RealNetworks Announces Fourth Quarter and 2006 Financial Results

Record Annual and Quarterly Revenue of $395.3 million and $125.6 million 


SEATTLE, Feb. 14  /PRNewswire-FirstCall/ -- RealNetworks(R), Inc. (NASDAQ:RNWK), the leading creator of digital media services and software, today announced results for the fourth quarter and fiscal year ended December 31, 2006.

  Quarterly Highlights:
  -- Record revenue of $125.6 million
  -- Net income of $39.3 million
  -- Earnings per diluted share of $0.22 and
  -- adjusted earnings per diluted share of $0.05

  Full Year Highlights:
  -- Record revenue of $395.3 million
  -- Net income of $145.2 million
  -- Earnings per diluted share of $0.81 and
  -- adjusted earnings per diluted share of $0.15



"2006 was a very successful year for RealNetworks," said Rob Glaser, Chairman and CEO of RealNetworks. "We are pleased to report another year of record revenue and strong profitability.  In addition to the company's financial achievements, 2006 was a year of important strategic achievements for Real that set us up for our next phase of growth."

For the fourth quarter of 2006, revenue grew 50% to $125.6 million compared to $83.6 million for the fourth quarter of 2005.  Fourth quarter 2006 revenue includes two months of revenue totaling $26.7 million from the acquisition of WiderThan.  For the fourth quarter of 2006, revenue in the Consumer Products and Services segment was as follows:  Games revenue was $23.9 million, a 52% increase over the fourth quarter of 2005; Music revenue was $33.6 million, a 21% increase over the fourth quarter of 2005; and Media Software and Services revenue was $30.5 million, a 2% increase over the fourth quarter of 2005.  In the Technology Products and Solutions segment, revenue was $37.6 million, a 270% increase over the fourth quarter of 2005, and includes $26.7 million of revenue related to WiderThan.  Foreign currency exchange rate fluctuations positively impacted 2006 fourth quarter revenue by approximately $1.1 million compared to the fourth quarter of 2005.

Net income for the fourth quarter of 2006 was $39.3 million or $0.22 per diluted share, compared to $295.6 million or $1.61 per diluted share in the fourth quarter of 2005.  Both periods' results include payments related to Real's antitrust settlement and commercial agreements with Microsoft.  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 measures, was $9.9 million or $0.05 per diluted share for the fourth quarter of 2006, compared to a loss of ($6.1) million or ($0.04) per share in the fourth quarter of 2005. Adjusted EBITDA for the fourth quarter of 2006 was $9.1 million compared to a loss of ($6.2) million in the fourth quarter of 2005.  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 66% in the fourth quarter of 2006 compared to 71% in the fourth quarter of 2005.  Operating expenses for the fourth quarter of 2006 were $31.1 million, compared to a benefit of $342.8 million in the prior year's quarter.   Fourth quarter 2006 and 2005 operating expenses include benefits related to payments under Real's settlement and commercial agreements with Microsoft.  Adjusted operating expenses in the fourth quarter of 2006 were $81.0 million compared to $70.1 million in the fourth quarter of 2005.  A reconciliation of GAAP operating expenses to adjusted operating expenses is provided in the financial tables that accompany this release.  For the fourth quarter of 2006, Real's effective tax rate was approximately 33% which includes a $2.7 million benefit as a result of changes in deferred tax asset valuation allowances.

Fourth Quarter Acquisition of WiderThan

On October 31, 2006, Real acquired substantially all of the capital stock of WiderThan Co., Ltd. (NASDAQ:WTHN) through a cash tender offer. As a result of the tender offer, WiderThan became a majority-owned subsidiary of Real, and the financial results of WiderThan are included in Real's consolidated financial statements subsequent to the acquisition date.  Real currently owns 99.7% of WiderThan shares, and to date has paid approximately $337 million for its purchase of these shares.

Full Year 2006 Results

For the full year, revenue grew 22% to $395.3 million from $325.1 million in 2005. For the full year, revenue in the Consumer Products and Services segment was as follows: Games revenue was $86.2 million, a 53% increase over 2005; Music revenue was $123.0 million, a 21% increase over 2005; and Media Software & Services revenue was $113.5 million, a decrease of 7% compared to 2005.  In the Technology Products and Solutions segment, revenue was $72.5 million, an increase of 61% over 2005. Foreign currency exchange rate fluctuations negatively impacted 2006 revenue by approximately $0.7 million compared to 2005.

