International Entertainment News: RealNetworks Announces Third Quarter 2010 Results

RealNetworks Announces Third Quarter 2010 Results

SEATTLE, Nov. 4, 2010 /PRNewswire-FirstCall/ -- Digital media software and services company RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the third quarter ended Sept. 30, 2010.

Quarterly Highlights:

-- Revenue of $86.4 million
-- Net income of $24.5 million or $0.18 per share
-- Adjusted EBITDA of $5.7 million
-- Cash and short term investments of $329.2 million as of Sept. 30, 2010

"We've made great progress restructuring Real and we're starting to see the impact in our financial results this quarter," said Bob Kimball, CEO and President of Real. "We generated positive free cash flow, reduced our operating expenses, and increased our cash and adjusted EBITDA sequentially. We expect revenue and adjusted EBITDA to increase sequentially again in the fourth quarter. With the bulk of our restructuring work behind us, we are now focusing on growth.

"Other key activities in the quarter included the acquisition of Backstage Technologies, a social-games company that we expect to help us accelerate socializing and monetizing our games business," Mr. Kimball added. "We also launched the new converged music and video storefront for MetroPCS on our new Media Entertainment Platform. We expect this expanded relationship to demonstrate the strength of our multi-client platform as a driver of new SaaS revenue in 2011."

Third Quarter Results

For the third quarter of 2010, revenue from Real's Core Products, Emerging Products and Games businesses was $86.4 million compared with $101.5 million for the third quarter of 2009. Revenue from Real's music business was $38.8 million in the third quarter of 2009, and total revenue in the third quarter of 2009 was $140.3 million. Foreign currency exchange rate fluctuations negativelyaffected 2010 third quarter revenue by approximately $1.2 million compared with the year-ago quarter. Revenue trends in each of Real's businesses in the third quarter of 2010 compared with the year-earlier quarter were: an 11% decrease in Core Products revenue to $51.9 million, a 13% decrease in Games revenue to $25.8 million and a 37% decrease in Emerging Products revenue to $8.8 million.

Net income for the third quarter of 2010 was $24.5 million, or $0.18 per share, compared with net income of $1.5 million, or less than one cent per share, in the third quarter of 2009. Net income for the third quarter of 2010 included an income tax benefit of $33.9 million resulting primarily from a $30 million cash refund from the IRS, while net income in the year-ago quarter included an income tax expense of $(0.7) million. Adjusted EBITDA for the third quarter of 2010 was $5.7 million, compared with $17.3 million for the third quarter of 2009. A reconciliation of GAAP operating income to adjusted EBITDA is provided in the financial tables that accompany this release.

Gross margin in the third quarter rose to 64%, compared with 62% for the third quarter a year earlier, primarily due to the deconsolidation of the lower-margin music business.Interest income in the third quarter of 2010 was $1.1 million compared with $1.3 million in the year-earlier period.

As of Sept. 30, 2010, Real had $329.2 million in unrestricted cash, cash equivalents and short-term investments compared with $313.2 million at June 30, 2010. The increase in cash in the quarter was primarily due to the $30 million tax refund, offset by $5.8 million to acquire Backstage Technologies Inc. and working capital changes, including the reduction of payables, in the normal course of business. In addition, Real had $47.7 million in restricted cash and equity investments, including its equity interest in the Rhapsody music business, at the end of the quarter.

Segment Operating Results

2010 2009 Sequential Yr/Yr
------------ ----
Q3 Q2 Q3 Change Change
--- -- -- ------ ------
Revenue (in thousands)
Core Products $51,870 $51,742 $58,173 0% -11%
Emerging Products 8,778 8,997 13,835 -2% -37%
Games 25,784 28,145 29,491 -8% -13%
Corporate - - -
--- --- ---
Total excluding music 86,432 88,884 101,499 -3% -15%
Music - - 38,765 N/A
--- --- ------
Total $86,432 $88,884 $140,264 -3% -38%
----- ------- ------- -------- --- ---

