Fair Value Measurements

3 Months Ended

Sep. 30, 2020


Note 6			Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

The following tables present information about our financial assets that have been measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, and indicates the fair value hierarchy of the valuation inputs utilized to determine fair value (in thousands):


	Fair Value Measurements as of								Amortized Cost as of
	September 30, 2020								September 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	13,245	$	—	$	—	$	13,245	$	13,245






Restricted cash equivalents	3,500		1,130		—		4,630		4,630

Total assets	$	16,745	$	1,130	$	—	$	17,875	$	17,875
Liabilities:
Accrued and other current liabilities
Napster acquisition contingent consideration	$	—	$	—	$	12,400	$	12,400	N/A
Other long-term liabilities
Simple Agreements for Future Equity	—		—		2,106		2,106		N/A
Total liabilities	$	—	$	—	$	14,506	$	14,506	N/A


	Fair Value Measurements as of								Amortized Cost as of
	December 31, 2019								December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Cash	$	8,472	$	—	$	—	$	8,472	$	8,472
Money market funds	—		—		—		—		—


Total cash and cash equivalents	8,472		—		—		8,472		8,472




Restricted cash equivalents	3,500		1,380		—		4,880		4,880


Total assets	$	11,972	$	1,380	$	—	$	13,352	$	13,352
Liabilities:
Accrued and other current liabilities
Napster acquisition contingent consideration	$	—	$	—	$	2,800	$	2,800	N/A
Other long-term liabilities
Napster acquisition contingent consideration	—		—		9,800		9,800		N/A
Total liabilities	$	—	$	—	$	12,600	$	12,600	N/A

Restricted cash equivalents as of September 30, 2020 and December 31, 2019 relate to cash pledged as collateral against letters of credit in connection with lease agreements, and our Loan and Security Agreement ("Loan Agreement") requires us to maintain a minimum balance of $3.5 million unrestricted cash at the bank. See Note 8 Debt for additional details.

Accrued and other current liabilities as of September 30, 2020 includes the estimated fair value of the contingent consideration for the Napster acquisition, which was determined using a fair value measurement categorized within Level 3 of the fair value hierarchy. As discussed in Note 5 Acquisitions and Dispositions, this liability is adjusted quarterly to fair value through earnings. During the nine months ended September 30, 2020, we recorded the change in fair value of the contingent consideration of $0.2 million, as a decrease to the total liability on the consolidated balance sheet and as a reduction of general and administrative expenses on the consolidated statement of operations. The fair value as of September 30, 2020 is based on a range of possible outcomes as the final payout is currently uncertain due to contingent conditions required to be met for closing Napster's merger transaction with MelodyVR and various uncertainties regarding merger consideration allocation and valuation.

Scener is a RealNetworks subsidiary, which is developing a platform that transforms the experience of viewing video entertainment into a social, connected playground. As of September 30, 2020, RealNetworks owned approximately 82% of Scener's outstanding equity, and we consolidate its financial results into our financial statements. The financial results of the subsidiary are reported in our Consumer Media segment. In the third quarter of 2020, Scener received $2.1 million in cash in

return for issuing rights to investors for certain shares of Scener's capital stock contingent upon the occurrence of specific future capital raising events by Scener. The rights were each issued as a Simple Agreement for Future Equity ("SAFE Notes"). The future contingent events also contemplate the possibility of Scener having to pay back the original cash investment to each investor. Under the applicable accounting guidance, SAFE Notes are recorded as a liability on our consolidated financial statements within Other long-term liabilities and are required to be recorded at fair value each quarter. The fair value of the SAFE Notes as of September 30, 2020 was determined to be equal to the proceeds received.

Items Measured at Fair Value on a Non-recurring Basis

Certain of our assets and liabilities are measured at estimated fair value on a non-recurring basis, using Level 3 inputs. These instruments are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). During the nine months ended September 30, 2020 and 2019, we did not record any impairments on those assets required to be measured at fair value on a non-recurring basis.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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