Net Income for 2006 was $145.2 million or $0.81 per diluted share compared to $312.3 million or $1.70 per diluted share in 2005.  Net income for 2006 and 2005 include benefits related to the Microsoft settlement.  Adjusted net income for 2006 was $26.8 million or $0.15 per diluted share compared to $6.6 million or $0.04 per diluted share in 2005.  Adjusted EBITDA for 2006 was $20.7 million compared to $11.3 million for 2005.

Gross margin in 2006 was 69%, compared to 70% in the prior year. Operating expenses were $80.6 million in 2006, compared to a benefit of $170.6 million in 2005.  Operating expenses in 2006 and 2005 were significantly impacted by the Microsoft settlement. For 2006, Real's effective tax rate was 36% which includes a $2.7 million benefit as a result of changes in deferred tax asset valuation allowances.

As of December 31, 2006, Real had approximately $679 million in unrestricted cash, cash equivalents and short-term investments, which includes the proceeds from $100 million of convertible debt.  Further, Real received approximately $61 million in additional payments related to the Microsoft agreements during the first quarter of 2007.

Under Real's stock repurchase program, approximately 11.8 million shares were repurchased for $98.9 million during 2006.  As of December 31, 2006, approximately $78.1 million remained available under the existing stock repurchase program.

  As of December 31, 2006, Real had 1,594 full time employees.

  Business Outlook


The following forward-looking statements reflect RealNetworks' expectations as of February 14, 2007.  The Company currently does not intend to update these forward-looking statements until its next quarterly results announcement.

For the full year 2007, Real expects revenue in the range of $540 million to $560 million, which represents approximately 37% to 42% growth over 2006. As a result of purchase price adjustments related to the WiderThan acquisition, Real will recognize approximately $5 million less in 2007 revenue than if WiderThan had remained a stand-alone company.  Real expects 2007 GAAP net income per diluted share of $0.18 to $0.23 and adjusted net income per diluted share of $0.19 to $0.23.  Included in Real's GAAP guidance is approximately $21 million, or $0.11 per share, of acquisition costs related to WiderThan, including intangible asset amortization and stock options converted to cash rights, and $26 million to $30 million, or $0.14 to $0.16 per diluted share of non-cash stock based compensation expense.  Stock based compensation expense is projected to be higher in 2007 than 2006 primarily due to options granted to employees who joined Real from WiderThan.  In addition to the foregoing expenses, estimated adjusted net income in 2007 also excludes the effects from amortization of intangible assets of approximately $4 million, or $0.02 per share, from all previous acquisitions other than WiderThan.  This guidance assumes an effective tax rate of approximately 41%, up from approximately 36% in 2006 due to certain non-deductible international expenses.  See complete reconciliation of estimated GAAP net income per diluted share to adjusted net income per diluted share, provided in the financial tables that accompany this press release.

For the first quarter of 2007, Real expects revenue in the range of $122 million to $126 million, GAAP net income per diluted share of $0.16 to $0.18 and adjusted net income per diluted share of $0.02 to $0.04.  This guidance assumes an effective tax rate of approximately 41%.  See complete reconciliation of estimated GAAP net income per diluted share to adjusted net income per diluted share, provided in the financial tables that accompany this press release.

About Non-GAAP Financial Measures

To supplement the Company's consolidated financial results presented in accordance with GAAP, RealNetworks uses non-GAAP measures for certain components of financial performance.  These non-GAAP measures include adjusted net income, adjusted net income per diluted share, adjusted EBITDA and adjusted operating expenses.  For actual results presented through 2006, adjusted net income excludes 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 sale or impairments; acquisition costs related to the purchase of WiderThan, including amortization of intangible assets and expenses for employee stock options that were converted to cash rights; an estimate of the income taxes from the aforementioned items; and changes in deferred tax asset valuation allowances.  Estimated 2007 adjusted net income excludes the impact of the items in Real's 2006 adjusted net income, listed above, in addition to amortization of intangible assets for all acquisitions.  Adjusted EBITDA excludes the impact of the following:  interest income, net; income taxes; depreciation; amortization; stock based compensation; expenses for employee stock options that were converted to cash rights; equity investment gains and losses from sale or impairments; and income and expenses including charitable contributions related to the Microsoft agreements.  The presentation of these non-GAAP financial measures is not intended to be considered as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP.  These non-GAAP measures are provided to enhance investors' overall understanding of the Company's current and expected future financial performance.  The Company believes these non-GAAP measures provide useful information to management and investors by excluding certain income, expenses and gains and losses that may not be indicative of its core operating and financial results.  Management uses these measures on an ongoing basis to track and assess the Company's financial performance.  The accompanying financial tables provide reconciliations to the nearest GAAP measure of all non-GAAP measures provided in this press release.