Operating Income
(loss)
Core Products $9,868 $11,149 $14,864 -11% -34%
Emerging Products 1,643 (2,009) 5,987 -182% -73%
Games 2,413 85 289 2739% 735%
Corporate (18,074) (30,919) (19,751) -42% -8%
------- ------- -------
Total excluding music (4,150) (21,694) 1,389 -81% -399%
Music - - (5,666) N/A
--- --- ------
Total $(4,150) $(21,694) $(4,277) -81% -3%
----- ------- -------- ------- --- ---

Adjusted EBITDA
Core Products $13,309 $14,675 $18,956 -9% -30%
Emerging Products 1,771 (1,732) 6,097 -202% -71%
Games 2,885 1,948 1,187 48% 143%
Corporate (12,265) (14,287) (13,855) -14% -11%
------- ------- -------
Total excluding music 5,700 604 12,385 844% -54%
Music - - 4,896 N/A
--- --- -----
Total $5,700 $604 $17,281 844% -67%
----- ------ ---- ------- --- ---

Reorganization

Beginning with the third quarter, Real consolidated its Technology Products and Solutions and Media Software and Services business units and organized them into functional teams that represent product development, sales and marketing, and service delivery. Therefore, Real's third-quarter financial results reflect the new corporate reorganization with the following reporting segments: (1) Core products, which includes the SaaS services of ringback tones, music on demand, and intercarrier messaging; professional services and systems integration; Helix software and licenses for handsets; and SuperPass and international radio subscriptions; (2) Emerging products, which includes RealPlayer, including distribution of third-party products, and new products and services that will be introduced over time for consumers or businesses; and (3) Games, which is unchanged from previous quarters. Real will continue to present financial results from its former Music segment on a historical basis only.

Beginning with the third quarter of 2010, Real also changed how it allocates corporate and shared overhead expenses. Historically, common corporate overhead expenses, including finance, legal and headquarters facilities, were allocated to each business segment. Beginning in the third quarter ended September 30, 2010, these shared expenses, as well as stock compensation costs, are shown in the aggregate as Corporate expenses and are not reflected in segment results or included in adjusted EBITDA by reporting segment for the business segments described in the preceding paragraph. Real continues to utilize adjusted EBITDA by reporting segment as its primary profit measure for its business segments. Real provided six quarters of historical financial results and other information relating to the new segments in a report on Form 8-K filed with the Securities and Exchange Commission on October 12, 2010.

Business Outlook

For the fourth quarter of 2010, Real expects overall revenue, revenue from each of its Core Products, Emerging Products and Games businesses, and overall adjusted EBITDA to increase sequentially. Real expects fourth-quarter overall revenue, revenue from each of its business segments and overall adjusted EBITDA to decline year-over-year.

The foregoing forward-looking statements reflect Real's expectations as of Nov. 4, 2010. It is not Real's general practice to update these forward-looking statements until its next quarterly results announcement.

Webcast and Conference Call Information

The company will host an audio Webcast conference call to review results and discuss the company's operations for the third quarter at5:00 p.m. ET on Nov. 4. The Webcast will be available at: http://investor.realnetworks.com.

Webcast participants will need RealPlayer® to hear the webcast, which can be downloaded at www.real.com.

The on-demand Webcast will be available beginning approximately two hours following the conclusion of the live Webcast.

Conference Call Details
5:00 p.m. (Eastern) / 2:00 p.m. (Pacific)
Dial in: 800-857-5305 Domestic / 773-681-5857 International
Passcode: Third Quarter Earnings
Leader: Bob Kimball
Telephonic replay will be available until 8:00 p.m. (Eastern), Nov.
18, 2010.
Replay dial in: 866-413-9103 Domestic / 203-369-0665 International

RNWK-F

About RealNetworks: RealNetworks, Inc. delivers digital entertainment services to consumers via PCs and mobile devices. Real® created the streaming media category in 1995 and continues to offer pioneering products and services, including: RealPlayer®, the first mainstream media player to enable downloading, recording, editing and sharing of digital video; GameHouse®, one of the largest casual games services on the Internet; and a variety of mobile entertainment services, such as ringback tones, music and video, offered to consumers through leading wireless carriers around the world. RealNetworks' corporate information is located at http://www.realnetworks.com/about-us/index.aspx.

