10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2021

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 1-37745

		RealNetworks, Inc.
		(Exact name of registrant as specified in its charter)
Washington			91-1628146
(State of incorporation)			(I.R.S. Employer Identification Number)
1501 First Avenue South, Suite 600			98134
Seattle	,	Washington
(Address of principal executive offices)			(Zip Code)
		(206)	674-2700
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-Accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ☒

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.001 per share	RNWK	The NASDAQ Stock Market
Preferred Share Purchase Rights	RNWK	The NASDAQ Stock Market

The number of shares of the registrant’s Common Stock outstanding as of May 10, 2021 was 46,907,403.

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

	March 31, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	17,015	$	23,940
Trade accounts receivable, net of allowances of $630 and $629	12,469		10,229
Deferred costs, current portion	262		196
Investments	5,693		9,965
Prepaid expenses and other current assets	3,833		3,480
Total current assets	39,272		47,810
Equipment, software, and leasehold improvements, at cost:
Equipment and software	30,313		30,726
Leasehold improvements	2,745		2,776
Total equipment, software, and leasehold improvements	33,058		33,502
Less accumulated depreciation and amortization	31,381		31,631
Net equipment, software, and leasehold improvements	1,677		1,871
Operating lease assets	4,771		7,937
Restricted cash equivalents	1,630		1,630
Other assets	3,792		4,150
Deferred costs, non-current portion	71		74
Deferred tax assets, net	874		909
Goodwill	17,191		17,375
Total assets	$	69,278	$	81,756
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,448	$	2,750
Accrued and other current liabilities	15,230		17,850
Deferred revenue, current portion	2,302		2,122
Total current liabilities	20,980		22,722
Deferred revenue, non-current portion	35		45
Deferred tax liabilities, net	1,101		1,129
Long-term lease liabilities	6,098		6,837
Long-term debt	2,902		2,895
Other long-term liabilities	2,171		2,241
Total liabilities	33,287		35,869
Commitments and contingencies (Note 11)
Shareholders’ equity:
Preferred stock, $0.001 par value:
Series A: authorized 200 shares, no shares issued and outstanding	—		—
Series B: authorized 8,100 shares; issued and outstanding 8,065 shares in 2021 and 2020	8		8
Undesignated series: authorized 51,700 shares	—		—
Common stock, $0.001 par value, authorized 250,000 shares; issued and outstanding 38,653 shares in 2021 and 38,424 shares in 2020	38		38
Additional paid-in capital	656,800		655,606
Accumulated other comprehensive loss	(61,177)		(60,641)
Accumulated deficit	(559,310)		(548,862)
Total shareholders’ equity	36,359		46,149
Noncontrolling interests	(368)		(262)
Total equity	35,991		45,887
Total liabilities and equity	$	69,278	$	81,756

See accompanying notes to unaudited condensed consolidated financial statements.

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REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Quarter Ended March 31,
	2021		2020
Net revenue	$	15,888	$	16,822
Cost of revenue	3,679		4,104
Gross profit	12,209		12,718
Operating expenses:
Research and development	6,238		6,606
Sales and marketing	5,137		6,000
General and administrative	4,898		5,161
Fair value adjustments to contingent consideration liability	(1,040)		(300)
Restructuring and other charges	3,171		86
Total operating expenses	18,404		17,553
Operating loss	(6,195)		(4,835)
Other income (expenses):
Interest expense	(95)		—
Interest income	13		6
Loss on equity and other investments, net	(4,272)		—
Other income, net	104		238
Total other income (expenses), net	(4,250)		244
Loss from continuing operations before income taxes	(10,445)		(4,591)
Income tax expense	109		25
Net loss from continuing operations	(10,554)		(4,616)
Net loss from discontinued operations, net of tax	—		(73)
Net loss	(10,554)		(4,689)
Net loss attributable to noncontrolling interests of continuing operations	(106)		(53)
Net income (loss) attributable to noncontrolling interests of discontinued operations	—		6
Net loss attributable to RealNetworks	$	(10,448)	$	(4,642)
Net loss from continuing operations attributable to RealNetworks	$	(10,448)	$	(4,563)
Net loss from discontinued operations attributable to RealNetworks	—		(79)
Net loss attributable to RealNetworks	$	(10,448)	$	(4,642)
Net loss per share attributable to RealNetworks- Basic:
Continuing operations	$	(0.27)	$	(0.12)
Discontinued operations	—		—
Total net loss per share - Basic	$	(0.27)	$	(0.12)
Net loss per share attributable to RealNetworks- Diluted:
Continuing operations	$	(0.27)	$	(0.12)
Discontinued operations	—		—
Total net loss per share - Diluted	$	(0.27)	$	(0.12)
Shares used to compute basic net loss per share	38,502		38,229
Shares used to compute diluted net loss per share	38,502		38,229

See accompanying notes to unaudited condensed consolidated financial statements.

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REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

	Quarter Ended March 31,
	2021		2020
Net loss	$	(10,554)	$	(4,689)
Comprehensive loss:
Foreign currency translation adjustments	(536)		(907)
Total other comprehensive loss	(536)		(907)
Comprehensive loss including noncontrolling interests	(11,090)		(5,596)
Comprehensive loss attributable to noncontrolling interests	(106)		(47)
Comprehensive loss attributable to RealNetworks	$	(10,984)	$	(5,549)

See accompanying notes to unaudited condensed consolidated financial statements.

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REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net loss from continuing operations	$	(10,554)	$	(4,616)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization	204		280
Stock-based compensation	836		380
Loss on equity and other investments, net	4,272		—
Foreign currency gain	(103)		(210)
Fair value adjustments to contingent consideration liability	(1,040)		(300)
Loss on impairment of operating lease assets	2,461		—
Net change in certain operating assets and liabilities:
Trade accounts receivable	(2,319)		(693)
Prepaid expenses, operating lease and other assets	496		(453)
Accounts payable	727		66
Accrued, lease and other liabilities	(1,956)		(377)
Net cash used in operating activities- continuing operations	(6,976)		(5,923)
Net cash provided by operating activities- discontinued operations	—		1,299
Net cash used in operating activities	(6,976)		(4,624)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements	(56)		(80)
Net cash used in investing activities- continuing operations	(56)		(80)
Net cash used in investing activities- discontinued operations	—		(14)
Net cash used in investing activities	(56)		(94)
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options)	468		—
Proceeds from issuance of preferred stock	—		10,000
Tax payments from shares withheld upon vesting of restricted stock	(110)		—
Net cash provided by financing activities- continuing operations	358		10,000
Net cash used in financing activities- discontinued operations	—		(2,404)
Net cash provided by financing activities	358		7,596
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(251)		(637)
Net (decrease) increase in cash, cash equivalents and restricted cash	(6,925)		2,241
Cash, cash equivalents and restricted cash, beginning of period	25,570		22,179
Cash, cash equivalents and restricted cash end of period	18,645		24,420
Less: Cash, cash equivalents and restricted cash from discontinued operations	—		8,025
Cash, cash equivalents and restricted cash from continuing operations, end of period	$	18,645	$	16,395

See accompanying notes to unaudited condensed consolidated financial statements.

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REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

	Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Amount		Shares	Amount
Balances, January 1, 2020	—	$	—	38,227	$	38	$	644,070	$	(61,323)	$	(544,010)	$	38,775	$	(502)	$	38,273
Common stock issued for exercise of stock options and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock	—	—		4	—		—		—		—		—		—		—
Stock-based compensation	—	—		—	—		380		—		—		380		—		380
Foreign currency translation adjustments	—	—		—	—		—		(907)		—		(907)		—		(907)
Net loss	—	—		—	—		—		—		(4,642)		(4,642)		(47)		(4,689)
Issuance of Preferred B Stock	8,065	8		—	—		9,992		—		—		10,000		—		10,000
Balances, March 31, 2020	8,065	$	8	38,231	$	38	$	654,442	$	(62,230)	$	(548,652)	$	43,606	$	(549)	$	43,057

	Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Amount		Shares	Amount
Balances, January 1, 2021	8,065	$	8	38,424	$	38	$	655,606	$	(60,641)	$	(548,862)	$	46,149	$	(262)	$	45,887
Common stock issued for exercise of stock options and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock	—	—		229	—		358		—		—		358		—		358
Stock-based compensation	—	—		—	—		836		—		—		836		—		836
Foreign currency translation adjustments	—	—		—	—		—		(536)		—		(536)		—		(536)
Net loss	—	—		—	—		—		—		(10,448)		(10,448)		(106)		(10,554)
Balances, March 31, 2021	8,065	$	8	38,653	$	38	$	656,800	$	(61,177)	$	(559,310)	$	36,359	$	(368)	$	35,991

See accompanying notes to unaudited condensed consolidated financial statements.

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REALNETWORKS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Quarters Ended March 31, 2021 and 2020

Note 1. Description of Business and Summary of Significant Accounting Policies

Description of Business. RealNetworks provides digital media software and services to consumers, mobile carriers, device manufacturers, system integrators, and other businesses. Consumers use our digital media products and services to store, organize, play, manage and enjoy their digital media content, either directly from us or through our distribution partners. Over time, we have leveraged our technical expertise and access to proprietary data sources to develop a new generation of artificial intelligence (AI)-based products and solutions. The main two products and key investment initiatives in our AI portfolio are SAFR, our AI-based computer vision platform, and Kontxt, our natural language processing-based message classification and analysis product.

Rhapsody International, Inc. (doing business as Napster) was held-for-sale and treated as discontinued operations for accounting and disclosure purposes as of the third quarter of 2020. The sale of Napster was completed during the fourth quarter of 2020. The results of operations and cash flows for our discontinued operations have been segregated from the results of continuing operations and segment results, and Napster’s operating results were recast to conform to this presentation in 2020. The notes to the condensed consolidated financial statements, unless otherwise indicated, are on a continuing operations basis. See Note 5. Dispositions for additional details regarding the sale of Napster.

Inherent in our business are various risks and uncertainties, including a limited history of certain of our product and service offerings. RealNetworks' success will depend on the acceptance of our technology, products and services and the ability to generate related revenue and cash flow.

In this Quarterly Report on Form 10-Q (10-Q or Report), RealNetworks, Inc., together with its subsidiaries, is referred to as "RealNetworks," the "Company," "we," "us," or "our." "RealPlayer," "RMHD," "RealMedia," "GameHouse," "Kontxt," "SAFR" and other trademarks of ours appearing in this report are our property.

Basis of Presentation. The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries in which it has a more than 50% voting interest. Noncontrolling interests primarily represent third-party ownership in the equity of Napster and Scener Inc. ("Scener") and are reflected separately in the Company's financial statements. Intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the periods presented. Operating results for the quarter ended March 31, 2021 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ending December 31, 2021. Certain information and disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

Liquidity and Capital Resources. The Company continues to incur operating losses from continuing operations, including net operating losses of $6.2 million and $4.8 million for the quarters ended March 31, 2021 and 2020, respectively. The Company had an accumulated deficit of $559.3 million and $548.9 million as of March 31, 2021 and December 31, 2020, respectively. The Company believes that its cash and cash equivalents of $17.0 million as of March 31, 2021, as well as the unused capacity of its revolving line of credit are adequate to fund the Company's operations for at least one year from the date these financial statements were issued. Additionally, in April 2021, we received net proceeds of approximately $20.3 million from the completion of an equity offering, as described in Note 14. Subsequent Events,

Risks and Uncertainties. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus that causes COVID-19 to be a global pandemic. As the virus spread throughout the U.S. and the world, authorities implemented numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, business limitations, and shutdowns. In addition to the pandemic's widespread impact on public health and global society, reactions to the pandemic as well as measures taken to contain the virus have caused significant turmoil to the global economy and financial markets. Moreover, similar to other companies, we have taken steps to support the health and well-being of our employees, customers, partners and communities, which include working remotely and learning to operate our businesses in a fundamentally different way.

The COVID-19 pandemic and the resultant economic instability and financial market turmoil has added complexity, uncertainty and risk to nearly all aspects of our business. It is difficult to predict the near-term and long-term impacts that the pandemic will have on our results from operations, financial condition, liquidity and cash flows. In the preparation of our financial statements, certain estimates and assumptions regarding these impacts have been made, which could change in future periods and which could differ from actual outcomes.

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Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the 10-K).

Note 2. Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In August 2020, the Financial Accounting Standards Board ("FASB") issued new guidance that simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. The guidance enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. It is effective for annual reporting periods beginning after December 15, 2023, with early adoption permitted. This update permits the use of either the modified retrospective or fully retrospective method of transition. We are in the process of evaluating the effect that this new guidance will have on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued new guidance simplifying the test for goodwill impairment. The new guidance eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the reporting unit's carrying amount exceeds the reporting unit's fair value. This guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2022, with early adoption permitted. We do not currently expect the adoption to have a material impact on our consolidated financial statements and related disclosures.

In June 2016, the FASB issued new guidance amending existing guidance for the accounting of credit losses on financial instruments. Under the new guidance, the valuation allowance for credit losses is expected to be incurred over the financial asset’s contractual term. We reviewed the new credit loss standard and determined that it applies to our accounts receivable, which are typically of short duration and for which we have not historically experienced significant credit losses. This guidance is effective for us in fiscal years beginning after December 15, 2022 with any cumulative effect of adoption recorded as an adjustment to retained earnings. We are in the process of evaluating the effect that this new guidance will have on our consolidated financial statements and related disclosures.

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Note 3. Revenue Recognition

We generate all of our revenue through contracts with customers. Revenue is either recognized over time as the service is provided, or at a point in time when the product is transferred to the customer, depending on the contract type. Our performance obligations typically have an original duration of one year or less.