The Company will host a webcast and conference call today at 5:00 p.m. (Eastern)/2:00 p.m. (Pacific).  The live webcast featuring slides and audio, will be available at http://investor.realnetworks.com/.  Listeners will require 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 8:00 p.m. (Eastern) on February 21, 2007 and may be accessed by dialing 800-813-5527 (203-369-3347 for international callers).

  RNWK-F

  ABOUT REALNETWORKS


RealNetworks, Inc. is a leading creator of digital media services and software including Rhapsody, RealPlayer(R) 10, and casual PC and mobile games. Broadcasters, network operators, media companies and enterprises use RealNetworks' products and services to create and deliver digital media to PCs, mobile phones and consumer electronics devices. Consumers can access and experience audio/video programming and download RealNetworks' consumer software at http://www.real.com/.  RealNetworks' corporate information is located at http://www.realnetworks.com/.

Forward Looking Statements:  This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to:  (a) Real's future revenue, GAAP and adjusted net income per diluted share, amortization of intangible assets, stock based compensation expense and income tax rate; (b) the continuing growth in demand for Real's consumer products and business technologies; and (c) expected future payments resulting from the Microsoft agreements. Actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: 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 acquisitions generally, and the acquisition of WiderThan in particular, including the risks of integration, unknown liabilities and operations in new markets and geographies, as well as risks specifically associated with WiderThan's business; 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 impact on our gross margins from 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; 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.

NOTE:  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,
                          2006         2005         2006          2005
                              (in thousands, except per share data)

  Net revenue           $125,574      $83,568     $395,261     $325,059

  Cost of revenue         42,320       23,976      124,108       98,249

   Gross profit           83,254       59,592      271,153      226,810

  Operating expenses:
   Research and
    development           22,259       25,351       77,386       70,731
   Sales and marketing    53,998       36,709      165,602      130,515
   General and
    administrative        15,746       29,573       57,332       50,697
   Loss on excess office
    facilities (A)            --           --          738           --
    Subtotal operating
     expenses             92,003       91,633      301,058      251,943

  Antitrust litigation
   benefit, net (B)      (60,856)    (434,425)    (220,410)    (422,500)
    Total operating
     expenses, net        31,147     (342,792)      80,648     (170,557)

   Operating income       52,107      402,384      190,505      397,367

  Other income (expense), net:
   Interest income, net    9,644        7,012       37,622       14,511
   Equity in net income
    (loss) of equity
    method investments       326           --          326       (1,068)
   Impairment of equity
    investments           (3,116)        (266)      (3,116)        (266)
   Gain on sales of
    equity investments        --           --        2,286       19,330
   Other, net               (302)         (55)         130         (331)
    Other income, net      6,552        6,691       37,248       32,176

  Income before income
   taxes                  58,659      409,075      227,753      429,543
  Income tax provision   (19,357)    (113,435)     (82,537)    (117,198)

  Net income             $39,302     $295,640     $145,216     $312,345

  Net income per
   basic share             $0.24        $1.76        $0.90        $1.84
  Net income per
   diluted share           $0.22        $1.61        $0.81        $1.70

  Shares used to compute
   net income per
   basic share           162,130      167,573      160,973      169,986
  Shares used to compute
   net income per
   diluted share         180,919      183,728      179,281      184,161

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


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

                                                 December 31,  December 31,
                                                    2006           2005
                                                      (in thousands)
                        ASSETS

  Current assets:
    Cash and cash equivalents                     $525,232       $651,971
    Short-term investments                         153,688        129,356
    Trade accounts receivable, net                  65,751         16,721
    Deferred tax assets, net, current portion          892         54,204
    Prepaid expenses and other current assets       23,632         11,933
      Total current assets                         769,195        864,185