About Non-GAAP Financial Measures

To supplement RealNetworks' condensed consolidated financial statements presented in accordance with GAAP in this press release, the company also discloses certain non-GAAP financial measures, including adjusted revenue, adjusted EBITDA, adjusted EBITDA by reporting segment and free cash flow, which management believes provide investors with useful information.

In the financial tables of our earnings press release, RealNetworks has included reconciliations of GAAP operating income (loss) to adjusted EBITDA and to adjusted EBITDA by reporting segment.

The rationale for management's use of non-GAAP measures is included in the supplementary materials presented with the third quarter earnings materials. Please refer to Exhibit 99.2 ("Information Regarding Non-GAAP Financial Measures") to the company's report on Form 8-K, which is being submitted today to the SEC.

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, adjusted EBITDA, the completion of Real's restructuring activities and Real's ability to grow and monetize its businesses, including through leveraging its technology platforms. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements. Actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: fluctuations in foreign currencies; Real's ability to realize operating efficiencies, growth and other benefits from the implementation of its strategic initiatives; the emergence of new entrants and competition in the market for digital media products and services; other competitive risks, including the growth of competing technologies, products and services; the potential outcomes and effects of claims and legal proceedings on Real's business, prospects, financial condition or results of operations; risks associated with key customer or strategic relationships, business acquisitions and the introduction of new products and services; changes in consumer and advertising spending in response to disruptions in the global financial markets; and changes in Real's effective tax rate. 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, its quarterly reports on Form 10-Q and in other reports and documents filed by RealNetworks from time to time with the Securities and Exchange Commission. The preparation of RealNetworks' financial statements and forward-looking financial guidance requires the company 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, RealPlayer and GameHouse 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,
2010 2009 2010 2009
---- ---- ---- ----
(in thousands, except per share data)

Net revenue $86,432 $140,264 $303,916 $416,762

Cost of
revenue 30,710 53,686 109,018 165,321
------ ------ ------- -------

Gross profit 55,722 86,578 194,898 251,441
------ ------ ------- -------

Operating
expenses:
Research and
development 19,517 29,425 81,775 86,907
Sales and
marketing 26,321 39,573 91,530 125,531
Advertising
with related
party (A) - 7,941 1,065 22,229
General and
administrative 12,640 13,039 42,151 55,208
Impairment of
goodwill - - - 175,583
Restructuring
and other
charges 1,080 877 11,487 1,671
Loss on
excess
office
facilities 314 - 7,396 -
--- --- ----- ---

Total
operating
expenses 59,872 90,855 235,404 467,129
------ ------ ------- -------

Operating
loss (4,150) (4,277) (40,506) (215,688)
------ ------ ------- --------

Other income
(expenses):
Interest
income, net 1,074 1,253 2,005 3,190
Equity in net
loss of
Rhapsody and
other equity
method
investments
(B) (6,142) (273) (11,569) (1,197)
Gain (loss)
on sale of
equity
investments,
net - 604 (50) 809
Gain on
deconsolidation
of Rhapsody - - 10,929 -
Other income
(expense),
net (206) (888) 887 (482)
---- ---- --- ----

Total other
income
(expense),
net (5,274) 696 2,202 2,320
------ --- ----- -----

Loss before
income taxes (9,424) (3,581) (38,304) (213,368)
Income tax
benefit
(expense) 33,947 (686) 37,238 (3,445)
------ ---- ------ ------

Net income
(loss) 24,523 (4,267) (1,066) (216,813)
Net loss
attributable
to the
noncontrolling
interest in
Rhapsody (C) - 5,787 2,910 17,868
--- ----- ----- ------
Net income
(loss)
attributable
to common
shareholders $24,523 $1,520 $1,844 $(198,945)
======= ====== ====== =========