Disaggregation of Revenue

The following table presents our disaggregated revenue by source and segment (in thousands):

	Quarter Ended March 31, 2021
	Consumer Media		Mobile Services		Games
Business Line
Software License	$	1,875	$	1,391	$	—
Subscription Services	818		4,589		2,528
Product Sales	438		—		3,163
Advertising and Other	178		—		908
Total	$	3,309	$	5,980	$	6,599
	Quarter Ended March 31, 2020
	Consumer Media		Mobile Services		Games
Business Line
Software License	$	2,020	$	831	$	—
Subscription Services	929		5,859		2,770
Product Sales	222		—		2,978
Advertising and Other	324		—		889
Total	$	3,495	$	6,690	$	6,637

The following table presents our disaggregated revenue by sales channel (in thousands):

	Quarter Ended March 31, 2021
	Consumer Media		Mobile Services		Games
Sales Channel
Business to Business	$	2,053	$	5,885	$	1,061
Direct to Consumer	1,256		95		5,538
Total	$	3,309	$	5,980	$	6,599
	Quarter Ended March 31, 2020
	Consumer Media		Mobile Services		Games
Sales Channel
Business to Business	$	2,343	$	6,584	$	1,095
Direct to Consumer	1,152		106		5,542
Total	$	3,495	$	6,690	$	6,637

Contract Balances

The timing of revenue recognition may differ from the timing of invoicing to our customers. We record accounts receivable when the right to consideration becomes unconditional, except for the passage of time. For certain contracts, payment schedules may exceed one year; for those contracts we recognize a long-term receivable. As of March 31, 2021 and December 31, 2020, our balance of long-term accounts receivable was $0.4 million and $0.6 million, respectively, and is included in other long-term assets on our condensed consolidated balance sheets. The decrease in this balance from December 31, 2020 to March 31, 2021 is primarily due to the timing of expected cash receipts. During the quarter ended March 31, 2021, we recorded no impairments to our contract assets.

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We record deferred revenue when cash payments are received in advance of our completion of the underlying performance obligation. As of March 31, 2021 and December 31, 2020, we had a deferred revenue balance of $2.3 million and $2.2 million, respectively, primarily due to deferred revenue associated with monthly subscriptions.

Judgments and Estimates

Our contracts with customers can include obligations to provide multiple services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together can require significant judgment. For example, certain contracts include the sale of software licenses or subscriptions as well as services to be delivered over time. Judgment is also required to determine the standalone selling price ("SSP") for each distinct performance obligation in these arrangements. We allocate revenue to each performance obligation based on the relative SSP. We determine SSP for performance obligations based on overall pricing objectives, which take into consideration observable prices and market conditions.

For certain of our contracts, we recognize revenues using the sales- and usage-based exception as defined in the licensing guidance of Topic 606. For these contracts, we typically receive reporting of actual usage a quarter in arrears, and as such, we are required to estimate the current quarter's usage. To make these estimates, we utilize historical reporting information, as well as industry trends and interim reporting to quantify total quarterly usage. As actual usage information is received, we record a true-up in the following quarter to reflect any variance from our estimate. In the three months ended March 31, 2021 and 2020, we did not record any material true-ups to our consolidated financial statements.

Practical Expedients

For those contracts for which we recognize revenue at the amount to which we have the right to invoice for service performed, we do not disclose the value of any unsatisfied performance obligations. We also do not disclose the remaining unsatisfied performance obligations which have an original duration of one year or less. Additionally, we immediately expense sales commissions when incurred as the amortization period would have been less than one year. These costs are recorded within sales and marketing expense.

Note 4. Stock-Based Compensation

Total stock-based compensation expense recognized in our unaudited condensed consolidated statements of operations and comprehensive income (loss) includes amounts related to stock options and restricted stock and was as follows (in thousands):

	Quarter Ended March 31,
	2021		2020
Total stock-based compensation expense	$	836	$	380

The fair value of RealNetworks options granted determined using the Black-Scholes model used the following weighted-average assumptions:

	Quarter Ended March 31,
	2021		2020
Expected dividend yield	0	%	0	%
Risk-free interest rate	0.48	%	0.90	%
Expected life (years)	3.9		4.0
Volatility	71	%	45	%

The total stock-based compensation amounts for 2021 and 2020 disclosed above are recorded in their respective line items within operating expenses in the unaudited condensed consolidated statements of operations and comprehensive income (loss). Included in the expense for three months ended March 31, 2021 was stock compensation recorded for 2020 incentive bonuses paid in fully vested restricted stock units, which were authorized and granted during the first quarter of 2021.

As of March 31, 2021, there was $3.0 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock awards. The unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately three years.

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Note 5. Dispositions

RealNetworks, Inc. entered into a Support Agreement dated August 25, 2020 by and among its 84%-owned subsidiary, Rhapsody International, Inc. (doing business as Napster), and MelodyVR Group PLC, an English public limited company. The Support Agreement was executed in connection with an Agreement and Plan of Merger by and among Napster, MelodyVR, and a wholly owned subsidiary of MelodyVR. The transaction was completed on December 30, 2020. Pursuant to the Merger Agreement, on the closing date, MelodyVR's subsidiary merged with and into Napster, with Napster surviving and becoming a wholly owned subsidiary of MelodyVR. Other than as Securityholder Representative, RealNetworks is not a party to the Merger Agreement.

MelodyVR paid consideration of approximately $26 million to certain holders of debt and equity of Napster, comprised of $12 million in cash, shares of MelodyVR, and a $3 million 18-month indemnity escrow. Of the cash consideration, approximately $5.3 million was used to fully repay the advance to Napster on the revolving line of credit, pay Napster's transaction expenses, and pay amounts to certain of Napster's common stockholders. Additionally, $2.5 million of the cash proceeds were used and 47.8 million MelodyVR shares are to be used by RealNetworks to settle a contingent consideration obligation associated with our January 2019 acquisition from a third party of both a 42% stake in Napster and a $5 million loan to Napster. Net of these items, RealNetworks retained approximately $4.2 million in cash and 173.3 million shares of MelodyVR, as well as the right to any funds released from the $3 million escrow account. The shares of MelodyVR that RealNetworks received may not be sold or transferred, except in limited circumstances, for a period of approximately one year from the close of the transaction.

In March 2021, MelodyVR changed its name to Napster Group PLC (the "Napster Group") and the stock symbol was changed from MVR to NAPS.

Effective on the execution of the Agreement and Plan of Merger on August 25, 2020, Napster was treated as discontinued operations and held-for-sale for accounting and disclosure purposes and subsequently sold in December 2020. As such, Napster’s operating results were recast to conform to this presentation.

The following table summarizes the loss from discontinued operations for the quarter ended March 31, 2020:

Revenue	$	26,323
Cost of revenue	20,072
Gross profit	6,251
Operating expenses	6,504
Operating loss	(253)
Other income	294
Income from discontinued operations before income taxes	41
Income tax expense	114
Net loss from discontinued operations	(73)
Noncontrolling interests in net income from discontinued operations	6
Net loss from discontinued operations attributable to RealNetworks	$	(79)

The 18-month indemnity escrow, which is included in Other assets on the condensed consolidated balance sheets, was reduced from $3.0 million to $2.8 million during the quarter ended March 31, 2021. We are not aware of any additional claims against the escrow at March 31, 2021.

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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 March 31, 2021 and December 31, 2020, 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
	March 31, 2021								March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	17,015	$	—	$	—	$	17,015	$	17,015
Investments	—		—		5,693		5,693		N/A
Restricted cash equivalents	1,630		—		—		1,630		1,630
Total assets	$	18,645	$	—	$	5,693	$	24,338	N/A
Liabilities:
Accrued and other current liabilities
Napster acquisition contingent consideration	$	—	$	—	$	3,760	$	3,760	N/A
Other long-term liabilities
Simple Agreements for Future Equity	—		—		2,106		2,106		N/A
Total liabilities	$	—	$	—	$	5,866	$	5,866	N/A

	Fair Value Measurements as of								Amortized Cost as of
	December 31, 2020								December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	23,940	$	—	$	—	$	23,940	$	23,940
Investments	—		—		9,965		9,965		N/A
Restricted cash equivalents	1,630		—		—		1,630		1,630
Total assets	$	25,570	$	—	$	9,965	$	35,535	N/A
Liabilities:
Accrued and other current liabilities
Napster acquisition contingent consideration	$	—	$	—	$	4,800	$	4,800	N/A
Other long-term liabilities
Simple Agreements for Future Equity	—		—		2,106		2,106		N/A
Total liabilities	$	—	$	—	$	6,906	$	6,906	N/A

Restricted cash equivalents as of March 31, 2021 and December 31, 2020 primarily relate to maintaining a minimum balance of unrestricted cash at the bank. See Note 8. Debt for additional details.

Investments as of March 31, 2021 and December 31, 2020 are comprised of Napster Group ordinary shares received as a portion of the consideration from the Napster disposition, which closed on December 30, 2020. The fair value of these equity securities was calculated using the closing price of the shares as of March 31, 2021 and December 31, 2020 and discounted for a lack of liquidity due to the 12-month contractual restriction on selling or transferring the shares, subject to certain exceptions. The determination of the discount required the use of significant unobservable inputs, such as the lock-up period combined with an estimated equity volatility for the shares, that reflect our own estimates of assumptions that market participants would use. A 10% increase or decrease to the equity volatility rate could result in a $0.1 million decrease or increase, respectively, in the fair value of the stock. For the three months ended March 31, 2021, we recognized unrealized losses of $4.3 million in Loss on equity and other investments, net on the condensed consolidated statements of operations.

Accrued and other current liabilities as of March 31, 2021 and December 31, 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. The valuation methodology of the contingent consideration at March 31, 2021 and December 31, 2020 was based on RealNetworks' contractual obligation to pay the seller of the Napster interests acquired by RealNetworks in January 2019. In April 2021, the Company and the seller agreed on the form of final payment of the

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contingent consideration, resulting in a cash payment of $2.5 million and the transfer of 47.8 million ordinary shares of Napster Group, valued at the December 2020 Napster sale closing date, discounted for a lack of liquidity due to the restriction on selling or transferring the shares. The change in the share price of the Napster Group ordinary shares from the sale closing date to the settlement date resulted in a fair value adjustment to the contingent consideration. During the three months ended March 31, 2021, the Company recognized a gain of $1.0 million in Fair value adjustments to contingent consideration liability on the condensed consolidated statements of operations.

In the third quarter of 2020, Scener, our non-wholly owned subsidiary, received $2.1 million in cash in exchange for the issuance of convertible securities, each a Simple Agreement for Future Equity. The conversion of these securities, or SAFE Notes, is contingent upon the occurrence of specific future capital-raising events by Scener. The future contingent events also contemplate the possibility of Scener having to pay back the original cash investment to each investor. The 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 valuation analysis model for the fair value of the SAFE Notes as of March 31, 2021 and December 31, 2020 used significant unobservable inputs that reflect our own estimates of assumptions that market participants would use. There has been no significant change in the estimated fair value since the issuance in the third quarter of 2020. Significant unobservable inputs to the valuation analysis model include the underlying conversion date for the SAFE Notes, Scener's capitalization prior to conversion of the SAFE Notes, an 80% discount rate as defined in the SAFE Note agreements, conversion price, conversion shares and an annual present value rate. All of the inputs are subject to significant judgment. Based on Scener's outstanding shares, without regard to potential dilution by the SAFE Notes or any other convertible securities, RealNetworks owns 82% of Scener. See Note 13. Related Party Transactions for additional discussion of Scener.

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 three months ended March 31, 2021 and 2020, we did not record any impairments on those assets required to be measured at fair value on a non-recurring basis.

Note 7. Accrued and other current liabilities

Accrued and other current liabilities (in thousands):

	March 31, 2021		December 31, 2020
Royalties and other fulfillment costs	$	1,173	$	1,149
Employee compensation, commissions and benefits	3,626		4,512
Sales, VAT and other taxes payable	1,302		1,231
Operating lease liabilities	3,127		3,373
Napster acquisition contingent consideration	3,760		4,800
Other	2,242		2,785
Total accrued and other current liabilities	$	15,230	$	17,850

Note 8. Debt

The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law in March 2020, established the Paycheck Protection Program (PPP) to provide a direct incentive for small businesses to keep workers on their payroll. Through the PPP, participating banks write loans to eligible businesses and loan amounts are forgiven to the extent that employee retention criteria are met and proceeds are used to cover eligible costs over a 24-week measurement period following loan funding. In April 2020, following an assessment of eligibility and approval of its Board of Directors, RealNetworks issued a promissory note to a participating bank in the principal amount of $2.9 million pursuant to the PPP. The note has a maturity of 2 years, an interest rate of 1.0%, no pre-payment penalty, a ten-month deferment period starting after the 24-week measurement period, and is eligible for forgiveness pursuant to PPP guidelines. In April 2020, the Secretary of the Treasury and Small Business Administration (SBA) announced that the government will review all PPP loans of more than $2.0 million before there is forgiveness. We applied for forgiveness in January 2021. No assurance can be given that we will be granted forgiveness for the PPP loan. The PPP loan will be derecognized upon confirmation of forgiveness from the SBA and/or upon repayment of the loan in accordance with its terms.

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In August 2019, RealNetworks and Napster entered into a Loan and Security Agreement (Loan Agreement) with a third-party financial institution. Under the terms of the Loan Agreement, the bank extended a revolving line of credit (Revolver) not to exceed $10.0 million in the aggregate. In December 2020, at the time of closing the sale of Napster, as further described in Note 5. Dispositions, certain terms of the Loan Agreement were amended, including the removal of Napster as a party to the lending agreement.

In February 2021, we entered into an amendment with the bank on our Revolver, whereby the borrowing base for the Revolver is comprised of accounts receivable and direct to consumer deposits for RealNetworks only. Borrowings may not exceed $6.5 million and are reduced by a $1.0 million standby letter of credit entered into with the bank in connection with certain lease agreements. Advances bear interest at a rate equal to one-half of one percentage point (0.5%) above the greater of the prime rate or 3.25%. The Revolver matures August 1, 2022. The Loan Agreement contains customary covenants, including financial covenants, minimum EBITDA levels to be updated annually, and maintaining a minimum balance of $1.5 million unrestricted cash at the bank. We are in the process of negotiating the customary covenants for 2021, and we do not expect the resulting revisions to have a material effect on the Loan Agreement.

We paid and capitalized $0.6 million of financing fees to enter into the Revolver in August 2019, and the financing fees are being amortized over the term of the credit agreement. The unamortized fees were $0.1 million at March 31, 2021 and are included in Deferred costs, current on our condensed consolidated balance sheets.

Note 9. Restructuring Charges

Restructuring and other charges in 2021 and 2020 consist of costs associated with the ongoing reorganization of our business operations and expense re-alignment efforts, which primarily relate to lease impairment and severance costs due to workforce reductions.

Restructuring charges are as follows (in thousands):

	Employee Separation and Other Costs		Asset Related and Other Costs		Total
Costs incurred and charged to expense for the three months ended March 31, 2021	$	581	$	2,590	$	3,171
Costs incurred and charged to expense for the three months ended March 31, 2020	$	86	$	—	$	86

During the quarter ended March 31, 2021, we recorded $2.5 million of lease impairment charges for an office space previously vacated.