  Equipment, software and leasehold
   improvements, at cost:
    Equipment and software                          83,587         56,402
    Leasehold improvements                          29,665         27,964
     Total equipment, software and
      leasehold improvements                       113,252         84,366
    Less accumulated depreciation
     and amortization                               65,509         51,228
    Net equipment, software and
     leasehold improvements                         47,743         33,138

  Restricted cash equivalents                       17,300         17,300
  Equity investments                                22,649         46,163
  Other assets                                       5,148          2,397
  Deferred tax assets, net, non-current portion     27,150         19,147
  Goodwill                                         309,122        123,330
  Other intangible assets, net                     105,109          7,337

      Total assets                              $1,303,416     $1,112,997


             LIABILITIES AND SHAREHOLDERS' EQUITY

  Current liabilities:
    Accounts payable                               $52,097        $11,397
    Accrued and other liabilities                  104,328        112,340
    Deferred revenue, current portion               24,137         25,021
    Accrued loss on excess office facilities,
     current portion                                 4,508          4,623
     Total current liabilities                     185,070        153,381

  Deferred revenue, non-current portion              3,440            276
  Accrued loss on excess office facilities,
   non-current portion                               9,993         13,393
  Deferred rent                                      4,331          4,018
  Convertible debt                                 100,000        100,000
  Deferred tax liabilities, net,
   non-current portion                              27,076             --
  Other long-term liabilities                        3,740            196

     Total liabilities                             333,650        271,264

  Total shareholders' equity                       969,766        841,733

     Total liabilities and
     shareholders' equity                       $1,303,416     $1,112,997


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

                                                  Years Ended December 31,
                                                    2006           2005
                                                      (in thousands)

  Cash flows from operating activities:
   Net income                                     $145,216       $312,345
   Adjustments to reconcile net income to net
    cash provided by operating activities:
     Depreciation and amortization                  20,980         16,243
     Stock-based compensation                       18,151            128
     Equity in net losses of equity
      method investments                                --          1,068
     Impairment of equity investments                3,116            266
     Gain on sales of equity investments            (2,286)       (19,330)
     Changes in accrued loss on excess office
      facilities and content agreement              (3,516)        (9,161)
     Loss on disposal of equipment                     276             --
     Deferred income taxes                          64,645        107,208
     Other                                              97            804
     Excess tax benefit from stock
      option exercises                              (4,966)            --
     Net change in certain operating assets
      and liabilities, net of balances
      from businesses acquired during the year     (37,886)        51,182
       Net cash provided by operating activities   203,827        460,753

  Cash flows from investing activities:
    Purchases of equipment, software and
     leasehold improvements                        (13,808)       (13,782)
    Purchases of intangible assets                      --         (1,125)
    Purchases of short-term investments           (204,841)      (153,491)
    Proceeds from sales and maturities of
     short-term investments                        180,973        168,358
    Decrease in restricted cash equivalents             --          2,851
    Proceeds from sales of equity investments        2,286         19,530
    Purchases of cost based investments               (834)          (647)
    Payment of acquisition costs,
     net of cash acquired                         (257,841)       (14,705)
       Net cash provided by (used in)
        investing activities                      (294,065)         6,989

  Cash flows from financing activities:
    Net proceeds from sale of common stock
     under employee stock purchase plan and
     exercise of stock options                      54,929         20,361
    Repayment of long-term note payable                 --           (648)
    Excess tax benefit from stock option exercises   4,966             --
    Repurchase of common stock                     (98,876)       (54,321)
        Net cash used in financing activities      (38,981)       (34,608)

  Effect of exchange rate changes on cash
   and cash equivalents                              2,480           (589)
       Net increase (decrease) in cash
        and cash equivalents                      (126,739)       432,545
  Cash and cash equivalents at beginning of year   651,971        219,426
  Cash and cash equivalents at end of year        $525,232       $651,971


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

                                              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

  Gross Margin by Line
   of Business:
    Consumer products
     and services            70%          68%          68%          67%
    Technology products
     and solutions           58%          81%          81%          83%
     Total gross margin      66%          70%          70%          69%

  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
    Total Music
     Subscribers (K)       2,550        1,650        1,625        1,575


                                              2005
                           Q4           Q3           Q2           Q1
                                         (in thousands)

  Net Revenue by
   Line of Business: *
    Consumer products
     and services (A)    $73,415      $71,750      $70,593      $64,206
    Technology products
     and solutions (B)    10,153       10,483       12,093       12,366
     Total net revenue   $83,568      $82,233      $82,686      $76,572