Basic net
income
(loss) per
share
available to
common
shareholders $0.18 $0.00 $0.04 $(1.50)
Diluted net
income
(loss) per
share
available to
common
shareholders $0.18 $0.00 $0.04 $(1.50)

Shares used
to compute
basic net
income
(loss) per
share
available to
common
shareholders 135,619 134,793 135,302 134,531
Shares used
to compute
diluted net
income
(loss) per
share
available to
common
shareholders 137,769 134,978 138,232 134,531

(A) Consists of advertising purchased by Rhapsody from MTV Networks
(MTVN). MTVN had a 49% ownership interest in Rhapsody prior to the
restructuring transactions that occurred on March 31, 2010. See
note (B) for more details regarding the restructuring and the
related deconsolidation.

(B) On March 31, 2010, we completed the restructuring of Rhapsody
which resulted in our ownership decreasing to approximately 47.5% of
the outstanding equity in Rhapsody and no longer having operating
control. Since the restructuring was completed on the last day of
the quarter ended March 31, 2010, our statement of operations for
the first quarter includes results from Rhapsody's operations.
Beginning with the quarter ended June 30, 2010, Rhapsody's revenue
or other operating results are no longer consolidated within our
financial statements and we are not recording any operating or other
financial results for our Music segment. We now report our share of
Rhapsody's income or losses as "Equity in net loss of Rhapsody and
other equity method investments" in "Other income."

(C) Noncontrolling interest in Rhapsody reflects MTVN's 49% ownership
share in the losses of Rhapsody prior to the restructuring
transactions that occurred on March 31, 2010.

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

September December
30, 31,
2010 2009
---- ----
(in thousands)
ASSETS

Current assets:
Cash and cash equivalents $214,895 $277,030
Short-term investments 114,330 107,870
Trade accounts receivable, net 42,051 60,937
Deferred costs, current portion 5,389 5,192
Related party receivable -Rhapsody (A) 874 -
Prepaid expenses and other current
assets 28,905 30,624
------ ------

Total current assets 406,444 481,653
------- -------

Equipment, software, and leasehold
improvements, at cost:
Equipment and software 145,102 151,951
Leasehold improvements 25,390 31,041
------ ------
Total equipment, software, and
leasehold improvements 170,492 182,992
Less accumulated depreciation and
amortization 125,452 125,878
------- -------

Net equipment, software, and
leasehold improvements 45,040 57,114

Restricted cash equivalents and
investments 10,000 13,700
Equity investments 37,730 19,553
Other assets 3,400 4,030
Deferred costs, non-current
portion 17,667 10,182
Deferred tax assets, net, non-
current portion 8,995 10,001
Other intangible assets, net 8,708 10,650
Goodwill 4,792 -
----- ---

Total assets $542,776 $606,883
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $23,872 $32,703
Accrued and other liabilities 84,231 124,934
Deferred revenue, current portion 19,867 31,374
Related party payable -Rhapsody (B) 684 -
Related party payable - MTVN (C) - 11,216
Accrued loss on excess office
facilities, current portion 1,203 3,228
----- -----

Total current liabilities 129,857 203,455
------- -------

Deferred revenue, non-current
portion 575 1,933
Accrued loss on excess office
facilities, non-current portion 3,752 -
Deferred rent 3,723 4,464
Deferred tax liabilities, net, non-
current portion 1,150 961
Other long-term liabilities 5,382 13,006
----- ------

Total liabilities 144,439 223,819
------- -------

Noncontrolling interest in Rhapsody (D) - 7,253

Shareholders' equity 398,337 375,811
------- -------

Total liabilities and shareholders'
equity $542,776 $606,883
======== ========

(A) Related party receivable reflects amounts Rhapsody International,
formed on March 31, 2010, owes RealNetworks.

(B) Related party payable reflects amounts owed to Rhapsody
International, formed on March 31, 2010.

(C) Related party payable reflects amounts owed by Rhapsody to MTVN
in periods prior to the restructuring and related deconsolidation
that was completed on March 31, 2010.