Changes to the accrued restructuring liability (which is included in Accrued and other current liabilities) for 2021 are as follows (in thousands):

	Employee Separation Costs
Accrued liability at December 31, 2020	$	346
Costs incurred and charged to expense for the three months ended March 31, 2021, excluding noncash charges	362
Cash payments	(224)
Accrued liability at March 31, 2021	$	484

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Note 10. Loss Per Share

Basic net income (loss) per share (EPS) is computed by dividing net income (loss) attributable to RealNetworks by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) attributable to RealNetworks by the weighted average number of common and dilutive potential common shares outstanding during the period. Basic and diluted EPS (in thousands, except per share amounts):

	Quarter Ended March 31,
	2021		2020
Net loss from continuing operations attributable to RealNetworks	$	(10,448)	$	(4,563)
Net loss from discontinued operations attributable to RealNetworks	—		(79)
Net loss attributable to RealNetworks	$	(10,448)	$	(4,642)
Weighted average common shares outstanding used to compute basic EPS	38,502		38,229
Dilutive effect of stock based awards and Series B Preferred Stock	—		—
Weighted average common shares outstanding used to compute diluted EPS	38,502		38,229
Net loss per share attributable to RealNetworks- Basic:
Continuing operations	$	(0.27)	$	(0.12)
Discontinued operations	—		—
Total net loss per share - Basic	$	(0.27)	$	(0.12)
Net loss per share attributable to RealNetworks- Diluted:
Continuing operations	$	(0.27)	$	(0.12)
Discontinued operations	—		—
Total net loss per share - Diluted	$	(0.27)	$	(0.12)

During the quarters ended March 31, 2021 and 2020, 4.5 million and 7.9 million shares of common stock, respectively, of potentially issuable shares from common stock awards were excluded from the calculation of diluted EPS because of their antidilutive effect.

During 2020, approximately 8.1 million shares of Series B Preferred Stock were issued. The Series B Preferred Stock is convertible into common stock on a one-to-one basis subject to the limitation described in Note 13. Related Party Transactions. During the quarters ended March 31, 2021 and 2020, these shares were also excluded from the calculation of diluted EPS because of their antidilutive effect.

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Note 11. Commitments and Contingencies

We have been in the past and could become in the future subject to legal proceedings, governmental investigations, and claims in the ordinary course of business, including employment claims, contract-related claims, and claims of alleged infringement of third-party patents, trademarks, and other intellectual property rights. Such claims, even if not meritorious, could force us to expend significant financial and managerial resources. In addition, given the broad distribution of some of our consumer products, any individual claim related to those products could give rise to liabilities that may be material to us. In the event of a determination adverse to us, we may incur substantial monetary liability, and/or be required to change our business practices. Either of these could have a material adverse effect on our consolidated financial statements.  

On April 6, 2020, RealNetworks Asia Pacific Co., Ltd. received notice of a civil lawsuit filed by Korean Music Copyright Association (KOMCA) seeking damages of $2.6 million. Also named as a defendant in the lawsuit is Kakao M Corp (formerly known as LOEN Entertainment Corp.), one of the largest media publishing companies in Korea, which operates the Melon music platform. The claim is for a late payment penalty under a music licensing contract, pursuant to which, from 2004 to 2017, RealNetworks licensed music for its services to LOEN for its Melon platform. The current lawsuit relates solely to the late payment of music licensing fees under the contract; the underlying music licensing fees were paid by Kakao M to KOMCA in a separate settlement prior to KOMCA’s filing of this lawsuit. While we believe we have meritorious defenses to this lawsuit and intend to vigorously defend RealNetworks, litigation is inherently uncertain and we cannot predict the outcome of this matter. We have not recorded an accrual related to this matter as of March 31, 2021 as it is early in the litigation and any potential liability cannot be reasonably estimated.

Note 12. Segment Information

We manage our business and report revenue and operating income (loss) in three segments: (1) Consumer Media, which includes licensing of our codec technology and our PC-based RealPlayer products, including RealPlayer Plus and related products; (2) Mobile Services, which includes our SaaS services, our integrated RealTimes® platform which is sold to mobile carriers and our computer vision platform, SAFR (Secure Accurate Facial Recognition); and (3) Games, which includes all our games-related businesses, including sales of in-game virtual goods, mobile games and games licenses, games subscription services, and in-game advertising and advertising on game sites.

RealNetworks allocates to its Consumer Media, Mobile Services and Games reportable segments certain corporate expenses which are directly attributable to supporting these businesses, including but not limited to a portion of finance, legal, human resources and headquarters facilities. Remaining expenses, which are not directly attributable to supporting these businesses, are reported as corporate items. These corporate items may also include changes in the fair value of the contingent consideration liability, restructuring charges, and stock compensation charges.

RealNetworks reports three reportable segments based on factors such as how we manage our operations and how the Chief Operating Decision Maker (CODM) reviews results. The CODM reviews financial information presented on both a consolidated basis and on a business segment basis. The accounting policies used to derive segment results are the same as those described in Note 1, Description of Business and Summary of Significant Accounting Policies, in the 2020 10-K.

Segment results for the quarters ended March 31, 2021 and 2020 (in thousands):

Consumer Media	Quarter Ended March 31,
	2021		2020
Revenue	$	3,309	$	3,495
Cost of revenue	478		611
Gross profit	2,831		2,884
Operating expenses	2,201		2,458
Operating income	$	630	$	426

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Mobile Services	Quarter Ended March 31,
	2021		2020
Revenue	$	5,980	$	6,690
Cost of revenue	1,492		1,696
Gross profit	4,488		4,994
Operating expenses	6,145		7,588
Operating loss	$	(1,657)	$	(2,594)

Games	Quarter Ended March 31,
	2021		2020
Revenue	$	6,599	$	6,637
Cost of revenue	1,705		1,794
Gross profit	4,894		4,843
Operating expenses	5,098		4,923
Operating loss	$	(204)	$	(80)

Corporate	Quarter Ended March 31,
	2021		2020
Cost of revenue	$	4	$	3
Operating expenses	4,960		2,584
Operating loss	$	(4,964)	$	(2,587)

Our customers consist primarily of consumers and corporations located in the U.S., Europe, and various foreign countries (Rest of the World). Revenue by geographic region (in thousands):

	Quarter Ended March 31,
	2021		2020
United States	$	9,932	$	10,214
Europe	2,230		2,252
Rest of the World	3,726		4,356
Total net revenue	$	15,888	$	16,822

Long-lived assets (consisting of equipment, software, leasehold improvements, operating lease assets, and goodwill) by geographic region (in thousands) are as follows:

	March 31, 2021		December 31, 2020
United States	$	15,426	$	18,318
Europe	7,159		7,638
Rest of the World	1,054		1,227
Total long-lived assets	$	23,639	$	27,183

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Note 13. Related Party Transactions

The sale of Napster closed on December 30, 2020. For additional details, see Note 5. Dispositions.

In February 2020, we entered into a Series B Preferred Stock Purchase Agreement with Mr. Glaser, Chairman of the Board and Chief Executive Officer of RealNetworks, pursuant to which Mr. Glaser invested approximately $10.0 million in RealNetworks in exchange for the issuance to him of 8,064,516 shares of Series B Preferred Stock. The Series B Preferred Stock is non-voting and is convertible into common stock on a one-to-one basis, provided, however, that no conversion is permitted in the event that such conversion would cause Mr. Glaser’s beneficial ownership of our common stock to exceed the 38.5% threshold set forth in our Second Amended and Restated Shareholder Rights Plan dated November 30, 2018. The Series B Preferred Stock has no liquidation preference and no preferred dividend.

In July 2020, Mr. Glaser invested $0.7 million into a RealNetworks subsidiary, Scener. Scener is developing a platform that transforms the experience of viewing video entertainment into a social connected playground. The July 2020 funding was in addition to $0.8 million that Mr. Glaser had previously directly invested in 2019. In August 2020, this same subsidiary entered into agreements and received $1.4 million in funding from outside investors. The 2020 investments were in the form of SAFEs, as described in Note 6. Fair Value Measurements. As of March 31, 2021, RealNetworks owned approximately 82% of the subsidiary'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.

Note 14. Subsequent Events

In April 2021, we completed an underwritten public offering of 8,250,000 shares of common stock at a price to the public of $2.70 per share. The aggregate gross proceeds from the offering were $22.3 million. Of these proceeds, we received approximately $20.3 million, after deducting underwriting discounts, commissions, and legal and other fees. The proceeds are expected to be used for general corporate purposes and working capital.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about RealNetworks’ industry, products, management’s beliefs, and certain assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. All statements contained in this report that do not relate to matters of historical fact should be considered forward-looking statements. Forward-looking statements include statements with respect to:

•the expected benefits and other consequences of our growth plans, strategic initiatives, and restructurings;

•our expected introduction, and related monetization, of new and enhanced products, services and technologies across our businesses;

•future revenues, operating expenses, income and other taxes, tax benefits, net income (loss) per diluted share available to common shareholders, acquisition costs and related amortization, and other measures of results of operations;

•the effects of our past acquisitions, including our January 2019 acquisition of a controlling interest in Napster and subsequent sale of our entire Napster interest in December 2020, and expectations for future acquisitions and divestitures;

•plans, strategies and expected opportunities for future growth, increased profitability and innovation;

•our expected financial position, including liquidity, cash usage and conservation, the availability of funding or other resources, and the potential for forgiveness of certain loans;

•the effects of legislation, regulations, administrative proceedings, court rulings, settlement negotiations and other factors that may impact our businesses;

•the continuation and expected nature of certain customer relationships;

•impacts of competition and certain customer relationships on the future financial performance and growth of our businesses;

•our involvement in potential claims, legal proceedings and government investigations, and the potential outcomes and effects of such potential claims, legal proceedings and governmental investigations on our business, prospects, financial condition or results of operations;

•the effects of U.S. and foreign income and other taxes on our business, prospects, financial condition or results of operations; and

•the effect of economic and market conditions, including global pandemics and financial crises, on our business, prospects, financial condition or results of operations.

These statements are not guarantees of future performance and actual actions or results may differ materially. These statements are subject to certain risks, uncertainties and assumptions that are difficult to predict, including those noted in the documents incorporated herein by reference. Particular attention should also be paid to the cautionary language in Item 1A entitled “Risk Factors.” RealNetworks undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise, unless required by law. Readers should, however, carefully review the risk factors included in other reports or documents filed by RealNetworks from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

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Overview

Our Business

RealNetworks invented the streaming media category in 1995 and continues to build on its foundation of digital media expertise and innovation. In recent years, we have leveraged our technical expertise and access to proprietary data sources to develop a new generation of AI-based products and solutions. These products and solutions are designed to help customers be safer and smarter, and for their companies to be more efficient and more successful. The main two products and key investment initiatives in our AI portfolio are SAFR, our AI-based computer vision platform, and Kontxt, our natural language processing-based (NLP) message classification and analysis product.

SAFR leverages the power of AI to enhance security and convenience for our customers around the globe with fast, accurate, low-biased face recognition and additional person- and object-based AI capabilities. Kontxt is based on AI NLP analysis, allowing our customers to analyze and classify multiple billions of messages monthly in real time in order to protect end consumers from spam and fraud. Our focus on AI-based products and our data science resources allows us to be agile, continuously evolving, and rapidly creating new solutions to solve customers’ problems.

In addition to our AI solutions, our consumer products also feature GameHouse Original Stories, a unique IP portfolio of free-to-play and subscription mobile games, used by millions of players. Our consumer products also include ringback tones, which we sell to consumers through mobile operators, and the renowned RealPlayer, which introduced streaming to the world in 1995 and today provides millions of people worldwide a powerful way to stream, download, store, organize, and experience the rapidly expanding universe of digital media content. We also create video compression and enhancement technology, which we primarily license to OEMs, including manufacturers of mobile devices, smart TVs, and set-top boxes.

Our Segments

We manage our business and report revenue and operating income (loss) in three segments: (1) Consumer Media (2) Mobile Services, and (3) Games.

Within our Consumer Media segment, revenue is derived from the software licensing of our video compression and enhancement, or codec, technologies, including primarily from our prior-generation codec RealMedia Variable Bitrate, or RMVB, and to a lesser extent our newer codec technology, RealMedia High Definition, or RMHD. We also generate revenue from the sale of our PC-based RealPlayer products, including RealPlayer Plus and related products. These products and services are delivered directly to consumers and through partners, such as OEMs and mobile device manufacturers.

Our Mobile Services business generates revenue primarily from the sale of subscription services, which include our intercarrier messaging service and ringback tones, as well as through software licenses for the integration of our RealTimes platform and certain system implementations. We generate a significant portion of our revenue from sales within our Mobile Services business to a few mobile carriers. Our Mobile Services segment also includes our AI-based growth initiatives, SAFR and Kontxt.

Our Games business generates revenue primarily through the development, publishing, and distribution of casual games under the GameHouse and Zylom brands. Games are offered via mobile devices, digital downloads, and subscription play. We derive revenue from player purchases of in-game virtual goods within our free-to-play games and from advertising on games sites. In addition, we derive revenue from the sale of individual games and subscription offerings.

RealNetworks allocates to its Consumer Media, Mobile Services, and Games reportable segments certain corporate expenses which are directly attributable to supporting these businesses, including but not limited to a portion of finance, IT, legal, human resources and headquarters facilities. Remaining expenses, which are not directly attributable to supporting these businesses, are reported as corporate items. These corporate items may also include restructuring charges and stock compensation expense.

COVID-19

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus that causes COVID-19 to be a global pandemic. As the virus spread throughout the U.S. and the world, authorities implemented numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, business limitations, and shutdowns. In addition to the pandemic's widespread impact on public health and global society, reactions to the pandemic as well as measures taken to contain the virus caused significant turmoil to the global economy and financial markets. Similar to other companies, at the onset of the pandemic we implemented measures to support the health and well-being of our employees, customers, partners and communities, including working remotely and learning to operate our businesses in a fundamentally different way.

The COVID-19 pandemic and the resultant economic instability and financial market turmoil added complexity, uncertainty and risk to nearly all aspects of our business. As a result of the pandemic, we reevaluated our operating plans,

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causing some significant pivots in 2020 for our growth initiatives, and we continue to assess our plans as the pandemic environment evolves. Moreover, as we continue to operate our business as efficiently as possible, we have taken steps to more aggressively reduce costs and reallocate resources. We are unable to fully predict the impacts that the COVID-19 pandemic will continue to have on our results from operations, financial condition, liquidity and cash flows for the remainder of fiscal year 2021, due to the numerous uncertainties, including the duration and severity of the pandemic and ongoing containment measures. We will continue to monitor and evaluate the effects to our businesses and adjust our plans as needed.