  Consumer Products
   and Services: *
    Subscriptions (C)    $47,508      $47,347      $47,821      $44,400
    Media properties (D)  10,224        9,606        8,986        6,033
    E-commerce and
     other (E)            15,683       14,797       13,786       13,773
     Total consumer
      products and
      services revenue   $73,415      $71,750      $70,593      $64,206

  Consumer Products
   and Services: *
    Music (F)            $27,760      $26,193      $24,933      $22,883
    Media software and
     services (G)         29,914       30,858       32,012       29,134
    Games (H)             15,741       14,699       13,648       12,189
     Total consumer
      products and
      services revenue   $73,415      $71,750      $70,593      $64,206

  Net Revenue by Geography:
   United States         $65,177      $63,478      $63,443      $57,757
    Rest of world         18,391       18,755       19,243       18,815
     Total net revenue   $83,568      $82,233      $82,686      $76,572

  Gross Margin by Line
   of Business:
    Consumer products
     and services            70%          68%          68%          65%
    Technology products
     and solutions           81%          82%          83%          82%
     Total gross margin      71%          70%          70%          68%

  Subscribers (presented as
   greater than) **
    Total
    Subscribers (I)        2,250        2,200        2,000        1,850
    Technology Products
     and Solutions
     Application Services
     Subscribers (J)
    Total Music
     Subscribers (K)       1,425        1,300        1,150          975

  *  Reclassifications were made to the presentation of 2005 data to conform
     to the presentation for 2006.
  ** 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 Service, 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 Applications
       Services subscribers and Total Music subscribers, these subscribers
       are only counted once as part of our Total Subscribers.

  (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 the 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)  Music subscribers represent an aggregate of all of our music services
       and include both Technology Products and Solutions application
       services subscribers and consumer subscription services.  Music
       Subscribers include:  Rhapsody, Rhapsody-to-Go, premium radio and
       Music-on-Demand.  Revenue from Technology Products and Solutions
       application services, including Music-on-Demand are included in our
       Technology Products and Solutions revenue.


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

  A reconciliation of net income
   in accordance with GAAP to total
   adjusted net income (loss) is as follows:

                     Year Ended                Quarters Ended
                       Dec. 31,   Dec. 31,   Sept. 30,   June 30,  March 31,
                        2006       2006        2006       2006       2006
                              (in thousands, except per share data)

  Net income in accordance
   with GAAP          $145,216    $39,302    $42,153    $38,878   $24,883
   Stock based
    compensation        18,151      5,819      5,021      3,673     3,638
   Loss (gain) on
    equity investments     830      3,116         --     (2,286)       --

   Conversion of WiderThan
    stock options to a
    cash equivalent        641        641         --         --        --
    WiderThan acquisition
     related intangible
     asset amortization  3,056      3,056         --         --        --
    Expenses (benefit)
     related to antitrust
     litigation:
     Income           (221,000)   (61,000)   (62,000)   (58,000)  (40,000)
     Expenses            3,994      1,026      1,000        997       971
     Charitable
      contributions      6,928      2,009      1,889      1,805     1,225
    Tax impact of above
     proforma items     71,640     18,604     20,587     19,732    12,717
    Income tax valuation
     allowance changes  (2,662)    (2,662)        --         --        --
      Total adjusted
       net income      $26,794     $9,911     $8,650     $4,799    $3,434

  GAAP net income
   per basic share       $0.90      $0.24      $0.26      $0.24    $ 0.15
  GAAP net income
   per diluted share     $0.81      $0.22      $0.24      $0.22    $ 0.14

  Adjusted basic net
   income per share      $0.17      $0.06      $0.05      $0.03    $ 0.02
  Adjusted diluted net
   income per share      $0.15      $0.05      $0.05      $0.03    $ 0.02

  Shares used to compute
   net income per
   basic share         160,973    162,130    160,578    159,938   160,887
  Shares used to compute
   net income per
   diluted share       179,281    180,919    178,913    177,337   176,923


                     Year Ended                Quarters Ended
                       Dec. 31,   Dec. 31,   Sept. 30,   June 30,  March 31,
                        2005*      2005*       2005       2005       2005
                                (in thousands, except per share data)