(D) Noncontrolling interest in Rhapsody reflects MTVN's 49% ownership
interest in the net assets of Rhapsody at December 31, 2009. Due to
the restructuring transactions which occurred on March 31, 2010,
Rhapsody's balance sheet is no longer included within RealNetworks
consolidated financial statements.

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

Nine Months Ended
September 30,
-----------------
2010 2009
---- ----
(in thousands)

Cash flows from operating activities:
Net income (loss) $(1,066) $(216,813)
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization 19,047 22,881
Stock-based compensation 10,280 15,545
Loss on disposal of equipment,
software, and leasehold improvements 155 302
Equity in net loss of Rhapsody and
other investments 11,569 1,197
Loss (gain) on sale of equity
investment, net 50 (809)
Gain on deconsolidation of Rhapsody (10,929) -
Excess tax benefit from stock option
exercises (48) (9)
Impairment of goodwill - 175,583
Accrued restructuring and other
charges 997 (3,786)
Accrued loss on excess office
facilities 6,108 -
Deferred income taxes, net 80 545
Other 153 39
Net change in certain operating assets
and liabilities, net of acquisitions
and disposals (72,874) (11,167)
------- -------

Net cash (used in) provided by
operating activities (36,478) (16,492)
------- -------

Cash flows from investing activities:
Purchases of equipment, software, and
leasehold improvements (11,415) (11,445)
Purchases of short-term investments (102,486) (124,043)
Proceeds from sales and maturities of
short-term investments 96,026 93,389
Proceeds from the sales of equity
investments - 1,014
Purchases of equity investments - (2,000)
Payment of acquisition costs, net of
cash acquired (5,760) (3,324)
Payment in connection with the
restructuring of Rhapsody (18,000) -
Repayment of temporary funding on
deconsolidation of Rhapsody 5,869 -
Decrease in restricted cash
equivalents and investments, net 3,700 1,042
----- -----

Net cash provided by (used in)
investing activities (32,066) (45,367)
------- -------

Cash flows from financing activities:
Net proceeds from sales of common
stock under employee stock purchase
plan and exercise of stock options 1,378 819
Payments received on MTVN note 1,213 21,912
Capital contribution to Rhapsody from
MTVN - 5,000
Excess tax benefit from stock option
exercises 48 9
--- ---

Net cash provided by (used in)
financing activities 2,639 27,740
----- ------

Effect of exchange rate changes on
cash and cash equivalents 3,770 5,928
----- -----

Net decrease in cash and cash
equivalents (62,135) (28,191)

Cash and cash equivalents, beginning
of period 277,030 232,968
------- -------

Cash and cash equivalents, end of
period $214,895 $204,777
======== ========

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

2010
-------------------------
Q3 Q2 Q1
-- -- --
(in thousands)
Net Revenue by Line of Business:
Core Products (A) $51,870 $51,742 $51,203
Emerging Products (B) 8,778 8,997 11,428
Games (C) 25,784 28,145 30,236
------ ------ ------
Total net revenue excluding music 86,432 88,884 92,867
Music (D) - - 35,733
--- --- ------
Total net revenue including music $86,432 $88,884 $128,600
======= ======= ========

Core Products Revenue by Product:
SaaS (E) $31,885 $32,388 $33,614
Systems Integrations /Professional
Services (F) 953 998 367
Technology Licensing (G) 7,473 7,736 7,910
Consumer subscriptions (H) 11,559 10,620 9,312
Total Core Products net revenue $51,870 $51,742 $51,203
======= ======= =======

Net Revenue by Geography:
United States $46,874 $48,351 $84,550
Rest of world 39,558 40,533 44,050
------ ------ ------

Total net revenue $86,432 $88,884 $128,600
======= ======= ========

Product Metrics (subscribers and ICM
presented as greater than):
Addressable subscribers of mobile
Operators under contract (I) 700,000 675,000 650,000
SaaS subscribers (J) 37,500 37,600 37,950
SaaS ARPU (in cents) (K) $0.16 $0.16 $0.16
ICM delivered in billions (L) 134 128 120
Consumer subscribers(M) 600 600 575