Financial Results

As of March 31, 2021, we had $17.0 million in unrestricted cash and cash equivalents, compared to $23.9 million as of December 31, 2020. The 2021 decrease in cash and cash equivalents compared to the prior year end amount was primarily due to our ongoing cash flows used in operating activities, which totaled $7.0 million for the first three months of 2021.

The following discussion reflects RealNetworks' results from continuing operations. Condensed consolidated results were as follows (in thousands):

	Quarter Ended March 31,
	2021			2020			$ Change		% Change
Total revenue	$	15,888		$	16,822		$	(934)	(6)	%
Cost of revenue	3,679			4,104			(425)		(10)	%
Gross profit	12,209			12,718			(509)		(4)	%
Gross margin	77		%	76		%
Operating expenses	18,404			17,553			851		5	%
Operating loss	$	(6,195)		$	(4,835)		$	(1,360)	(28)	%

In the first quarter of 2021, our total consolidated revenue decreased $0.9 million as compared with the year-earlier period. The decrease was due primarily to lower revenues in our Mobile Services and Consumer Media segments of $0.7 million and $0.2 million, respectively.

Cost of revenue decreased by $0.4 million for the quarter ended March 31, 2021 as compared with the year-earlier period, primarily due to decreases in our Mobile Services and Consumer Media segments.

Operating expenses increased by $0.9 million in the quarter ended March 31, 2021 as compared with the year-earlier period. The increase was due primarily to restructuring charges of $3.1 million, partially offset by lower salaries and benefits of $1.2 million and lower marketing expenses of $0.3 million. Also contributing to the offset was a $0.7 million higher benefit in the first quarter of 2021 related to the fair value adjustment of the contingent consideration liability.

Segment Operating Results

Consumer Media

Consumer Media segment results of operations were as follows (in thousands):

	Quarter Ended March 31,
	2021			2020			$ Change		% Change
Revenue	$	3,309		$	3,495		$	(186)	(5)	%
Cost of revenue	478			611			(133)		(22)	%
Gross profit	2,831			2,884			(53)		(2)	%
Gross margin	86		%	83		%
Operating expenses	2,201			2,458			(257)		(10)	%
Operating income	$	630		$	426		$	204	48	%

Total Consumer Media revenue for the quarter ended March 31, 2021 decreased $0.2 million as compared to the same quarter in 2020. The decrease was primarily due to lower software license revenues, lower advertising and other, and lower subscription services. This was partially offset by higher product sales.

Software License

In the quarter ended March 31, 2021, the decrease in software license revenue of $0.1 million was due primarily to the timing of contract renewals.

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Subscription Services

For our subscription services revenues, the $0.1 million decrease was primarily due to declines in our long-standing subscription products, which we expect to continue.

Product Sales

The increase in product sales of $0.2 million was primarily due to higher RealPlayer Plus sales during the first quarter of 2021.

Cost of revenue for the quarter ended March 31, 2021 decreased $0.1 million compared with the year-earlier period. This was primarily due to reductions in salaries and benefits.

Operating expenses decreased $0.3 million as compared with the year-earlier period, primarily due to reductions in salaries and benefits from headcount reductions and lower professional fees.

Mobile Services

Mobile Services segment results of operations were as follows (in thousands): 

	Quarter Ended March 31,
	2021			2020			$ Change		% Change
Revenue	$	5,980		$	6,690		$	(710)	(11)	%
Cost of revenue	1,492			1,696			(204)		(12)	%
Gross profit	4,488			4,994			(506)		(10)	%
Gross margin	75		%	75		%
Operating expenses	6,145			7,588			(1,443)		(19)	%
Operating loss	$	(1,657)		$	(2,594)		$	937	36	%

Total Mobile Services revenue decreased by $0.7 million in the quarter ended March 31, 2021 compared with the prior-year period. The revenue decrease was primarily due to lower subscription services revenues of $1.4 million, partially offset by an increase in software license revenues of $0.6 million.

Software License

For our software license revenue, the increase in revenue for the quarter ended March 31, 2021 as compared to the prior-year period was due primarily to higher sales of our SAFR product of $0.5 million.

Subscription Services

The decline in our subscription service revenue of $1.4 million in the quarter ended March 31, 2021 as compared to the prior-year period is due primarily to lower revenues from our ringback tones business of $1.1 million, resulting from terminated contracts and lower subscribers.

Cost of revenue decreased by $0.2 million in the quarter ended March 31, 2021 compared with the prior-year period, due primarily to reductions in salaries and benefits related to headcount reductions.

Operating expenses decreased by $1.4 million for the quarter ended March 31, 2021 compared with the year-earlier period due to reductions in salaries and benefits related to headcount reductions of $1.4 million and lower marketing expenses of $0.3 million. These decreases were partially offset by higher professional fees of $0.3 million.

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Games

Games segment results of operations were as follows (in thousands):

	Quarter Ended March 31,
	2021			2020			$ Change		% Change
Revenue	$	6,599		$	6,637		$	(38)	(1)	%
Cost of revenue	1,705			1,794			(89)		(5)	%
Gross profit	4,894			4,843			51		1	%
Gross margin	74		%	73		%
Operating expenses	5,098			4,923			175		4	%
Operating loss	$	(204)		$	(80)		$	(124)	155	%

Total Games revenue decreased slightly for the quarter ended March 31, 2021 as compared with the year-earlier period due primarily to a decrease of $0.2 million in subscription services revenues, offset by a $0.2 million increase in our product sales revenues, described more fully below.

Subscription Services

Our subscription sales decreased $0.2 million as a result of lower subscribers in the first quarter of 2021.

Product Sales

Our product sales increased $0.2 million as a result of higher in-game purchases of $0.4 million compared to the prior-year period, partially offset by lower sales of games of $0.2 million.

Cost of revenue decreased $0.1 million in the quarter ended March 31, 2021 when compared to the prior year period due to lower publisher license and service royalties.

Operating expenses increased $0.2 million in the quarter ended March 31, 2021 when compared with the prior-year period due primarily to higher professional service fees.

Corporate

Corporate results of operations were as follows (in thousands):

	Quarter Ended March 31,
	2021		2020		$ Change		% Change
Cost of revenue	$	4	$	3	$	1	33	%
Operating expenses	4,960		2,584		2,376		92	%
Operating loss	$	(4,964)	$	(2,587)	$	(2,377)	(92)	%

Operating expenses increased by $2.4 million in the quarter ended March 31, 2021 compared with the year-earlier period, primarily due to higher restructuring and stock compensation expenses of $3.1 million and $0.5 million, respectively. These increases were partially offset by a $0.7 million higher benefit in the first quarter of 2021 related to the fair value adjustment of the contingent consideration liability, as further discussed in Note 6. Fair Value Measurements, and lower professional fees of $0.4 million.

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Consolidated Operating Expenses

Our operating expenses consist primarily of salaries and related personnel costs including stock-based compensation, consulting fees associated with product development, sales commissions, professional service fees, advertising costs, changes in the fair value of the contingent consideration liability, and restructuring charges. Operating expenses were as follows (in thousands):

	Quarter Ended March 31,
	2021		2020		$ Change		% Change
Research and development	$	6,238	$	6,606	$	(368)	(6)	%
Sales and marketing	5,137		6,000		(863)		(14)	%
General and administrative	4,898		5,161		(263)		(5)	%
Fair value adjustments to contingent consideration liability	(1,040)		(300)		(740)		247	%
Restructuring and other charges	3,171		86		3,085		3,587	%
Total consolidated operating expenses	$	18,404	$	17,553	$	851	5	%

Research and development expenses decreased by $0.4 million in the quarter ended March 31, 2021 as compared with the year-earlier period, primarily due to a reduction in salaries and people related costs of $0.8 million, partially offset by higher professional service fees of $0.2 million and higher infrastructure costs of $0.1 million.

Sales and marketing expenses decreased $0.9 million in the quarter ended March 31, 2021 as compared with the year-earlier period, primarily due to a $0.7 million reduction in salaries and people related costs and lower marketing expenses of $0.3 million, partially offset by a $0.2 million increase in professional service fees.

General and administrative expenses decreased by $0.3 million in the quarter ended March 31, 2021 as compared with the year-earlier period, primarily due to lower professional service fees of $0.4 million and lower infrastructure expenses of $0.1 million, partially offset by higher stock compensation expense.

The fair value adjustments to the contingent consideration liability changed by $0.7 million in the quarter ended March 31, 2021 as compared with the same period in 2020. See Note 6. Fair Value Measurements for additional information.

Restructuring and other charges consist of costs associated with the ongoing reorganization of our business operations and expense re-alignment efforts and the $2.5 million of lease impairment charges for office space previously vacated. For additional details on these charges, see Note 9. Restructuring Charges.

Other Income (Expense)

Other income (expense), net was as follows (in thousands):

	Quarter Ended March 31,
	2021		2020		$ Change
Interest expense	$	(95)	$	—	$	(95)
Interest income	13		6		7
Loss on equity and other investments, net	(4,272)		—		(4,272)
Other income, net	104		238		(134)
Total other income (expense), net	$	(4,250)	$	244	$	(4,494)

As of the quarter ended March 31, 2021, the Loss on equity and other investments, net, of $4.3 million reflects the unrealized losses on equity securities. We acquired these shares from the sale of Napster in December 2020, as further discussed in Note 5. Dispositions.

The fluctuations in Other income primarily relate to foreign exchange gains and losses.

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Income Taxes

We recognized income tax expense of $0.1 million during the quarter ended March 31, 2021 related to U.S. and foreign income taxes. For the same period in 2020, income tax expense was insignificant.

As of March 31, 2021, RealNetworks has $0.7 million in uncertain tax positions.

The majority of our tax expense is due to income in our foreign jurisdictions. In addition, we have not benefited from losses in the U.S. and certain foreign jurisdictions as of the first quarter of 2021. We generate income in a number of foreign jurisdictions, some of which have higher or lower tax rates relative to the U.S. federal statutory rate. Our tax expense could fluctuate significantly on a quarterly basis to the extent income is less than anticipated in countries with lower statutory tax rates and more than anticipated in countries with higher statutory tax rates. For the quarter ended March 31, 2021, decreases in tax expense from income generated in foreign jurisdictions with lower tax rates in comparison to the U.S. federal statutory rate was offset by increases in tax expense from income generated in foreign jurisdictions having comparable, or higher tax rates in comparison to the U.S. federal statutory rate. The effect of differences in foreign tax rates on the Company's tax expense for the first quarter of 2021 was minimal.

We file numerous consolidated and separate income tax returns in the U.S., including federal, state and local returns, as well as in foreign jurisdictions. With few exceptions, we are no longer subject to United States federal income tax examinations for tax years prior to 2013 or state, local or foreign income tax examinations for years prior to 1993. We are currently under audit by various states and foreign jurisdictions for certain tax years subsequent to 1993.

New Accounting Pronouncements

See Note 2. Recent Accounting Pronouncements, to the unaudited condensed consolidated financial statements included in Item 1 of Part I of this 10-Q.

Liquidity and Capital Resources

The following summarizes working capital, cash and cash equivalents, and restricted cash (in thousands):

	March 31, 2021		December 31, 2020
Working capital, excluding cash and cash equivalents	$	1,277	$	1,148
Cash and cash equivalents	17,015		23,940
Restricted cash equivalents	1,630		1,630

Cash and cash equivalents decreased from December 31, 2020 due primarily to cash used in operating activities, which totaled $7.0 million in the first three months of 2021.

As of March 31, 2021, approximately $7.9 million of the $17.0 million of cash and cash equivalents was held by our foreign subsidiaries outside the U.S.

The following summarizes cash flow activity from continuing operations (in thousands):

	Three Months Ended March 31,
	2021		2020
Cash used in operating activities	$	(6,976)	$	(5,923)
Cash used in investing activities	(56)		(80)
Cash provided by financing activities	358		10,000

Cash used in operating activities consisted of net loss from continuing operations adjusted for certain non-cash items such as depreciation and amortization, stock-based compensation, loss on equity and other investments, fair value adjustments to contingent consideration liability, loss on impairment of operating lease assets, foreign currency gains, and the effect of changes in certain operating assets and liabilities.

Cash used in operating activities from continuing operations was $1.1 million higher in the three months ended March 31, 2021 as compared to the same period in 2020, primarily due to the incremental cash used to fund the net change in working capital.

In each of the three months ended March 31, 2021 and 2020, cash used by investing activities consisted of fixed asset purchases of $0.1 million.

Cash provided by financing activities for the three months ended March 31, 2021 was $0.4 million. This cash inflow was due to proceeds from the issuance of common stock related to exercising of stock options, partially offset by tax payments for shares withheld upon vesting of restricted stock.

Cash provided by financing activities for the three months ended March 31, 2020 was $10.0 million. This cash inflow was due to the $10.0 million in cash proceeds from the first quarter 2020 issuance of Series B Preferred Stock..

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Three customers accounted for more than 10% of trade accounts receivable as of March 31, 2021, with the customers accounting for 21% , 11%, and 10% each. Two customers individually comprised more than 10% of trade accounts receivable at December 31, 2020, with the customers accounting for 19% and 10% each. Three customers accounted for 45% of consolidated revenue, or $7.3 million, during the three months ended March 31, 2021. Two customers accounted for 26% of consolidated revenue, or $4.4 million, during the three months ended March 31, 2020.

While we currently have no planned significant capital expenditures for the remainder of 2021 other than those in the ordinary course of business, we do have contractual commitments for future payments related to office leases.

As discussed in Note 6. Fair Value Measurements, in April 2021, we agreed with the seller on the form of final payment of the contingent consideration associated with the Napster interests acquired by RealNetworks in January 2019. The payment included cash of $2.5 million and the transfer of 47.8 million ordinary shares of Napster Group, valued at the December 2020 Napster sale closing date. The fair value of RealNetworks' investment in the ordinary shares of Napster Group as of March 31, 2021 was $5.7 million, inclusive of the shares to be transferred to the seller.

RealNetworks is a party to a Loan Agreement with a third-party financial institution, as discussed in Note 8. Debt. Under the Agreement, as amended, borrowings may not exceed $6.5 million and are reduced by a $1.0 million standby letter of credit entered into with the bank in connection with certain lease agreements. At March 31, 2021, we had no outstanding draws on the revolving line of credit.

