RealNetworks Announces Third Quarter 2008 Results

RealNetworks Announces Third Quarter 2008 Results

SEATTLE, Oct. 29 /PRNewswire-FirstCall/ -- Digital entertainment services company RealNetworks(R), Inc. (NASDAQ:RNWK) today announced results for the third quarter ended September 30, 2008.

Quarterly Highlights:
-- Revenue of $152.0 million
-- Net loss of $4.5 million or $(0.03) per share
-- Adjusted EBITDA of $11.4 million

"In spite of a difficult and turbulent macro-economic environment, RealNetworks delivered results in line with our guidance. In particular, we are pleased with the initial results of our Music Without Limits initiative," said Rob Glaser, CEO of RealNetworks.

For the third quarter of 2008, revenue grew 5% to $152.0 million compared with $145.1 million for the third quarter of 2007. Revenue growth in the third quarter of 2008 compared with the third quarter of 2007 was due to: a 19% increase in Games revenue to $34.2 million and a 10% increase in Music revenue to $41.6 million; offset in part by a 3% decline in Media Software and Services revenue to $24.5 million and a 3% decline in Technology Products and Solutions revenue to $51.6 million. Foreign currency exchange rate fluctuations positively affected 2008 third quarter revenue by approximately $170,000 compared with the third quarter of 2007.

Net loss for the third quarter of 2008 was $4.5 million or $(0.03) per share, compared with net income of $4.3 million or $0.03 per diluted share in the third quarter of 2007. Income taxes were $728,000 compared with $2.0 million in the year-earlier period, and interest income was $2.9 million compared with $7.3 million. Adjusted EBITDA for the third quarter of 2008 was $11.4 million compared with $13.6 million in the third quarter of 2007. A reconciliation of GAAP net loss to adjusted EBITDA is provided in the financial tables that accompany this release.

Gross margin was 59% in the third quarter of 2008, compared with 61% a year earlier. Operating expenses for the third quarter of 2008 were $116.8 million, compared with $103.8 million in the third quarter of 2007. Operating expenses in the third quarter of 2008 included $15.2 million of related party advertising in Rhapsody America, compared with $7.7 million in the year-earlier period.

As of September 30, 2008, Real had approximately $406 million in unrestricted cash, cash equivalents and short-term investments. During the quarter, the company repaid $100 million in convertible debt.

During the quarter, RealNetworks repurchased 3.6 million shares of its common stock for approximately $23 million under a repurchase authorization approved by the board in April, 2008. As of September 30, 2008, $26 million remained available under the stock repurchase program. Since the beginning of 2005, Real has repurchased approximately 48 million shares through its repurchase programs for approximately $357 million.

Business Outlook

The following forward-looking statements reflect Real's expectations as of October 29, 2008. It is not Real's general practice to update these forward-looking statements until its next quarterly results announcement.

For the fourth quarter 2008, Real expects revenue in the range of $150 million to $157 million. As compared with previous estimates, Real expects a reduction of approximately $8 million in fourth quarter 2008 revenue as a result of the strengthening U.S. dollar. Approximately 20% - 25% of Real's revenue is denominated in currencies other than the U.S. dollar, most notably the euro and Korean won. Despite the negative impact to revenue, the strengthening U.S. dollar should have a slightly positive effect on earnings per share due to costs that Real pays in euros and Korean won. Real also expects a continued deterioration in the on-line ad sales market, as well as lower consumer and corporate IT spending. All of these factors contribute to lowered expectations for fourth quarter revenue. Real expects fourth quarter 2008 GAAP net loss per share to be between $(0.04) and $(0.01) and adjusted EBITDA of between $6 million and $11 million. Real's earnings per share guidance for the fourth quarter of 2008 includes a tax benefit of between $5.0 million and $3.5 million, and pretax income is expected to be a loss of between $(10.5) million and $(5.5) million. Real expects that small changes in its pre-tax earnings will result in large changes to its GAAP tax rate, which could significantly affect Real's quarterly GAAP results.

For the full year 2008, Real expects revenue in the range of $602 million to $609 million. Real expects full year 2008 GAAP net loss per share to be between $(0.06) and $(0.03) and adjusted EBITDA of $55 million to $60 million. Real's earnings per share guidance for the full year 2008 includes tax expense of between $(3.0) million and $(4.5) million, and pretax income is expected to be a loss of between $(5.5) million and $(0.5) million.

Real's fourth quarter and full year 2008 results are more difficult than usual to predict in light of the high level of uncertainties regarding consumer spending, global economic trends, foreign exchange rate fluctuations, credit markets and corporate valuations. Real's actual results could differ materially from its expectations.