2009
----------------------------------
Q4 Q3 Q2 Q1
-- -- -- --
(in thousands)
Net Revenue by Line of
Business:
Core Products (A) $64,154 $58,173 $56,346 $54,692
Emerging Products (B) 13,014 13,835 9,153 9,205
Games (C) 30,736 29,491 29,774 32,823
------ ------ ------ ------
Total net revenue excluding
music 107,904 101,499 95,273 96,720
Music (D) 37,598 38,765 40,452 44,053
------ ------ ------ ------
Total net revenue including
music $145,502 $140,264 $135,725 $140,773
======== ======== ======== ========

Core Products Revenue by
Product:
SaaS (E) $39,399 $38,704 $35,517 $34,497
Systems Integrations /
Professional Services (F) 5,040 818 3,228 1,088
Technology Licensing (G) 9,830 7,906 7,463 7,994
Consumer subscriptions (H) 9,885 10,745 10,138 11,113
Total Core Products net
revenue $64,154 $58,173 $56,346 $54,692
======= ======= ======= =======

Net Revenue by Geography:
United States $91,175 $95,758 $90,685 $96,666
Rest of world 54,327 44,506 45,040 44,107
------ ------ ------ ------

Total net revenue $145,502 $140,264 $135,725 $140,773
======== ======== ======== ========

Product Metrics (subscribers
and ICM presented as
greater than):
Addressable subscribers of
mobile operators under
contract (I) 625,000 575,000 575,000 550,000
SaaS subscribers (J) 38,850 37,500 36,300 33,850
SaaS ARPU (in cents) (K) $0.17 $0.19 $0.17 $0.17
ICM delivered in billions (L) 112 101 93 82
Consumer subscribers(M) 625 625 550 575

(A) The Core Products segment primarily includes revenue from SaaS
services, system integration and professional services to carriers
and mobile handset companies, sales of technology licenses of our
software products such as Helix for handsets, and consumer
subscriptions such as SuperPass and our international radio
subscription services.

(B) The Emerging Products segment primarily includes revenue from
RealPlayer and related products, such as revenue from distribution
of third party software products, advertising on RealPlayer websites
and sales of RealPlayerPlus software licenses to consumers.

(C) The Games segment primarily includes revenue from sales of games
licenses, online games subscription services, advertising on game
sites and social network sites, games syndication services,
microtransactions from online and social games and sales of mobile
games.

(D) On March 31, 2010, we completed the restructuring of Rhapsody,
which resulted in our ownership decreasing to approximately 47.5% of
the outstanding equity in Rhapsody, and our loss of operating
control over Rhapsody. Beginning with the quarter ended June 30,
2010, Rhapsody's revenue or other operating results are no longer
consolidated within our financial statements and we are not
recording any operating or other financial results for our Music
segment. We now report our share of Rhapsody's income or losses as
"Equity in net loss of Rhapsody and other equity method investments"
in Other Income.

(E) Software as a Service (SaaS) revenue includes revenue from music
on demand (MOD), video on demand (VOD), ringtones, ringback tones
(RBT) and intercarrier messaging services provided to network
service providers, who are largely mobile phone networks.

(F) Systems Integration revenue includes professional services,
other than those associated with software sales, provided to mobile
carriers and handset manufacturers.

(G) Technology Licensing includes revenue from sales of software and
other intellectual property licenses such as Helix server licenses
and Helix software licenses for handsets.

(H) Consumer subscriptions includes revenue from SuperPass, as well
as our international radio subscription services.

(I) Total subscribers reported at the end of the quarter of mobile
carriers that offer one or more of our SaaS services, other than
intercarrier messaging services, to their customers.

(J) Includes subscribers for our SaaS services which include RBT,
MOD and VOD services, measured at the end of the quarter.