In April 2021, we completed an underwritten public offering of 8,250,000 shares of our common stock at a price to the public of $2.70 per share. The aggregate gross proceeds from the offering were $22.3 million. Of these proceeds, we received approximately $20.3 million, after deducting underwriting discounts, commissions, and legal and other fees. The proceeds are expected to be used for general corporate purposes and working capital.

In the near term, we expect to see continued net negative cash flow from operating activities. We believe that our unrestricted current cash and cash equivalents and unused capacity on our revolving line of credit will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. Notwithstanding this availability of cash and access to additional funding, management has considered and will continue to evaluate implementation of a variety of cash conservation measures.

In the future, we may seek to raise additional funds through public or private equity financing or through other sources. Such sources of funding may or may not be available to us on commercially reasonable terms. The sale of additional equity securities could result in dilution to our shareholders. In addition, in the future, we may enter into cash or stock acquisition transactions or other strategic transactions that could reduce cash available to fund our operations or result in dilution to shareholders.

Off-Balance Sheet Arrangements

We do not maintain accruals associated with certain guarantees, as discussed in Note 17 Guarantees, to the consolidated financial statements included in Item 8 of Part II of our 2020 10-K. Thus, these guarantee obligations constitute off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Our critical accounting estimates are discussed in Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section of our annual report on Form 10-K for the year ended December 31, 2020.

Due to the coronavirus pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

The following discussion about our market risk involves forward-looking statements. All statements that do not relate to matters of historical fact should be considered forward-looking statements. Actual results could differ materially from those projected in any forward-looking statements.

Interest Rate Risk. Our exposure to interest rate risk from changes in market interest rates relates primarily to RealNetworks' revolving line of credit. RealNetworks' borrowing arrangement has floating rate interest payments and thus has a degree of interest rate risk, if interest rates increase. Based on the available balance, a hypothetical 10% increase/decrease in interest rates would not increase/decrease our annual interest expense or cash flows by more than a nominal amount.

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Investment Risk. As of March 31, 2021, we had an equity investment in common shares of a foreign publicly traded technology company. These common shares were acquired as a portion of the proceeds received in the sale of Napster. The equity investment is subject to fluctuation in the market price as well as being exposed to changes in foreign currency exchange rates. A hypothetical 10% increase/decrease in the common share price and foreign currency exchange rate would result in an increase/decrease of the value of the equity investment of approximately $1.2 million.

Foreign Currency Risk. We conduct business internationally in several currencies and thus are exposed to adverse movements in foreign currency exchange rates.

Our exposure to foreign exchange rate fluctuations arise in part from: (1) translation of the financial results of foreign subsidiaries into U.S. dollars in consolidation; (2) the remeasurement of non-functional currency assets, liabilities and intercompany balances into U.S. dollars for financial reporting purposes; and (3) non-U.S. dollar denominated sales to foreign customers.

Our foreign currency risk management program reduces, but does not entirely eliminate, the impact of currency exchange rate movements. For our foreign operations, the majority of our revenues and expenses are denominated in other currencies, such as the euro. We currently do not actively hedge our foreign currency exposures and are therefore subject to the risk of exchange rate fluctuations.

A hypothetical 10% increase or decrease in those currencies relative to the U.S. dollar as of March 31, 2021 would not result in a material impact on our financial position, results of operations or cash flows.

Item 4.   Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2021, our disclosure controls and procedures were effective.

(b) Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the first quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

See Note 11. Commitments and Contingencies, to the unaudited condensed consolidated financial statements included in Item 1 of Part I of this Form 10-Q.

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Item 1A.   Risk Factors

You should carefully consider the risks described below together with all of the other information included in this Form 10-Q. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the following risks actually occurs, our business, financial condition or operating results, and the trading price of our common stock, could be materially harmed.

Risks Related to the COVID-19 Pandemic

Our operating plans and financial condition have been adversely affected by the various impacts of the COVID-19 pandemic, and we expect to experience continued adverse effects in future periods in connection with the ongoing public health and safety, governmental, and economic implications.

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus that causes COVID-19 to be a global pandemic. As the virus spread throughout 2020, across the U.S. and the world, authorities implemented numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, business limitations, and shutdowns. In addition to the pandemic's widespread impact on public health and global society, reactions to the pandemic as well as measures taken to contain the virus initially caused significant turmoil to the global economy and financial markets. To address the public health and safety concerns, we took steps to support the health and well-being of our employees, customers, partners and communities, including working remotely and learning to operate our businesses in a fundamentally different way.

To date, we have had to change certain strategy and product plans in order to address implications of the pandemic to our businesses and, in particular, to our growth initiatives. Although forced to furlough some employees in the early days of the pandemic, we were able to bring those employees back to work during the second quarter of 2020. We also reduced expenditures throughout 2020 in an effort to efficiently manage our businesses in the restricted and uncertain climate. We continue to face risk, however, related to fixed facilities costs given the uncertain post-pandemic future of the use of physical office space. In addition, the initial turmoil in financial markets contributed to significant downward pressure on our stock price early in the pandemic. We cannot provide assurance that the actions we have taken will be sufficient, or that conditions will improve as the pandemic, and reactions thereto, continue to evolve.

The COVID-19 pandemic and the resultant economic instability and financial market turmoil added complexity, uncertainty and risk to nearly all aspects of our business. We are unable to fully predict the near-term and long-term impacts that the pandemic will have on our results from operations, financial condition, liquidity and cash flows for fiscal 2021 or beyond.

Risks Related to our Strategy

Our growth initiatives could take longer than planned, be unsuccessful, or deplete our cash resources, any of which would have a material adverse effect on the performance of our businesses and financial results, and could cause us to pursue additional debt or other funding sources.

In recent years, we have developed new products and technologies, and funded initiatives, intended to create growth in our businesses, while simultaneously taking steps to reduce costs and increase profitability. These growth initiatives, several of which have been unsuccessful over recent years, have impacted all segments of our organization, requiring us to allocate limited resources among our diverse business units. Our financial sustainability is largely dependent on the success of our growth initiatives, and there are many risks to that success, some of which are internal to our company, including our ability to develop and monetize our products and services, and some of which are externally driven and outside of our control, such as the potential impact of macroeconomic pressures and global pandemics. In particular, progress with our growth initiatives was negatively impacted by various reactions to the global outbreak of the coronavirus that causes COVID-19, such as travel restrictions, community lockdowns, tightening of corporate budgets, reduction in consumer confidence, and instability in financial markets. We cannot predict the duration or severity of these reactions or impacts to our business and, if prolonged, our cash reserves may prove insufficient, requiring us to pursue additional debt or other funding sources.

Given the ambitious and significant nature of our growth initiatives, there is substantial risk that we may be unsuccessful in implementing our plans in a timely manner, our cash reserves may be depleted or insufficient to fully implement our plans, our growth initiatives may not gain adequate momentum, or the combination of our growth initiatives and cost reductions may not prove to be profitable. Moreover, our acceptance of outside funding for any of our growth businesses, such as our April 2021 public offering and Scener's 2020 fundraising, exposes us to new risks and potential liabilities, including possible payment obligations and securities liability. Our business would suffer, and our operational results and financial outlook would be negatively impacted to a significant degree in the event that any of our growth initiatives fail.

In August 2019, RealNetworks and Napster entered into a loan agreement with a third-party financial institution. Following the December 2020 sale of Napster to MelodyVR, the loan agreement was amended to remove Napster as a co-borrower and, among other modifications, to reduce the amount available under the revolving line of credit to a maximum of $6.5 million. The loan agreement, as amended, matures August 1, 2022 and contains customary covenants, including financial

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covenants, minimum EBITDA levels, and maintaining a minimum unrestricted cash balance. We have not had a debt facility in our recent past, therefore the entry into this facility has introduced new risks to the company, including the risk that constraints around covenants may lead to less flexibility in operational decision making, the risk of default and various implications thereof, and the potential increase in liabilities on our balance sheet in the event that we draw down the line of credit.

In April 2020, following an assessment of eligibility and upon approval by our Board of Directors, RealNetworks issued a promissory note in the principal amount of $2.9 million pursuant to the Paycheck Protection Program, or PPP, of the CARES Act. In May 2020, Napster, then-majority owned by RealNetworks though it maintained distinct legal status and control, issued its own promissory note in the principal amount of $1.7 million pursuant to the PPP. On April 23, 2020, the Small Business Administration issued new guidance that introduced some uncertainty as to whether a public company with substantial market value and access to capital markets would qualify for participation in the PPP. Subsequently, on April 28, 2020 the Secretary of the Treasury and Small Business Administration announced that the government would review all PPP loans of more than $2 million for which the borrower applied for forgiveness. While we believe that RealNetworks and Napster fully qualified for the loans, should we be audited or reviewed by the U.S. Department of the Treasury as a result of filing an application for forgiveness or otherwise, such audit or review could result in the diversion of management’s time and attention and legal and reputational costs. RealNetworks applied for forgiveness of its PPP loan in January 2021; Napster applied for forgiveness of its PPP loan in December 2020. If an audit were to be conducted and an adverse finding received, all or a portion of the PPP loan could be required to be returned, which would reduce our liquidity and potentially result in fines and penalties.

The inability to obtain additional debt, whether through draws on our current line of credit or through a new debt facility, or the need to raise funds through other means, could negatively impact our liquidity and ability to invest in our growth initiatives. Moreover, we could be compelled to consider funding that would impact our governance structure. Our pursuit of debt or other sources of liquidity could impair our financial results and stock price.

We need to successfully monetize our new products and services in order to sustain and grow our businesses, and manage our cash resources.

In order to sustain our current level of business and to implement our growth initiatives, we must successfully monetize our new products and services, including through existing and new relationships with distribution partners, establishing new sales channels, and managing new supply chains. Our digital media products and services must be attractive and useful to distribution partners and end users. The successful acceptance and monetization of these products and services, therefore, is subject to unpredictable and volatile factors beyond our control, including end-user preferences, competing products and services, the rapid pace of change in the market, the effectiveness of our distribution channels, and significant global crises. Any failure by us to timely and accurately anticipate consumers’ changing needs and preferences, emerging technological trends and data privacy norms, or changes in the competitive or regulatory landscape for our products and services could result in a failure to monetize our new products or the loss of market opportunities, both of which we have experienced at various times in our past.

Our growth initiatives are highly dependent on the performance of mobile telecommunications carriers, distributors, and resellers. We distribute our messaging platform services, such as Kontxt, through a limited number of mobile telecommunications carriers. Our SAFR sales channel includes distributors and resellers, as well as sales directly to end users. The financial condition, performance, and demand of our products and services through these mobile telecommunications carriers, distributors, and resellers could deteriorate, weakening our ability to sell our products and services, causing a material negative impact on our financial results.

Moreover, in order to grow our new businesses, we must make long-term investments, develop or obtain appropriate intellectual property and commit significant resources before knowing whether the products and services that we are developing or have introduced will meet the demands of the relevant market. As we have experienced, we may not realize a sufficient return, or may experience losses, on these investments, thereby further straining our limited cash resources and negatively affecting our ability to pursue other needed growth or strategic opportunities.

Sustaining and growing our businesses, and managing our cash resources, are subject to these risks inherent in developing, distributing and monetizing our new products and services. Our failure to manage these risks could further impair our operations and financial results to a material degree, and could cause an unsustainable depletion of our cash resources.

Furthermore, our products and services have been in the past and may be in the future subject to legal challenge. Responding to any such claims may require us to enter into royalty and licensing agreements on unfavorable terms, require us to stop distributing or selling, or to redesign our products or services, or to pay damages, any of which could constrain our growth plans and cash resources.

Our businesses, including in connection with our growth initiatives, face substantial competitive challenges that may impair our success, thus negatively impacting our future growth.

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Our digital media products and services, including both longstanding and new products/solutions some of which are central to our growth initiatives, face a wide variety of competitors, many of which have longer operating histories, greater name or brand recognition, deeper and more expansive market penetration, more employees, and significantly greater resources than we do. In addition, current and potential competitors may include relatively new businesses that develop or use innovative technologies, products or features that could disrupt the market for technologies, products or features that we currently develop and market or seek to develop and market. In attempting to compete with any or all of these competitors, we may experience, as we have in the past, some or all of the following consequences, any of which would adversely affect our operating results and the trading price of our stock:

•reduced prices or margins;

•loss of current and potential customers, or partners and potential partners who distribute our products and services or who provide content that we distribute to our customers;

•changes to our products, services, technologies, licenses or business practices or strategies;

•lengthened sales cycles;

•inability to meet demands for more rapid sales or development cycles;

•industry-wide changes in content distribution to customers or in trends in consumer consumption of digital media products and services;

•pressure to prematurely release products or product enhancements; or

•degradation in our stature or reputation in the market.

Our Consumer Media technologies for media playback and production (RealPlayer, RealMedia VB and RealMedia HD) compete with alternative media playback technologies and audio and video content formats that have obtained broad market penetration. RealMedia VB and RealMedia HD are codecs, technology that enables compression and decompression of the media content in a (usually proprietary) format. We license our codec technology primarily to computer, smartphone and other mobile device manufacturers, and also to other partners that can support our efforts to build a strong ecosystem, like content providers and integrated circuit developers. To compete effectively, codec technologies must appeal to, and be adopted for use by, a wide range of parties: producers and providers of media content, consumers of media content, and device manufacturers who pre-load codec technologies onto their devices. Our ability to sustain or grow this business, which has recently experienced downward pressure, is dependent on the successful promotion and adoption of our codec technologies to a wide and diverse target market, which is a complex and highly uncertain undertaking. If we are unable to compete successfully, our Consumer Media business could decline as it has in the recent past or on a more accelerated basis.

The market for our Mobile Services business is highly competitive and continues to rapidly evolve. Our SaaS services face competition from a proliferation of applications and services, many of which carriers can deploy or offer to their subscribers, or which consumers can acquire independently of their carrier. We expect pricing pressure in this business to continue to materially impact our operating results in this business. Our Mobile Services growth initiatives compete with a wide variety of companies, as small startups and well established, heavily resourced global companies race to develop AI-based technologies and launch products in the computer vision market. The success of these initiatives is highly dependent on our ability to differentiate our product offering within this highly competitive environment.