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 "Third Quarter Earnings," and the leader is Rob Glaser.

Telephonic replay will be available until 8:00 p.m. (Eastern), Nov. 12, 2008. Dial In: 866-451-9005 (for domestic callers); and 203-369-1208 (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 EBITDA, adjusted EBITDA by reporting segment, adjusted cost of revenue and adjusted operating expenses.

-- 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 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 EBITDA continues to be useful to investors in their assessment of our operating performance and the valuation of our company.

Internally, 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, 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 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 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 (loss), which we
believe is the most directly comparable GAAP measure, and providing
investors with reconciliations from GAAP net income (loss) to 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 (loss) to 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 current expectations for future revenue, GAAP net income (loss) per share, adjusted EBITDA, tax expense and 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: risks associated with the ability to complete the previously announced casual games spin off transactions and their impact on the games business and Real's remaining businesses; potentially large changes in Real's GAAP tax rate that could result from even small changes in Real's pretax earnings; fluctuations in foreign currencies, particularly changes in the US dollar relative to the euro and the Korean won; 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, Game Trust, Trymedia 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 and the distribution of our carrier application services; 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, including music publishing royalty rates that are subject to legislation, regulations, administrative and court proceedings and settlement negotiations, 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; the potential outcomes and effects of claims and legal proceedings on our business, prospects, financial condition or results of operations; risks associated with the introduction of new products and services; changes in consumer and advertising spending in response to disruptions in the global financial markets; 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. More information about risks relating to the potential spin off of the games business is listed in the safe harbor for forward looking statements contained in the press release announcing the proposed spin off transaction as well as in our Form 10-Q to be filed for the quarter ended September 30, 2008. 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, RealPlayer and RealArcade are trademarks or registered trademarks of RealNetworks, Inc. or its subsidiaries. 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 Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
(in thousands, except per share data)

Net revenue $151,955 $145,095 $452,166 $410,738

Cost of revenue 62,164 56,644 173,202 151,786

Gross profit 89,791 88,451 278,964 258,952

Operating expenses:
Research and development 31,076 26,528 85,147 75,012
Sales and marketing 55,080 52,812 161,730 152,593
Advertising with related
party (A) 15,153 7,747 31,733 7,747
General and administrative 15,453 16,750 50,874 51,167
Restructuring charge - - 686 -

Subtotal operating expenses 116,762 103,837 330,170 286,519

Antitrust litigation benefit,
net (B) - - - (60,747)

Total operating expenses 116,762 103,837 330,170 225,772

Operating income (loss) (26,971) (15,386) (51,206) 33,180

Other income (expenses):
Interest income, net 2,865 7,290 11,198 24,457
Equity in net loss of
investments (226) - (424) (132)
Gain on sale of equity
investment, net - - 222 132
Minority interest in Rhapsody
America (C) 12,337 6,466 29,129 6,466
Gain on sale of interest in
Rhapsody America (D) 7,405 7,946 14,502 7,946
Other income 818 38 1,636 990

Other income, net 23,199 21,740 56,263 39,859

Income (loss) before income taxes (3,772) 6,354 5,057 73,039
Income taxes (728) (2,012) (8,436) (27,409)

Net income (loss) $(4,500) $4,342 $(3,379) $45,630

Basic net income (loss) per share $(0.03) $0.03 $(0.02) $0.30
Diluted net income (loss)
per share $(0.03) $0.03 $(0.02) $0.27

Shares used to compute basic net
income (loss) per share 141,975 149,667 142,611 154,670
Shares used to compute diluted
net income (loss) per share 141,975 163,094 142,611 169,840

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

(B) 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.

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

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

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

September 30, December 31,
2008 2007
(in thousands)
ASSETS

Current assets:
Cash and cash equivalents $305,143 $476,697
Short-term investments 101,173 79,932
Trade accounts receivable, net 70,427 84,674
Deferred costs, current portion 8,221 6,408
Prepaid expenses and other current assets 42,795 33,845

Total current assets 527,759 681,556

Equipment, software, and leasehold
improvements, at cost:
Equipment and software 131,254 109,621
Leasehold improvements 30,795 30,632
Total equipment, software, and
leasehold improvements 162,049 140,253
Less accumulated depreciation and
amortization 98,877 83,756

Net equipment, software, and
leasehold improvements 63,172 56,497

Restricted cash equivalents and investments 14,734 15,509
Equity investments 9,277 9,976
Other assets 17,821 10,161
Deferred tax assets, net, non-current
portion 35,564 40,913
Other intangible assets, net 78,656 107,677
Goodwill 315,517 353,153