  Net income in accordance
   with GAAP          $312,345   $295,640    $11,182     $4,709      $814
   Stock based
    compensation           128         19         25         48        36
   Loss (gain) on
    equity
    investments        (19,064)       266    (11,740)    (7,590)       --
   Conversion of
    WiderThan
    stock options to
    a cash equivalent       --         --         --         --        --
   WiderThan acquisition
    related intangible
    asset amortization      --         --         --         --        --
   Expenses (benefit)
    related to antitrust
    litigation:
     Income           (478,571)  (478,571)        --         --        --
     Expenses           62,775     50,850      3,531      4,650     3,744
     Charitable
      contributions     14,786     14,786         --         --        --
    Tax impact of above
     proforma items    156,871    153,547      3,324         --        --

   Income tax valuation
    allowance changes  (42,645)   (42,645)        --         --        --
      Total adjusted net
       income (loss)    $6,625    $(6,108)    $6,322     $1,817    $4,594

  GAAP net income
   per basic share       $1.84      $1.76      $0.07      $0.03     $0.00
  GAAP net income per
   diluted share         $1.70      $1.61      $0.06      $0.03     $0.00

  Adjusted basic net
   income (loss)
   per share             $0.04     $(0.04)     $0.04      $0.01     $0.03
  Adjusted diluted net
   income per share      $0.04        n/a      $0.03      $0.01     $0.02

  Shares used to compute
   net income (loss)
   per basic share     169,986    167,573    170,797    171,393   170,947
  Shares used to compute
   net income per
   diluted share       184,161    183,728    184,180    184,816   184,686

  *  Fourth quarter and full year 2005 have been restated to conform to the
     presentation for 2006
  Due to the use of rounding convention for quarterly reporting, the sum of
  quarters may not equal annual totals


  A reconciliation of net income
   in accordance with GAAP to total
   adjusted EBITDA is as follows:

                      Year Ended               Quarters Ended
                       Dec. 31,   Dec. 31,  Sept. 30,   June 30,  March 31,
                        2006       2006       2006        2006      2006
                                         (in thousands)

  Net income in
   accordance
   with GAAP          $145,216    $39,302    $42,153    $38,878   $24,883
   Interest income,
    net                (37,622)    (9,644)   (10,618)    (9,381)   (7,979)
   Stock based
    compensation        18,151      5,819      5,021      3,673     3,638
   Conversion of
    WiderThan
    stock options to a
    cash equivalent        641        641         --         --        --
   Loss (gain) on
    equity investments     830      3,116         --     (2,286)       --
   Depreciation and
    amortization        20,980      8,500      4,261      3,967     4,252
   Expenses (benefit)
    related to antitrust
    litigation:
     Income           (221,000)   (61,000)   (62,000)   (58,000)  (40,000)
     Expenses            3,994      1,026      1,000        997       971
     Charitable
     contributions       6,928      2,009      1,889      1,805     1,225
  Income taxes          82,537     19,357     25,908     22,521    14,751
      Total adjusted
       EBITDA          $20,655     $9,126     $7,614    $ 2,174    $1,741


                      Year Ended               Quarters Ended
                       Dec. 31,  Dec. 31,   Sept. 30,   June 30,  March 31,
                         2005      2005       2005       2005       2005
                                          (in thousands)

  Net income in
   accordance
   with GAAP          $312,345   $295,640    $11,182     $4,709      $814
   Interest income,
    net                (14,511)    (7,012)    (2,904)    (2,579)   (2,016)
   Stock based
    compensation           128         19         25         48        36
   Conversion of
    WiderThan
    stock options to a
    cash equivalent         --         --         --         --        --
   Loss (gain) on
    equity
    investments        (19,064)       266    (11,740)    (7,590)       --
   Depreciation and
    amortization        16,243      4,374      4,195      4,044     3,630
   Expenses (benefit)
    related to antitrust
    litigation:
     Income           (478,571)  (478,571)        --         --        --
     Expenses           62,775     50,850      3,531      4,650     3,744
     Charitable
      contributions     14,786     14,786         --         --        --
   Income taxes        117,198    113,435      3,457        162       144
      Total adjusted
       EBITDA          $11,329    $(6,213)    $7,746     $3,444    $6,352


  A reconciliation of GAAP cost
   of revenue and operating expenses
   for the quarters and years ended
   December 31, 2006 and 2005 to
   adjusted cost of revenue and
   operating expenses is as follows:

                                   Quarter Ended December 31, 2006
                          As      Stock-    Antitrust  WiderThan
                       Reported    Based    Litigation Acquisition
                               Compensation  Related    Related
                                                        Costs(1)  Adjusted
                                          (in thousands)

  Expenses in accordance
   with GAAP

   Cost of revenue     $42,320     $(108)        $--    $(1,314)  $40,898

  Operating expenses:
    Research and
     development       $22,259    $(1,946)       $--      $(108)  $20,205
    Sales and marketing 53,998     (2,440)        --     (2,131)   49,427
    General and
     administrative     15,746     (1,325)    (2,891)      (144)   11,386
    Antitrust litigation
     benefit, net      (60,856)        --     60,856                   --
     Total adjusted
      operating
      expenses, net    $31,147    $(5,711)   $57,965    $(2,383)  $81,018


                            Quarter Ended December 31, 2005
                          As        Stock-   Antitrust
                       Reported     Based    Litigation
                                 Compensation Related   Adjusted
                                    (in thousands)

  Expenses in accordance
   with GAAP

   Cost of revenue     $23,976        $--        $--    $23,976

  Operating expenses:
    Research and
     development       $25,351       $(16)       $--    $25,335
    Sales and
     marketing          36,709         --         --     36,709
    General and
     administrative     29,573         (3)   (21,490)     8,080
    Antitrust litigation
     benefit, net     (434,425)        --    434,425         --
     Total adjusted
      operating
      expenses, net  $(342,792)      $(19)  $412,935    $70,124


                                    Year Ended December 31, 2006
                          As       Stock-    Antitrust  WiderThan
                       Reported    Based    Litigation  Acquisition
                                Compensation  Related   Related
                                                        Costs(1)    Adjusted
                                            (in thousands)
  Expenses in accordance
   with GAAP

   Cost of revenue    $124,108      $(257)       $--    $(1,314)    $122,537

  Operating expenses:
    Research and
     development       $77,386    $(6,512)       $--      $(108)     $70,766
    Sales and
     marketing         165,602     (7,152)        --     (2,131)     156,319
    General and
     administrative     57,332     (4,230)   (10,332)      (144)      42,626
    Loss on excess
     office facilities     738                                           738
    Antitrust litigation
     benefit, net     (220,410)        --    220,410         --
     Total adjusted
      operating
      expenses, net    $80,648   $(17,894)  $210,078    $(2,383)    $270,449


                             Year Ended December 31, 2005
                          As        Stock-   Antitrust
                       Reported     Based    Litigation
                                Compensation  Related   Adjusted
                                    (in thousands)
  Expenses in accordance
   with GAAP

   Cost of revenue     $98,249        $--        $--    $98,249

  Operating expenses:
    Research and
     development       $70,731      $(100)       $--    $70,631
    Sales and
     marketing         130,515         --         --    130,515
    General and
     administrative     50,697        (28)   (21,490)    29,179
    Antitrust litigation
     benefit, net     (422,500)        --    422,500         --
    Total adjusted
     operating
     expenses, net   $(170,557)     $(128)  $401,010   $230,325


  (1) Includes acquisition related intangible amortization and the expense
       related to the conversion of WiderThan outstanding stock options to
       cash rights

                           Forward Looking Guidance

  A reconciliation of GAAP net income per diluted share guidance for the
  quarter ending March 31, 2007 and the full year ending December 31, 2007
  to adjusted net income per diluted share guidance is as follows:

                             Quarter Ending              Year Ending
                             March 31, 2007           December 31, 2007
                            Low         High          Low          High

  Net Income per diluted
   share in accordance
   with GAAP               $0.16        $0.18        $0.18        $0.23
   Stock-based compensation 0.03         0.03         0.16         0.14
   Conversion of WiderThan
    stock options to a
    cash equivalent         0.00         0.00         0.01         0.01
   Acquisition related
    intangible asset
    amortization            0.03         0.03         0.12         0.12
   Net benefit related to
    antitrust litigation:  (0.32)       (0.32)       (0.32)       (0.31)
   Tax impact of above
    proforma items          0.12         0.12         0.04         0.04
     Total adjusted
      net income           $0.02        $0.04        $0.19        $0.23


DATASOURCE: RealNetworks, Inc.



CONTACT:  media, Bill Hankes, [phone], or , or

investors, Roy Goodman, [phone], or , both of Real

Networks



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

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