The branded services in our Games business compete with other developers, aggregators and distributors of mobile, online, and downloadable games. Our competitors vary in size and capabilities, some of which have high volume distribution channels and greater financial resources than we do; while others may be smaller and more able to quickly or efficiently adjust to market conditions. We also face significant price competition in the casual games market, as our competitors increasingly focus on free-to-play games or reduce prices more aggressively. We expect competition to continue to intensify in this market. Our games development studios compete primarily with other developers of mobile, online, and downloadable games, and must continue to develop popular and high-quality game titles. Our Games business must also continue to execute on opportunities to expand the play of our games on a variety of non-PC platforms, including mobile, in order to maintain our competitive position and to grow the business. Moreover, continued growth in our Games business is in part dependent on the availability of funds to invest in marketing, which availability cannot be assured.

Issues with the use of artificial intelligence, or AI, in our offerings could result in reputational harm or liability.

Certain of our growth initiatives are centered around AI-based products and solutions, and we expect these initiatives to comprise an increasing percentage of our go-forward business. We envision a future in which our AI-based products and solutions help our customers live safer, smarter, more efficiently, and more successfully. As with many disruptive innovations, AI presents risks and challenges that could affect its adoption, and therefore our business. AI algorithms may be flawed. Datasets may be insufficient or contain biased information. Inappropriate or controversial data practices by us, our distribution network, our end users, or others could impair the acceptance of AI solutions. These deficiencies could undermine the decisions, predictions, or analysis AI applications produce, subjecting us to competitive harm, legal liability, and brand or reputational harm. Some AI scenarios present ethical issues. If we enable or offer AI solutions that are controversial because of their impact on privacy, employment, or other social issues, we may experience brand or reputational harm.

Risks Related to our Operations

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Our operating results are difficult to predict and may fluctuate, which may contribute to weakness or volatility in our stock price.

The trading price for our common stock has been in steady decline for many years, though, particularly more recently, has also been vulnerable to significant volatility caused by general market conditions or unusual stock-specific trading activity. There can be no assurance that our common stock will not experience additional, and potentially more significant, volatility in the future caused by unpredictable external factors. In addition, as a result of the rapidly changing markets in which we compete, and restructuring, impairment and other one-time events specific to us, our operating results may fluctuate or decline from period to period, which may contribute to weakness or volatility in our stock price. Moreover, the general difficulty in forecasting our operating results and identifying meaningful performance metrics, especially when factoring in our growth initiatives, could result in actual results that differ materially from expected results, again causing weakness and volatility in our stock price. Compounding these internal factors are external factors, such as the significant instability in global financial markets experienced over the past year, that will impact our operating results and stock price, potentially driving our stock price to record lows as occurred in 2020 or to significant activity levels as occurred in early 2021.

The difficulty in forecasting our operating results may also cause over- or under-investment in certain growth initiatives, as such investment is often planned based on expected financial results. This over-/under-investment could cause more severe fluctuations in operating results and, likely, further volatility in our stock price.

Further, because our common stock is listed on the Nasdaq Global Select Market, we must meet Nasdaq's continued listing requirements, in particular, financial requirements that include maintaining a minimum bid price of at least $1.00. In April 2020, we received a letter from the Listing Qualifications Department of the Nasdaq Global Select Market indicating that, based upon the closing bid price of our common stock for the 30 consecutive business day period from March 11, 2020 to April 23, 2020, we did not meet the minimum bid price of $1.00 per share required for continued listing on Nasdaq. In June 2020, we received a second letter from Nasdaq Staff indicating that we had regained compliance with Nasdaq Listing Rule 5450(a)(1) based on its determination that the closing bid price of our common stock had been at $1.00 per share or greater for the 10 business days from May 15 to May 29, 2020. Although we are currently in compliance with all applicable continued listing requirements and have received no contradictory notification from Nasdaq, our stock price could again fall below the $1.00 minimum as a result of valuation pressure, stock-specific trading activity or general declines in the stock market. We regularly monitor our compliance with Nasdaq's continued listing requirements, and, as necessary, our Board will consider the implementation of various measures intended to support continued compliance.

Any impairment to our goodwill, definite-lived, and right-of-use operating lease assets could result in a material charge to our earnings.

In accordance with GAAP, we test goodwill for possible impairment on an annual basis or more frequently in the event of certain indications of possible impairment. We review definite-lived and operating lease assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in a reporting unit’s fair value, changes in our operating plans and forecasts, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of our business, a significant sustained decline in our market capitalization and other factors. If we were to determine that an impairment had occurred, we would be required to record an impairment charge, which could have a material negative, and unanticipated, impact on our financial results.

Continued loss of revenue from our subscription services is likely to cause further harm to our operating results.

Our operating results have been and will continue to be adversely impacted by the loss of subscription revenue related to our more traditional products and services. Subscribers cancel their subscriptions to our services for many reasons, including a perception that they do not use the services sufficiently or that the service does not provide enough value, a lack of attractive or exclusive content generally or as compared with competitive service offerings, or because customer service issues are not satisfactorily resolved. Revenue from our SuperPass subscription service, for example, has continued to decline over several periods, due to changes in consumer preferences and changes on our part to focus on other products and services we offer, and we expect this trend to continue.

Difficulty recruiting and retaining key personnel could significantly impair our operations or jeopardize our ability to meet our growth objectives.

Our success depends substantially on the contributions and abilities of certain key personnel, and we cannot provide assurance that we will be able to retain them in the near term or recruit them in the future. In 2020, we experienced a significant level of executive turnover, as we have experienced in the past and could experience in the future, which could impact our ability to retain key personnel. Also, qualified individuals are in high demand and competition for such qualified personnel in our industry, particularly engineering talent, is extremely intense, and we may incur significant costs to attract or retain them. Changes in immigration or other policies in the U.S. or other jurisdictions that make it more difficult to hire and retain key talent, or to assign individuals to any of our locations as needed to meet business needs, could adversely affect our ability to attract key talent or deploy individuals as needed, and thereby adversely affect our business and financial results. Further,

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repeated restructuring of our businesses and related cost-reduction efforts, as well as declines and volatility in our stock price, have caused instability in our workforce that makes it more difficult to retain and recruit key personnel. Given these factors, there can be no assurance that we will be able to attract and retain the key personnel necessary to sustain our business or support future growth.

Acquisitions and divestitures involve costs and risks that could harm our business and impair our ability to realize potential benefits from these transactions.

As part of our business strategy, we have acquired and sold technologies and businesses in the past and expect that we will continue to do so in the future. The failure to adequately manage transaction costs and address the financial, legal and operational risks raised by acquisitions and divestitures of technology and businesses could harm our business and prevent us from realizing the benefits of these transactions. In addition, we may identify and acquire target companies, but those companies may not be complementary to our current operations and may not leverage our existing infrastructure or operational experience, which may increase the risks associated with completing acquisitions.

For example, our January 18, 2019 acquisition of a controlling interest in Napster represented a significant acquisition for RealNetworks. To effectuate the acquisition and incorporate Napster's financial results into our financial statements, we incurred significant transaction-related costs throughout fiscal year 2019 and early in 2020. Moreover, the 2020 sale of our Napster stake in connection with the merger of Napster and MelodyVR resulted in further significant transaction-related expenses, certain ongoing indemnification obligations, and the payment of a portion of proceeds to a third party.

Transaction-related costs and financial risks related to completed and potential future purchase or sale transactions may harm our financial position, reported operating results, or stock price. Previous acquisitions have resulted in significant expenses, including amortization of purchased technology, amortization of acquired identifiable intangible assets and incurring charges for the impairment of goodwill and other intangible assets, which are reflected in our operating expenses. New acquisitions and any potential additional future impairment of the value of purchased assets, including goodwill, could have a material negative impact on our future operating results. In compliance with GAAP, we evaluate these assets for impairment at least annually. Factors that may be considered a change in circumstances, indicating that our goodwill or definite-lived assets may not be recoverable, include reduced future revenue and cash flow estimates due to changes in our forecasts, and unfavorable changes to valuation multiples and discount rates due to changes in the market. If we were to conclude that any of these assets were impaired, we would have to recognize an impairment charge that could materially impact our financial results.

Purchase and sale transactions also involve operational risks that could harm our existing operations or prevent realization of anticipated benefits from a transaction. These operational risks include:

•    difficulties and expenses in assimilating the operations, products, technology, information systems, and/or personnel of the acquired company;

•    retaining key management or employees of the acquired company;

•    entrance into unfamiliar markets, industry segments, or types of businesses;

•    operating, managing and integrating acquired businesses in remote locations or in countries in which we have little or no prior experience;

•    diversion of management time and other resources from existing operations;

•    impairment of relationships with employees, affiliates, advertisers or content providers of our business or acquired business;

•    assumption of known and unknown liabilities of the acquired company, including intellectual property claims; and

•    potential impacts to our system of internal controls and disclosure controls and procedures.

Risks Related to Regulations and Other External Factors

Government regulation of the Internet, facial recognition technology, artificial intelligence and other related technologies is evolving, and unfavorable developments could have an adverse effect on our operating results.

We are subject to regulations and laws specific to the marketing, sale and delivery of goods and services. These laws and regulations, which continue to evolve, cover taxation, user privacy, data collection and protection, copyrights, electronic contracts, sales procedures, automatic subscription renewals, credit card processing procedures, consumer protections, digital games distribution, broadband Internet access and content restrictions. We cannot guarantee that we have been or will be fully compliant in every jurisdiction, as it is not entirely clear how existing laws and regulations governing issues such as privacy, taxation and consumer protection apply or will be enforced with respect to the products and services we sell. Moreover, as Internet commerce continues to evolve, increasing regulation and/or enforcement efforts by federal, state and foreign agencies and the prospects for private litigation claims related to our data collection, privacy policies or other e-commerce practices become more likely. In addition, the adoption of any laws or regulations or the imposition of other legal requirements that adversely affect our ability to market, sell, and deliver our products and services could decrease our ability to offer or customer demand for our service offerings, resulting in lower revenue. Moreover, in the U.S., certain states have and more states may impose stricter privacy laws that may impact accepted business practices. We cannot provide assurance that the changes that we

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have adopted to our business practices will be compliant or that new compliance frameworks such as this will not have a negative impact on our financial results.

In addition, through the operation of our SAFR product, we are subject to regulations and laws generally and specifically applicable to the provision of facial recognition technology. New laws and regulations are under discussion and those that exist are untested, thus we cannot guarantee that we have been or will be fully compliant in every jurisdiction. Moreover, the voluntary development of norms, standards, and best practices by companies providing facial recognition and similar technology could require modifications to our technology or practices that may be costly or incompatible with our financial model.

As we pursue further sales of our SAFR product to governmental agencies, such as the Small Business Innovation Research (SBIR) contracts with the U.S. Air Force in 2020, we may become subject to more extensive contracting rules, standards, and audits.

Future regulations, or changes in laws and regulations or their existing interpretations or applications, could require us to further change our business practices, raise compliance costs or other costs of doing business and result in additional historical or future liabilities for us, resulting in adverse impacts on our business and our operating results.

As a consumer-facing business, we receive complaints from our customers regarding our consumer marketing efforts and our customer service practices. Some of these customers may also complain to government agencies, and from time to time, those agencies have made inquiries to us about these practices. In addition, we may receive complaints or inquiries directly from governmental agencies that have not been prompted by consumers. We cannot provide assurance that governmental agencies will not bring future claims, as they have on occasion in the past, regarding our marketing, or consumer services or other practices.

We face financial and operational risks associated with doing business in non-U.S. jurisdictions and operating a global business, that have in the past and could in the future have a material adverse impact on our business, financial condition and results of operations.

A material portion of our revenue is derived from sales outside of the U.S. and most of our employees are located outside of the U.S. Consequently, our business and operations depend significantly on global and national economic conditions and on applicable trade regulations and tariffs. For example, our business in China could be negatively affected by an actual or perceived lack of stability or consistency in U.S.-China trade policy. The growth of our business is also dependent in part on successfully managing our international operations. Our non-U.S. sales, purchases and operations are subject to risks inherent in conducting business abroad, many of which are outside our control, including the following:

•periodic local or geographic economic downturns and unstable political conditions;

•price and currency exchange controls;

•fluctuation in the relative values of currencies;

•difficulty in repatriating cash, whether as a result of tax laws or otherwise;

•compliance with current and changing tax laws, and the coordination of compliance with U.S. tax laws and the laws of any of the jurisdictions in which we do business;

•difficulties protecting intellectual property;

•compliance with labor laws and other laws governing employees;

•local labor disputes;

•changes in trading policies, regulatory requirements, tariffs and other barriers, or the termination or renegotiation of existing trade agreements;

•impact of changes in immigration or other policies impacting our ability to attract, hire, and retain key talent;

•potential implications resulting from the outbreak of disease on a global scale or localized in countries in which we do business or have employees; and

•difficulties in managing a global enterprise, including staffing, collecting accounts receivable, and managing suppliers, distributors and representatives.

Because consumers may consider the purchase of our digital entertainment products and services to be a discretionary expenditure, their decision whether to purchase our products and services may be influenced by macroeconomic factors that affect consumer spending such as unemployment, access to credit, negative financial news, and declines in income. In addition, mobile telecommunication carriers and other business partners may reduce their business or advertising spending with us or for our products and services they distribute to users in the face of adverse macroeconomic conditions, such as financial market volatility, government austerity programs, tight credit, and declines in asset values. We have in the past recorded material asset impairment charges due in part to weakness in the global economy, and we may need to record additional impairments to our assets in future periods in the event of renewed weakness and uncertainty in the global or a relevant national economy. Accordingly, any significant weakness in the national and/or global economy could materially impact our business, financial condition and results of operations in a negative manner.

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Our international operations involve risks inherent in doing business globally, including difficulties in managing operations due to distance, language, cultural differences, local economic conditions, outbreak of diseases, different or conflicting laws and regulations, taxes, and exchange rate fluctuations. The functional currency of our foreign subsidiaries is typically the local currency of the country in which each subsidiary operates. We translate our subsidiaries’ revenues into U.S. dollars in our financial statements, and continued volatility in foreign exchange rates may result in lower reported revenue or net assets in future periods. If we do not effectively manage any of the risks inherent in running our international businesses, our operating results and financial condition could be harmed. As another example, the COVID-19 pandemic has resulted in travel and work restrictions globally, and may further disrupt our ability to produce and sell products. We continue to monitor the impacts of the pandemic to our business, as well as rapidly evolving expectations regarding its severity and duration. We are unable to predict the full effects of this pandemic on our operations and financial results.