Total assets $1,062,500 $1,275,442

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $34,384 $56,160
Accrued and other liabilities 111,507 114,136
Deferred revenue, current portion 42,376 39,564
Related party payable (A) 15,663 17,241
Convertible debt - 100,000
Accrued loss on excess office facilities,
current portion 4,299 3,389

Total current liabilities 208,229 330,490

Deferred revenue, non-current portion 1,138 2,663
Accrued loss on excess office facilities,
non-current portion 3,864 7,311
Deferred rent 4,680 4,518
Deferred tax liabilities, net, non-current
portion 15,178 22,060
Other long-term liabilities 10,644 13,683

Total liabilities 243,733 380,725

Minority interest (B) 6,297 19,613

Shareholders' equity 812,470 875,104

Total liabilities and shareholders'
equity $1,062,500 $1,275,442

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

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

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

Nine Months Ended September 30,
2008 2007
(in thousands)

Cash flows from operating activities:
Net income (loss) $(3,379) $45,630
Adjustments to reconcile net income
to net cash used in
operating activities:
Depreciation and amortization 38,032 32,865
Stock-based compensation 17,475 17,291
Loss on disposal of equipment,
software, and leasehold improvements 157 275
Equity in net loss of investments 198 132
Gain on sale of equity investment, net (222) (132)
Excess tax benefit from stock option
exercises (108) -
Accrued loss on excess office facilities (2,537) (3,540)
Unrealized gain on trading securities - (5,426)
Purchase of trading securities - (270,000)
Deferred income taxes 2,640 (13,224)
Minority interest in Rhapsody America (29,129) (6,466)
Gain on sale of interest in Rhapsody
America (14,502) (7,946)
Other 111 72
Net change in certain assets and
liabilities, net of acquisitions (29,750) 3,658

Net cash used in operating activities (21,014) (206,811)

Cash flows from investing activities:
Purchases of equipment, software,
and leasehold improvements (24,807) (19,051)
Purchases of short-term investments (151,378) (117,762)
Proceeds from sales and maturities
of short-term investments 130,136 154,251
Purchases of intangible assets (1,808) (2,723)
Proceeds from the sales of equity
investments 1,225 1,615
Purchases of equity investments (4,500) -
Payment of acquisition costs, net of
cash acquired (10,192) (25,316)
Decrease in restricted cash equivalents
and investments 776 1,800

Net cash used in investing activities (60,548) (7,186)

Cash flows from financing activities:
Net proceeds from sales of common stock
under employee stock purchase plan and
exercise of stock options 8,834 14,058
Payments of convertible debt obligations (100,000) -
Net proceeds from sales of interest
in Rhapsody America 31,640 15,007
Excess tax benefit from stock option
exercises 108 -
Repurchase of common stock (23,062) (142,150)

Net cash used in financing activities (82,480) (113,085)

Effect of exchange rate changes on cash (7,512) (412)

Net decrease in cash and cash
equivalents (171,554) (327,494)

Cash and cash equivalents, beginning
of period 476,697 525,232

Cash and cash equivalents, end of
period $305,143 $197,738

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

2008
Q3 Q2 Q1
(in thousands)
Net Revenue by Line of Business:
Consumer products and services (A) $100,322 $101,353 $96,286
Technology products and solutions (B) 51,633 51,295 51,277

Total net revenue $151,955 $152,648 $147,563

Consumer Products and Services:
Subscriptions (C) $57,776 $55,658 $55,193
Media properties (D) 19,946 23,472 18,702
E-commerce and other (E) 22,600 22,223 22,391

Total consumer products and services
revenue $100,322 $101,353 $96,286

Consumer Products and Services:
Music (F) $41,591 $37,170 $38,079
Media software and services (G) 24,531 29,238 26,409
Games (H) 34,200 34,945 31,798

Total consumer products and services
revenue $100,322 $101,353 $96,286

Net Revenue by Geography:
United States $102,363 $100,898 $99,169
Rest of world 49,592 51,750 48,394

Total net revenue $151,955 $152,648 $147,563

Subscribers (presented as greater
than)*:
Total subscribers (I) 32,650 35,000 32,200
Technology products and solutions
application services subscribers (J) 29,950 32,450 29,500
Music subscribers:
Consumer music subscribers (K) 2,000 1,875 1,875
Technology products and solutions
application services music
subscribers (L) 850 800 800
Total Music Subscribers** 2,850 2,675 2,675

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

* 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 (loss) to adjusted EBITDA is as
follows:

Quarters Ended
September 30, June 30, March 31,
2008 2008 2008
(in thousands)