(K) Monthly SaaS ARPU (Average Revenue Per User) is calculated by
dividing (a) the total quarterly revenue from SaaS subscription
services, including RBT, MOD, VOD, by (b) the number of SaaS
subscribers at the end of the quarter, and dividing the resulting
quotient by three.

(L) The total number of intercarrier messages delivered across our
messaging platform in the quarter.

(M) Primarily includes subscribers to SuperPass
and GamePass. We repurchased our international radio subscription
services from Rhapsody as part of the restructuring that occurred on
March 31, 2010, and as a result, subscribers to our international
radio services are included beginning in the quarter ended June 30,
2010.

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

2010
-----------------
Q3 Q2
-- --
(in thousands)
--------------
Core Products
-------------

Net revenue $51,870 $51,742
Cost of revenue 22,230 18,085
------ ------
Gross profit 29,640 33,657

Gross margin 57% 65%

Operating
expenses: 19,772 22,508
------ ------
Operating income
(loss) $9,868 $11,149

Adjusted EBITDA $13,309 $14,675

Emerging Products
-----------------

Net revenue $8,778 $8,997
Cost of revenue 1,076 3,404
----- -----
Gross profit 7,702 5,593

Gross margin 88% 62%

Operating
expenses: 6,059 7,602
----- -----
Operating income
(loss) $1,643 $(2,009)

Adjusted EBITDA $1,771 $(1,732)

Games
-----

Net revenue $25,784 $28,145
Cost of revenue 6,279 7,228
----- -----
Gross profit 19,505 20,917

Gross margin 76% 74%

Operating
expenses: 17,092 20,832
------ ------
Operating income
(loss) $2,413 $85

Adjusted EBITDA $2,885 $1,948

Music
-----

Net revenue $- $-
Cost of revenue - -
--- ---
Gross profit - -

Gross margin N/A N/A

Operating
expenses: - -
--- ---
Operating income
(loss) $- $-

Adjusted EBITDA $- $-

Corporate
---------

Net revenue $- $-
Cost of revenue 1,125 432
----- ---
Gross profit (1,125) (432)

Gross margin N/A N/A

Operating
expenses: 16,949 30,487
------ ------
Operating income
(loss) $(18,074) $(30,919)

Adjusted EBITDA $(12,265) $(14,287)

Total
-----

Net revenue $86,432 $88,884
Cost of revenue 30,710 29,149
------ ------
Gross profit 55,722 59,735

Gross margin 64% 67%

Operating
expenses: 59,872 81,429
------ ------
Operating income
(loss) $(4,150) $(21,694)

Adjusted EBITDA $5,700 $604

2009 2010 2009
---- ---- ----
Q3 YTD YTD
-- --- ---
(in thousands)
--------------
Core Products
-------------

Net revenue $58,173 $154,815 $169,211
Cost of revenue 20,250 58,054 58,007
------ ------ ------
Gross profit 37,923 96,761 111,204

Gross margin 65% 63% 66%

Operating
expenses: 23,059 66,366 118,372
------ ------ -------
Operating income
(loss) $14,864 $30,395 $(7,168)

Adjusted EBITDA $18,956 $40,783 $55,603

Emerging Products
-----------------

Net revenue $13,835 $29,203 $32,193
Cost of revenue 1,703 5,944 5,220
----- ----- -----
Gross profit 12,132 23,259 26,973

Gross margin 88% 80% 84%

Operating
expenses: 6,145 20,694 64,344
----- ------ ------
Operating income
(loss) $5,987 $2,565 $(37,371)

Adjusted EBITDA $6,097 $3,048 $10,124

Games
-----

Net revenue $29,491 $84,165 $92,088
Cost of revenue 7,598 21,210 24,608
----- ------ ------
Gross profit 21,893 62,955 67,480

Gross margin 74% 75% 73%

Operating
expenses: 21,604 60,695 104,516
------ ------ -------
Operating income
(loss) $289 $2,260 $(37,036)

Adjusted EBITDA $1,187 $6,518 $6,709

Music
-----

Net revenue $38,765 $35,733 $123,270
Cost of revenue 23,655 21,864 75,708
------ ------ ------
Gross profit 15,110 13,869 47,562