Our business is conducted in accordance with existing international trade relationships, and trade laws and regulations. Changes in geopolitical relationships and laws or policies governing the terms of foreign trade, such as the recent rise in protectionist politics and economic nationalism, could create uncertainty regarding our ability to operate and conduct commercial relationships in affected jurisdictions, which could have a material adverse effect on our business and financial results. Additionally, our global operations may also be adversely affected by political events, domestic or international terrorist events and hostilities or complications due to natural or human-caused disasters. These uncertainties could have a material adverse effect on the continuity of our business and our results of operations and financial condition.

Our business and operating results will suffer and we may be subject to market risk and legal liability if our systems or networks fail, become unavailable, unsecured or perform poorly so that current or potential users do not have adequate access to our products, services and websites.

Our ability to provide our products and services to our customers and operate our business depends on the continued operation and security of our information systems and networks and those of our service providers. A significant or repeated reduction in the performance, security or availability of our information systems and network infrastructure or that of our service providers could harm our ability to conduct our business, and harm our reputation and ability to attract and retain users, customers, advertisers and content providers. Many of our products are interactive Internet applications that by their very nature require communication between a client and server to operate.

We sell many of our products and services through online sales transactions directly with consumers, and their credit card information is collected and stored by our payment processors. The systems of our third party service providers may not prevent future improper access or disclosure of credit card information or personally identifiable information. We have a privacy policy concerning the collection, use and disclosure of user data involved in interactions between our client, third party payment providers, and server products. A security breach that leads to disclosure of consumer account information, or any failure by us to comply with our posted privacy policy or existing or new privacy legislation, could harm our reputation, impact the market for our products and services, or subject us to litigation. We have on occasion experienced system errors and failures that caused interruption in availability of products or content or an increase in response time. Problems with our systems and networks, or the third party systems and networks that we utilize, could result from a failure to adequately maintain and enhance these systems and networks, natural disasters and similar events, power failures, intentional actions to disrupt systems and networks and many other causes. Many of our services do not currently have fully redundant systems or a formal disaster recovery plan, and we may not have adequate business interruption insurance to compensate us for losses that may occur from a system outage.

Changes in regulations applicable to the Internet and e-commerce that increase the taxes on the services we provide could materially harm our business and operating results.

As Internet commerce continues to evolve, increasing taxation by state, local or foreign tax authorities becomes more likely. For example, taxation of electronically delivered products and services or other charges imposed by government agencies may also be imposed. We collect transactional taxes and we believe we are compliant and current in all jurisdictions where we have a collection obligation for transaction taxes. Any regulation imposing greater taxes or other fees for products and services could result in a decline in the sale of products and services and the viability of those products and services, harming our business and operating results. A successful assertion by one or more states or foreign tax authorities that we should collect and remit sales or other taxes on the sale of our products or services could result in substantial liability for past sales.

In those countries where we have a tax obligation, we collect and remit value added tax, or VAT, on sales of “electronically supplied services” provided to European Union residents. The collection and remittance of VAT subjects us to additional currency fluctuation risks.

Changes in accounting standards and subjective assumptions, estimates, and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition.

We prepare our financial statements in conformity with GAAP. These accounting principles are subject to interpretation or changes by the Financial Accounting Standards Board, or FASB, and the SEC, and new accounting pronouncements and

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varying interpretations of accounting standards and practices have occurred in the past and are expected to occur in the future. Moreover, our financial statements require the application of judgments and estimates regarding a wide range of matters that are relevant to our business, such as revenue recognition, asset impairment and fair value determinations, and the acquisition method of accounting and its related estimated fair value amounts. Changes in accounting standards or practices, or in our judgments and estimates underlying accounting standards and practices, could harm and/or materially impact our operating results and/or financial condition. Changes to existing accounting rules or to our judgments and estimates underlying those rules could materially impact our reported operating results and financial condition.

We may be subject to additional income tax assessments and changes in applicable tax regulations could adversely affect our financial results.

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes, income taxes payable, and net deferred tax assets. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different than that which is reflected in our historical financial statements. An audit or litigation can result in significant additional income taxes payable in the U.S. or foreign jurisdictions which could have a material adverse effect on our financial condition and results of operations.

Risks Related to our Governance and Capital Structure

Our Chairman of the Board and Chief Executive Officer beneficially owns 38.5% of our common stock, which gives him significant control over certain major decisions on which our shareholders may vote or which may discourage an acquisition of us.

Robert Glaser, our Chairman of the Board and Chief Executive Officer, beneficially owns 38.5% of our common stock. As a result, Mr. Glaser and his affiliates will have significant influence to:

•elect or defeat the election of our directors;

•amend or prevent amendment of our articles of incorporation or bylaws;

•effect or prevent a merger, sale of assets or other corporate transaction; and

•control the outcome of any other matter submitted to the shareholders for vote.

Furthermore, on February 10, 2020, we entered into a Series B Preferred Stock Purchase Agreement with Mr. Glaser pursuant to which Mr. Glaser invested approximately $10.0 million in RealNetworks in exchange for the issuance to him of approximately 8 million shares of our Series B Preferred Stock, par value $0.001 per share. The rights, preferences, limitations, and powers of the Series B Preferred Stock are set forth in and governed by the designation of rights and preferences of Series B Preferred Stock filed with the Secretary of State of the State of Washington. Those rights, preferences, limitations, and powers include the right to proportional adjustment and the right to any dividends or distributions declared with regard to our common stock, but the Series B Preferred Stock has no voting or consent rights, has no liquidation preference, has no preferred dividend, and has limitations on transferability. Each share of Series B Preferred Stock is convertible into one share of our common stock, however no conversion is permitted in the event that it would cause Mr. Glaser’s beneficial ownership of our common stock to exceed the 38.5% threshold set forth in our shareholder rights plan dated November 30, 2018.

The stock ownership of Mr. Glaser may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of RealNetworks, which in turn could reduce our stock price or prevent our shareholders from realizing a premium over our stock price.

Provisions of our charter documents, shareholder rights plan, and Washington law could discourage our acquisition by a third party.

Our articles of incorporation provide for a strategic transactions committee of the board of directors. Without the prior approval of this committee, and subject to certain limited exceptions, the board of directors does not have the authority to:

•adopt a plan of merger;

•authorize the sale, lease, exchange or mortgage of assets representing more than 50% of the book value of our assets prior to the transaction or on which our long-term business strategy is substantially dependent;

•authorize our voluntary dissolution; or

•take any action that has the effect of any of the above.

Mr. Glaser has special rights under our articles of incorporation to appoint or remove members of the strategic transactions committee at his discretion that could make it more difficult for RealNetworks to be sold or to complete another change of control transaction without Mr. Glaser’s consent. RealNetworks has also entered into an agreement providing Mr. Glaser with certain contractual rights relating to the enforcement of our charter documents and Mr. Glaser’s roles and authority within RealNetworks. These rights and his role as Chairman of the Board of Directors, together with Mr. Glaser’s significant beneficial ownership, create unique potential for concentrated influence of Mr. Glaser over potentially material transactions involving RealNetworks and decisions regarding the future strategy and leadership of RealNetworks.

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We adopted a shareholder rights plan in December 1998, which was amended and restated in December 2008, amended in April 2016 and February 2018, and again amended and restated in November 2018. The plan provides that shares of our common stock have associated preferred stock purchase rights, the exercise of which would make the acquisition of RealNetworks by a third party more expensive to that party, having the effect of discouraging third parties from acquiring RealNetworks without the approval of our board of directors, which has the power to redeem these rights and prevent their exercise.

Washington law imposes restrictions on some transactions between a corporation and certain significant shareholders. The foregoing provisions of our charter documents, shareholder rights plan, our agreement with Mr. Glaser, and Washington law, as well as our charter provisions that provide for a classified board of directors and the availability of “blank check” preferred stock, could have the effect of making it more difficult or more expensive for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. These provisions may therefore have the effect of limiting the price that investors might be willing to pay in the future for our common stock.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable

(b) Not applicable

(c) Not applicable

Item 3.   Default Upon Senior Securities

None 

Item 4.   Mine Safety Disclosures

Not applicable

Item 5.   Other Information

None

Item 6.   Exhibits

See Index to Exhibits below.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-Q Report to be signed on its behalf by the undersigned, thereunto duly authorized.

REALNETWORKS, INC.
By:	/s/    Christine Chambers
	Christine Chambers
Title:	Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

Dated: May 13, 2021

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INDEX TO EXHIBITS

Exhibit Number	Description
10.1	Offer letter dated January 15, 2021 between RealNetworks, Inc. and Christine Chambers
31.1	Certification of Robert Glaser, Certification of Robert Glaser, Chairman and Chief Executive Officer of RealNetworks, Inc., pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Christine Chambers, Chief Financial Officer of RealNetworks, Inc., pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Robert Glaser, Chairman and Chief Executive Officer of RealNetworks, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Christine Chambers, Chief Financial Officer of RealNetworks, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

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EX-10.1

Exhibit 10.1

January 15, 2021

Christine Chambers

Via e-mail

Dear Christine,

I am extremely pleased to offer you employment at RealNetworks, Inc. (“Real”, “RealNetworks”, the “Company” or “us”) as Senior Vice President, Chief Financial Officer and Treasurer, reporting directly to Mike Ensing, President & COO. Your start date as a Senior Vice President at Real will be February 22, 2021. You will officially become the Chief Financial Officer and Treasurer of RealNetworks on a date to be determined between your start date and March 15, 2021.

This offer is for a full-time, exempt, regular position with RealNetworks at our headquarters location in Seattle, Washington. Your responsibilities will be as directed by RealNetworks commensurate with your title. You will be paid a salary, which is equivalent on an annualized basis to $330,000 (subject to normal withholdings), payable semi-monthly in accordance with our normal payroll procedures. You are eligible to participate in the Executive MBO Plan with an annual target bonus equivalent to 75% of your base salary, or $247,500, for an annual target total cash compensation of $577,500. Specific targets will be established by the Compensation Committee of our Board of Directors annually. For the 2021 plan year, your eligibility in the Executive MBO Plan will be pro-rated based on full months’ eligibility. Eligible employees hired after the first of the month will not begin pro-ration of their target bonus until the first day of the next month. Your first year bonus payout will include a guaranteed minimum payout of $126,000.

You will be eligible to receive equity awards subject to the terms of the RealNetworks 2005 Stock Incentive Plan (the “Plan”). Subject to and effective upon the commencement of your employment and the approval of the Compensation Committee, you will receive a grant of stock options for the purchase of 250,000 shares of RealNetworks common stock. These options will begin vesting on the first day of your employment and will be subject to all other provisions contained in the Plan and your stock option award agreement. These stock options will fully vest after four years of continuous employment in accordance with Real’s standard vesting practices for new employees (i.e. vesting of 25% after the first 12 months of employment and vesting of 12.5% at the expiration of each successive six months of employment). Your stock options will be granted by the Compensation Committee no later than 20 business days after your employment start date (the “Grant Date”). The exercise price of the stock options granted to you shall be equal to the fair market value of RealNetworks common stock on the Grant Date. Fair market value shall equal the closing price for a share of RealNetworks common stock on the Grant Date as reported by The NASDAQ Stock Market. Please be aware that unvested stock options are forfeited upon termination of employment, except as otherwise provided.

You will receive a sign-on bonus of $100,000.00, subject to standard withholdings, no later than the second pay date following the commencement of your employment from your start date. The sign-on bonus is subject to repayment by you on a prorated basis if you voluntarily leave RealNetworks within 24 months of your start date other than for “good reason” (as hereinafter defined).

Further, RealNetworks will provide you with $6000.00 annually for each of the next three years to cover your expenses for engaging an executive coach. This amount may be considered taxable income.

RealNetworks offers a comprehensive array of employee benefit programs. You will receive paid time off and, upon satisfying plan applicable eligibility or waiting periods, medical/ dental/vision coverage, 401(k) participation, disability and life insurance coverage and other benefits (“Benefits”) as described in the RealNetworks Employee Handbook, Benefit Plan descriptions, and RealNetworks policies. All of the Benefits are subject to change upon notice from RealNetworks.

You will be regarded as a key employee under certain federal regulations governing family and medical leave. This status will require that you work closely with us in planning should you develop a need for family or medical leave.

In the event that RealNetworks terminates your employment without “cause” or if you terminate your employment for “good reason”, and in consideration for your signing (and not revoking) a customary separation and release agreement to be provided by RealNetworks at the time of termination, RealNetworks will provide you, at its option, with either (a) a lump sum payment equal to 6 months of your then current base salary, or (b) 6 monthly payments of your then current base salary. Also, RealNetworks will cover your COBRA costs for up to 6 months untilthe earlier of (a) 6 months or (b) you have another employer covering your health care costs. Such severance benefits are subject to the terms set forth on Exhibit A under the section titled “Release and Section 409A.”

You agree that in the event you wish to terminate your employment at RealNetworks other than for “good reason,” you will provide us with 90 days written notice and will continue to work fulltime for RealNetworks during that 90 day period unless RealNetworks determines that it does not need your services. You will be paid for any time actually worked.

In addition to the severance benefits offered above, in the event of a “Change in Control” (“CIC”), the Company agrees to provide you certain benefits as set forth in its Change of Control and Severance Agreement to be effective as of your start date, which agreement will be provided under separate cover (the “CIC Agreement”). In the event that your employment terminates in a qualifying termination and subject to the other conditions in the CIC Agreement, you will receive 1.5 times your regular severance plus 1 year accelerated vesting of any unvested, non-performance based stock options.

It is our policy that employees may not use or disclose confidential information or trade secrets obtained from any source or during any prior employment. RealNetworks requires employees to abide by all contractual and legal obligations they may have to prior employers or others, such as limits on disclosure of information or competition. Prior to signing this letter, you must inform us if you are subject to any such obligations that would prevent you from working at RealNetworks in your intended capacity or that would otherwise restrict you in the performance of your services to RealNetworks. Violation of this requirement may result in termination of your employment with RealNetworks. By signing this letter, you further agree that you will not bring to RealNetworks any confidential documents of another, nor disclose any confidential information of another, and that you will comply fully with these requirements.

Our employment relationship will be terminable at will, which means that either you or RealNetworks may terminate your employment at any time and for any reason or no reason, subject only to our respective obligations set forth in this letter agreement. Your right to receive payments described herein are subject to and conditioned upon your signing a valid general and complete release of all claims (except those relating to RealNetworks compensation obligations described under this letter agreement) against RealNetworks (and its related entities and persons) in a form provided by RealNetworks. Notwithstanding anything in the preceding sentence or elsewhere in this letter agreement to the contrary, the release will preserve and not release (1) your rights to indemnification from RealNetworks or its insurers with respect to any claims against you and (2) your rights pursuant to the CIC Agreement in the event it is later determined that your termination occurred during a Change in Control Period (as defined in the CIC Agreement).

