Rhapsody Joint Venture

9 Months Ended

Sep. 30, 2014

Equity Method Investments and Joint Ventures [Abstract]

Rhapsody Joint Venture

Rhapsody Joint Venture

As of September 30, 2014 we owned approximately 45% of the issued and outstanding stock of Rhapsody and account for our investment using the equity method of accounting.

Rhapsody was initially formed in 2007 as a joint venture between RealNetworks and MTV Networks, a division of Viacom International Inc. (MTVN), to own and operate a business-to-consumer digital audio music service known as Rhapsody. Prior to March 31, 2010, we held a 51% interest in Rhapsody and MTVN owned the remaining 49%. On March 31, 2010, restructuring transactions involving Rhapsody were completed, and as a result, effective March 31, 2010 RealNetworks owned approximately 47% of Rhapsody. Subsequent to the restructuring transaction, we have accounted for our investment in Rhapsody using the equity method of accounting.

As part of the 2010 restructuring transactions, RealNetworks contributed $18.0 million in cash, the Rhapsody brand and certain other assets, including content licenses, in exchange for shares of convertible preferred stock of Rhapsody, carrying a $10.0 million preference upon certain liquidation events.

Subsequent to the 2010 restructuring transactions, RealNetworks provided certain operational transition services to Rhapsody. These transition services were completed in 2013, and RealNetworks has no further obligations or liabilities pursuant to the support services agreement.

We recorded our share of losses of Rhapsody of $1.5 million and $4.2 million for the quarter and nine months ended September 30, 2014, respectively. Because of the $10.0 million liquidation preference on the preferred stock we hold in Rhapsody, under the equity method of accounting we do not record any share of Rhapsody losses that would reduce our carrying value of Rhapsody, which is impacted by Rhapsody equity transactions, below $10.0 million, unless Rhapsody's book value is reduced below $10.0 million. The carrying value of our Rhapsody investment was $12.5 million as of December 31, 2013 and as of September 30, 2014 was $10.0 million.

Our share of the losses of Rhapsody for the quarter and nine months ended September 30, 2013 were $2.6 million and $6.2 million, respectively.

Summarized financial information for Rhapsody, which represents 100% of their financial information (in thousands):

	Quarters Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net revenue	$	44,148		$	35,190		$	128,578		$	103,831
Gross profit	7,739			7,800			24,730			24,412
Net loss	(7,965		)	(5,621		)	(14,312		)	(14,812		)