: RealNetworks, Inc.

CONTACT: press, Bill Hankes, +1-206-892-6614, bhankes@real.com; or
financial, Marj Charlier, +1-206-892-6718, mcharlier@real.com

Web site:

http://www.realnetworks.com/

-------
Profile: intent