Net income (loss) in accordance with
GAAP $(4,500) $(1,305) $2,426
Interest income, net (2,865) (3,375) (4,958)
Stock-based compensation 5,955 6,031 5,489
Loss (gain) on equity investments, net - (222) -
Conversion of WiderThan stock
options to a cash equivalent 16 26 89
Depreciation and amortization (net
of minority interest effect) 6,165 6,186 6,282
Acquisitions related intangible
asset amortization (net of minority
interest effect) 5,752 6,171 6,315
Gain on initial formation of Rhapsody
America - - -
Expenses (benefit) related to antitrust
litigation:
Income - - -
Expenses 174 202 202
Charitable contributions - - -
Income taxes 728 3,700 4,008

Adjusted EBITDA $11,425 $17,414 $19,853

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

Net income (loss) 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, net 34 - (132) -
Conversion of WiderThan stock options
to a cash equivalent 190 413 614 845
Depreciation and amortization (net of
minority interest effect) 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

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

Quarter Ended September 30, 2008
Music Consumer TPS Grand
(A) (B) (C) Other Total
(in thousands)

Net revenue $41,591 $58,731 $51,633 $- $151,955

Cost of revenue 23,787 14,790 23,587 - 62,164

Gross profit 17,804 43,941 28,046 - 89,791
Gross margin 43% 75% 54% - 59%

Operating expenses:
Advertising with related
party 15,153 - - - 15,153
Other operating expenses 27,202 44,476 29,719 212 101,609
Total operating expenses 42,355 44,476 29,719 212 116,762

Income (loss) from operations (24,551) (535) (1,673) (212) (26,971)

Other income (expenses):
Interest income, net - - - 2,865 2,865
Minority interest 12,337 - - - 12,337
Equity in net loss of
investments - - - (226) (226)
Gain on sale of interest in
Rhapsody America 7,405 - - - 7,405
Other income - - - 818 818

Other income, net 19,742 - - 3,457 23,199

Income (loss) before income
taxes $(4,809) $(535) $(1,673) $3,245 $(3,772)

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

Income (loss) before income
taxes $(4,809) $(535) $(1,673) $3,245 $(3,772)
Interest income, net - - - (2,865) (2,865)
Stock-based compensation 1,005 2,338 2,612 - 5,955
Conversion of WiderThan
stock options to a cash
equivalent - - 16 - 16
Acquisitions related
intangible asset
amortization (D) 422 611 4,719 - 5,752
Gain on initial formation of
Rhapsody America - - - - -
Gain on sale of equity
investments, net - - - - -
Depreciation and
amortization (D) 1,206 1,816 3,143 - 6,165
Expenses (benefit) related
to antitrust litigation:
Income - - - - -
Expenses - - - 174 174
Charitable contributions - - - - -
Adjusted EBITDA $(2,176) $4,230 $8,817 $554 $11,425

Quarter Ended September 30, 2007
Music Consumer TPS Grand
(A) (B) (C) Other Total
(in thousands)

Net revenue $37,658 $54,166 $53,271 $- $145,095

Cost of revenue 20,891 10,326 25,427 - 56,644

Gross profit 16,767 43,840 27,844 - 88,451
Gross margin 45% 81% 52% - 61%

Operating expenses:
Advertising with related
party 7,747 - - - 7,747
Other operating expenses 25,679 36,782 33,428 201 96,090
Total operating expenses 33,426 36,782 33,428 201 103,837

Income (loss) from operations (16,659) 7,058 (5,584) (201) (15,386)

Other income (expenses):
Interest income, net - - - 7,290 7,290
Gain on sale of interest in
Rhapsody America 4,080 - - - 4,080
Gain on initial formation of
music business 3,866 - - - 3,866
Minority interest 6,466 - - - 6,466
Gain on sale of equity
investments, net - - - - -
Other income - - - 38 38

Other income, net 14,412 - - 7,328 21,740

Income (loss) before income
taxes $(2,247) $7,058 $(5,584) $7,127 $6,354

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

Income (loss) before income
taxes $(2,247) $7,058 $(5,584) $7,127 $6,354
Interest income, net - - - (7,290) (7,290)
Stock-based compensation 1,130 2,367 2,487 - 5,984
Conversion of WiderThan
stock options to a cash
equivalent - - 413 - 413
Acquisitions related
intangible asset
amortization (D) 173 416 4,994 - 5,583
Gain on initial formation of
music business (3,866) - - - (3,866)
Gain on sale of equity
investments, net - - - - -
Depreciation and
amortization (D) 1,233 1,578 3,399 - 6,210
Expenses (benefit) related
to antitrust litigation:
Income - - - - -
Expenses - - - 201 201
Charitable contributions - - - - -
Adjusted EBITDA $(3,577) $11,419 $5,709 $38 $13,589