Gross margin 39% 39% 39%

Operating
expenses: 20,776 13,911 103,601
------ ------ -------
Operating income
(loss) $(5,666) $(42) $(56,039)

Adjusted EBITDA $4,896 $4,214 $13,206

Corporate
---------

Net revenue $- $- $-
Cost of revenue 480 1,946 1,778
--- ----- -----
Gross profit (480) (1,946) (1,778)

Gross margin N/A N/A N/A

Operating
expenses: 19,271 73,738 76,296
------ ------ ------
Operating income
(loss) $(19,751) $(75,684) $(78,074)

Adjusted EBITDA $(13,855) $(42,534) $(57,678)

Total
-----

Net revenue $140,264 $303,916 $416,762
Cost of revenue 53,686 109,018 165,321
------ ------- -------
Gross profit 86,578 194,898 251,441

Gross margin 62% 64% 60%

Operating
expenses: 90,855 235,404 467,129
------ ------- -------
Operating income
(loss) $(4,277) $(40,506) $(215,688)

Adjusted EBITDA $17,281 $12,029 $27,964

RealNetworks, Inc. and Subsidiaries
Reconciliation of segment operating income (loss) to adjusted EBITDA
by reporting segment
(Unaudited)

2010
-----------------
Q3 Q2
(in thousands)
--------------
Core Products

Reconciliation of segment GAAP operating
income (loss) to adjusted EBITDA by reporting
segment:

Operating income (loss) $9,868 $11,149
Acquisitions related intangible asset
amortization 1,059 1,106
Depreciation and amortization 2,382 2,420
Impairment of goodwill - -
Adjusted EBITDA $13,309 $14,675

Emerging Products

Reconciliation of segment GAAP operating
income (loss) to adjusted EBITDA by reporting
segment:

Operating income (loss) $1,643 $(2,009)
Acquisitions related intangible asset
amortization - -
Depreciation and amortization 128 277
Impairment of goodwill - -
Adjusted EBITDA $1,771 $(1,732)

Games

Reconciliation of segment GAAP operating
income (loss) to adjusted EBITDA by reporting
segment:

Operating income (loss) $2,413 $85
Acquisitions related intangible asset
amortization 126 61
Depreciation and amortization 346 1,802
Impairment of goodwill - -
Adjusted EBITDA $2,885 $1,948

Music

Reconciliation of segment GAAP operating
income (loss) to adjusted EBITDA by reporting
segment:

Operating income (loss) $- $-
Net income (loss) attributable to
noncontrolling interest in Rhapsody - -
Acquisitions related intangible asset
amortization (A) - -
Depreciation and amortization (A) - -
Pro forma gain on sale of interest in Rhapsody
America - -
Impairment of goodwill - -
Adjusted EBITDA $- $-

Corporate

Reconciliation of segment GAAP operating
income (loss) to adjusted EBITDA by reporting
segment:

Operating income (loss) $(18,074) $(30,919)
Other income (expense), net (206) 994
Depreciation and amortization 1,033 993
Restructuring and other charges 1,080 4,792
Stock-based compensation 3,588 2,771
Loss on excess office facilities 314 7,082
Adjusted EBITDA $(12,265) $(14,287)

Total

Reconciliation of GAAP operating income (loss)
to adjusted EBITDA:

Operating income (loss) $(4,150) $(21,694)
Net income (loss) attributable to
noncontrolling interest in Rhapsody - -
Other income (expense), net (206) 994
Acquisitions related intangible asset
amortization (A) 1,185 1,167
Depreciation and amortization (A) 3,889 5,492
Impairment of goodwill - -
Loss on excess office facilities 314 7,082
Pro forma gain on sale of interest in Rhapsody
America - -
Restructuring and other charges 1,080 4,792
Stock-based compensation 3,588 2,771
Adjusted EBITDA $5,700 $604

2009 2010 2009
Q3 YTD YTD
(in thousands)
--------------
Core Products