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; 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 September 30, 2008

Acquisitions
Related WiderThan
Intang- Options Anti-
Stock- ible Converted trust
Based Asset to a Cash Liti-
As Compen- Amorti- Equiva- gation
Reported sation zation (A) lent Related Adjusted
(in thousands)

Expenses in
accordance
with GAAP

Cost of revenue $62,164 $(696) $(1,995) $(1) $- $59,472

Operating
expenses:
Research and
development $31,076 $(2,247) $- $- $- $28,829
Sales and
marketing 55,080 (1,458) (3,757) (3) - 49,862
Advertising
with related
party 15,153 - - - - 15,153
General and
administrative 15,453 (1,554) - (12) (174) 13,713
Antitrust
litigation
benefit, net - - - - - -
Restructuring
charge - - - - - -

Total
adjusted
operating
expenses,
net $116,762 $(5,259) $(3,757) $(15) $(174) $107,557

Quarter Ended September 30, 2007

Acquisitions
Related WiderThan
Intang- Options Anti-
Stock- ible Converted trust
Based Asset to a Cash Liti-
As Compen- Amorti- Equiva- gation
Reported sation zation(A) lent Related Adjusted
(in thousands)

Expenses in
accordance
with GAAP

Cost of revenue $56,644 $(208) $(1,961) $(65) $- $54,410

Operating
expenses:
Research and
development $26,528 $(1,740) $- $(78) $- $24,710
Sales and
marketing 52,812 (2,395) (3,622) (190) - 46,605
Advertising
with related
party 7,747 - - - - 7,747
General and
administrative 16,750 (1,641) - (80) (201) 14,828
Antitrust
litigation
benefit, net - - - - - -

Total
adjusted
operating
expenses,
net $103,837 $(5,776) $(3,622) $(348) $(201) $93,890

Nine Months Ended September 30, 2008

Acquisitions
Related WiderThan
Intang- Options Anti-
Stock- ible Converted trust
Based Asset to a Cash Liti-
As Compen- Amorti- Equiva- gation
Reported sation zation (A) lent Related Adjusted
(in thousands)

Expenses in
accordance
with GAAP

Cost of revenue $173,202 $(1,592) $(6,592) $(24) $- $164,994

Operating
expenses:
Research and
development $85,147 $(6,307) $- $(9) $- $78,831
Sales and
marketing 161,730 (4,798) (11,646) (31) - 145,255
Advertising
with related
party 31,733 - - - - 31,733
General and
administrative 50,874 (4,778) - (67) (578) 45,451
Antitrust
litigation
benefit, net - - - - - -
Restructuring
charge 686 - - - - 686

Total
adjusted
operating
expenses,
net $330,170 $(15,883) $(11,646) $(107) $(578) $301,956

Nine Months Ended September 30, 2007

Acquisitions
Related WiderThan
Intang- Options Anti-
Stock- ible Converted trust
Based Asset to a Cash Liti-
As Compen- Amorti- Equiva- gation
Reported sation zation(A) lent Related Adjusted
(in thousands)

Expenses in
accordance
with GAAP

Cost of revenue $151,786 $(520) $(6,093) $(309) $- $144,864

Operating
expenses:
Research and
development $75,012 $(5,153) $- $(357) $- $69,502
Sales and
marketing 152,593 (6,985) (10,113) (838) - 134,657
Advertising
with related
party 7,747 - - - - 7,747
General and
administrative 51,167 (4,633) - (368) (2,542) 43,624
Antitrust
litigation
benefit, net (60,747) - - - 60,747 -

Total
adjusted
operating
expenses,
net $225,772 $(16,771) $(10,113) $(1,563) $58,205 $255,530

(A) - Net of minority interest effect.

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

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

Quarter Ending Year Ending
December 31, 2008 December 31, 2008
Low High Low High

Net loss in accordance with GAAP $(5.5) $(2.0) $(8.5) $(5.0)
Interest income, net & other (2.0) (2.3) (13.0) (13.3)
Stock-based compensation and
conversion of WiderThan stock
options to a cash equivalent 6.5 7.0 24.0 24.5
Depreciation and amortization,
including acquisitions related
intangible asset amortization
(net of minority interest effect) 12.0 11.8 49.2 49.0
Income tax expense (benefit) (5.0) (3.5) 3.0 4.5
Total adjusted EBITDA $6.0 $11.0 $54.7 $59.7

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, both of
RealNetworks, Inc.

Web site: http://www.realnetworks.com/

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