You represent that the execution of this letter agreement, your employment with RealNetworks, and the performance of your proposed duties to RealNetworks will not violate any agreements or obligations you may have to any former employer or third party and you are not subject to any restrictions that would prevent or limit you from carrying out your duties for RealNetworks.

This offer is contingent on (i) the approval of RealNetworks’ Compensation Committee, (ii) your providing evidence of employability as required by federal law (which includes providing RealNetworks within 3 days after your employment commences with acceptable evidence of your identity and US employment eligibility), (iii) our receiving acceptable results from any background check, credit check and/or reference check, and (iv) you signing RealNetworks' Development, Confidentiality and Noncompetition Agreement, attached hereto.You understand and agree to complete a credit, criminal, employment, and educational

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background check administered by RealNetworks preferred vendor in a timely manner. Further, you understand that any false information, omissions or misrepresentations of facts called for in your application or the completion of any check may result in discharge at any time during your employment.

RealNetworks provides equal opportunity in employment and will administer its policies with regard to recruitment, training, promotion, transfer, demotion, layoff, termination, compensation and benefits without regard to race, religion, color, national origin, citizenship, marital status, sex, sexual orientation, age, disability or status as a disabled veteran or veteran of the Vietnam era or any other characteristic or status protected by applicable law.

This letter agreement, the Development, Confidentiality and Noncompetition Agreement, the 2005 Stock Incentive Plan, the Change of Control and Severance Agreement, and your stock option award agreements contain the entire agreement between you and RealNetworks relating to your employment and supersede all prior oral and written discussion, agreements and understandings. This letter agreement may not be modified except in writing signed by both you and RealNetworks. Any disputes regarding this letter agreement or your employment with RealNetworks shall be governed by and construed in accordance with the laws of the State of Washington. If any provision of this letter agreement is deemed to be invalid or unenforceable, at RealNetworks option, the remaining terms shall continue in full force and effect.

This offer is subject to the approval of RealNetworks’ Compensation Committee and completion of a background check.

We are excited about the prospect of you joining RealNetworks and look forward to working with you. Please let me know if you have questions about this offer.

Sincerely,

Michael Parham

SVP & General Counsel

RealNetworks, Inc.

I have read and agree to the terms of employment contained in this letter agreement and the attached Development, Confidentiality and Noncompetition Agreement, which represent a full, complete and fair statement of the offer of employment made to me by RealNetworks, Inc.

Christine Chambers: Date: _________________________

3

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert Glaser, certify that:

1.I have reviewed this report on Form 10-Q of RealNetworks, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 13, 2021
/s/ Robert Glaser
Robert Glaser
Title:	Chairman and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christine Chambers, certify that:

1.I have reviewed this report on Form 10-Q of RealNetworks, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 13, 2021
/s/ Christine Chambers
Christine Chambers
Title:	Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Robert Glaser, Chairman of the Board of Directors and Chief Executive Officer of RealNetworks, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of RealNetworks, Inc. on Form 10-Q for the fiscal quarter ended March 31, 2021 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of RealNetworks, Inc.

Date:	May 13, 2021
By:	/s/ Robert Glaser
	Name:	Robert Glaser
	Title:	Chairman and Chief Executive Officer
		(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to RealNetworks, Inc. and will be retained by RealNetworks, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Christine Chambers, Senior Vice President, Chief Financial Officer and Treasurer of RealNetworks, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of RealNetworks, Inc. on Form 10-Q for the fiscal quarter ended March 31, 2021 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of RealNetworks, Inc.

Date:	May 13, 2021
By:	/s/ Christine Chambers
	Name:	Christine Chambers
	Title:	Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to RealNetworks, Inc. and will be retained by RealNetworks, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2021	May 05, 2021
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Amendment Flag	false
Document Period End Date	Mar. 31, 2021
Document Transition Report	false
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Trading Symbol	RNWK
Entity Registrant Name	RealNetworks, Inc.
Entity Central Index Key	0001046327
Entity File Number	1-37745
Current Fiscal Year End Date	--12-31
Entity Incorporation, State or Country Code	WA
Entity Tax Identification Number	91-1628146
City Area Code	(206)
Local Phone Number	674-2700
Entity Address, Address Line One	1501 First Avenue South, Suite 600
Entity Address, City or Town	Seattle
Entity Address, State or Province	WA
Entity Address, Postal Zip Code	98134
Entity Filer Category	Non-accelerated Filer
Entity Interactive Data Current	Yes
Entity Current Reporting Status	Yes
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		46,907,403
Security Exchange Name	NASDAQ
Common Stock [Member]
Document Information [Line Items]
Title of 12(b) Security	Common Stock, Par Value $0.001 per share
Convertible Preferred Stock [Member]
Document Information [Line Items]
Title of 12(b) Security	Preferred Share Purchase Rights

XML

Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2021

Accounting Changes and Error Corrections [Abstract]

Recent Accounting Pronouncements

Note 2. Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In August 2020, the Financial Accounting Standards Board ("FASB") issued new guidance that simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. The guidance enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. It is effective for annual reporting periods beginning after December 15, 2023, with early adoption permitted. This update permits the use of either the modified retrospective or fully retrospective method of transition. We are in the process of evaluating the effect that this new guidance will have on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued new guidance simplifying the test for goodwill impairment. The new guidance eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the reporting unit's carrying amount exceeds the reporting unit's fair value. This guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2022, with early adoption permitted. We do not currently expect the adoption to have a material impact on our consolidated financial statements and related disclosures.

In June 2016, the FASB issued new guidance amending existing guidance for the accounting of credit losses on financial instruments. Under the new guidance, the valuation allowance for credit losses is expected to be incurred over the financial asset’s contractual term. We reviewed the new credit loss standard and determined that it applies to our accounts receivable, which are typically of short duration and for which we have not historically experienced significant credit losses. This guidance is effective for us in fiscal years beginning after December 15, 2022 with any cumulative effect of adoption recorded as an adjustment to retained earnings. We are in the process of evaluating the effect that this new guidance will have on our consolidated financial statements and related disclosures.

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Current assets:
Cash and Cash Equivalents, at Carrying Value	$ 17,015	$ 23,940
Allowance for Doubtful Accounts Receivable, Current	630	629
Accounts Receivable, after Allowance for Credit Loss, Current	12,469	10,229
Deferred Costs, Current	262	196
Marketable Securities	5,693	9,965
Prepaid Expense and Other Assets, Current	3,833	3,480
Total current assets	39,272	47,810
Equipment, software, and leasehold improvements, at cost:
Equipment And Software Gross	30,313	30,726
Leasehold Improvements, Gross	2,745	2,776
Total equipment, software, and leasehold improvements	33,058	33,502
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	31,381	31,631
Net equipment, software, and leasehold improvements	1,677	1,871
Operating Lease, Right-of-Use Asset	4,771	7,937
Restricted Cash and Investments, Noncurrent	1,630	1,630
Other Assets, Noncurrent	3,792	4,150
Deferred Costs, Noncurrent	71	74
Deferred Income Tax Assets, Net	874	909
Goodwill	17,191	17,375
Total assets	69,278	81,756
Current liabilities:
Accounts Payable, Current	3,448	2,750
Accrued Expenses And Other Current Liabilities	15,230	17,850
Deferred Revenue, Current	2,302	2,122
Total current liabilities	20,980	22,722
Deferred Revenue, Noncurrent	35	45
Deferred Income Tax Liabilities, Net	1,101	1,129
Operating Lease, Liability, Noncurrent	6,098	6,837
Long-term Debt	2,902	2,895
Other Liabilities, Noncurrent	2,171	2,241
Total liabilities	33,287	35,869
Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Additional Paid in Capital	656,800	655,606
Accumulated Other Comprehensive Income (Loss), Net of Tax	(61,177)	(60,641)
Retained Earnings (Accumulated Deficit)	(559,310)	(548,862)
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest	36,359	46,149
Stockholders' Equity Attributable to Noncontrolling Interest	(368)	(262)
Stockholders' Equity Attributable to Parent, Total	35,991	45,887
Total liabilities and equity	69,278	81,756
Preferred stock, Series A
Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Preferred stock	0	0
Series B Preferred Stock
Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Preferred stock	8	8
Preferred stock, Undesignated series
Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Preferred stock	0	0
Common Stock [Member]
Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Common Stock, Value, Issued	$ 38	$ 38

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Allowance for Doubtful Accounts Receivable, Current	$ 630	$ 629
Preferred stock, par value (USD per share)	$ 0.001	$ 0.001
Preferred stock, Series A
Preferred stock, authorized	200,000	200,000
Series B Preferred Stock
Preferred stock, authorized	8,100,000	8,100,000
Preferred stock, shares issued	8,065,000	8,065,000
Preferred stock, shares outstanding	8,065,000	8,065,000
Preferred stock, Undesignated series
Preferred stock, authorized	51,700,000	51,700,000
Common Stock [Member]
Common stock, par value (USD per share)	$ 0.001	$ 0.001
Common stock, authorized	250,000,000	250,000,000
Common stock, issued	38,653,000	38,424,000
Common stock, outstanding	38,653,000	38,424,000

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Statement [Abstract]
Revenue	$ 15,888	$ 16,822
Cost of revenue	3,679	4,104
Gross profit	12,209	12,718
Operating expenses:
Research and development	6,238	6,606
Sales and marketing	5,137	6,000
General and administrative	4,898	5,161
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability	(1,040)	(300)
Restructuring and other charges	3,171	86
Total operating expenses	18,404	17,553
Operating loss	(6,195)	(4,835)
Other income (expenses):
Interest Expense	95	0
Interest income	13	6
Gain (Loss) on Sale of Investments	(4,272)	0
Other income, net	104	238
Nonoperating Income (Expense), Total	(4,250)	244
Loss from continuing operations before income taxes	(10,445)	(4,591)
Income tax expense	109	25
Net loss from continuing operations	(10,554)	(4,616)
Net loss from discontinued operations, net of tax	0	(73)
Net loss	(10,554)	(4,689)
Net loss attributable to noncontrolling interests of continuing operations	(106)	(53)
Net income (loss) attributable to noncontrolling interests of discontinued operations	0	6
Net loss attributable to RealNetworks	(10,448)	(4,642)
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	(10,448)	(4,563)
Income (Loss) from Discontinued Operations, Net of Tax, Attributable to Parent	0	(79)
Net Income (Loss) Attributable to Parent	$ (10,448)	$ (4,642)
Continuing operations, basic (USD per share)	$ (0.27)	$ (0.12)
Discontinued operations, basic (USD per share)	0	0
Basic net income (loss) per share (USD per share)	(0.27)	(0.12)
Continuing operations, diluted (USD per share)	(0.27)	(0.12)
Discontinued operations, diluted (USD per share)	0	0
Diluted net income (loss) per share (USD per share)	$ (0.27)	$ (0.12)
Shares used to compute basic net income (loss) per share	38,502,000	38,229,000
Shares used to compute diluted net income (loss) per share	38,502,000	38,229,000

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Statement) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	$ (10,554)	$ (4,689)
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax	(536)	(907)
Other Comprehensive Income (Loss), Net of Tax, Total	(536)	(907)
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest, Total	(11,090)	(5,596)
Comprehensive Income (Loss), Net of Tax, Attributable to Noncontrolling Interest	(106)	(47)
Comprehensive Income (Loss), Net of Tax, Attributable to Parent, Total	(10,984)	(5,549)
Accumulated Foreign Currency Adjustment Attributable to Parent [Member]
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax	$ (536)	$ (907)

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Cash flows from operating activities:
Income (Loss) from Continuing Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest	$ (10,554)	$ (4,616)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation, Depletion and Amortization, Nonproduction	204	280
Share-based Payment Arrangement, Noncash Expense	836	380
Gain (Loss) on Investments	4,272	0
Foreign currency (gain) loss	(103)	(210)
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability	(1,040)	(300)
Operating Lease, Impairment Loss	2,461	0
Increase (Decrease) in Accounts Receivable	2,319	693
Increase (Decrease) in Prepaid Expense and Other Assets	(496)	453
Increase (Decrease) in Accounts Payable	727	66
Increase (Decrease) in Accrued Liabilities and Other Operating Liabilities	(1,956)	(377)
Net cash used in operating activities- continuing operations	(6,976)	(5,923)
Net cash provided by operating activities- discontinued operations	0	1,299
Net cash used in operating activities	(6,976)	(4,624)
Cash flows from investing activities:
Payments to Acquire Property, Plant, and Equipment	56	80
Net cash used in investing activities- continuing operations	(56)	(80)
Net cash used in investing activities- discontinued operations	0	(14)
Net cash used in investing activities	(56)	(94)
Cash flows from financing activities:
Proceeds from Stock Options Exercised	468	0
Proceeds from Issuance of Preferred Stock and Preference Stock	0	10,000
Payment, Tax Withholding, Share-based Payment Arrangement	110	0
Net Cash Provided by (Used in) Financing Activities, Continuing Operations	358	10,000
Cash Provided by (Used in) Financing Activities, Discontinued Operations	0	(2,404)
Net cash provided by financing activities	358	7,596
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(251)	(637)
Net (decrease) increase in cash, cash equivalents and restricted cash	(6,925)	2,241
Cash, cash equivalents and restricted cash, beginning of period	25,570	22,179
Cash, cash equivalents and restricted cash end of period	18,645	24,420
Less: Cash, cash equivalents and restricted cash from discontinued operations	0	8,025
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Total	$ 18,645	$ 16,395

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member]	Parent [Member]	Noncontrolling Interest [Member]	Preferred Class B	Preferred Class B Preferred Stock	Preferred Class B Additional Paid-in Capital [Member]	Preferred Class B Parent [Member]
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest		$ 38	$ 644,070	$ (61,323)	$ (544,010)	$ 38,775	$ (502)		$ 0
Stockholders' Equity Attributable to Parent	$ 38,273
Shares, Outstanding at Dec. 31, 2019		38,227							0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period		4
APIC, Share-based Payment Arrangement, Increase for Cost Recognition	380		380			380
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax	(907)					(907)
Net Income (Loss) Attributable to Parent	(4,642)				(4,642)	(4,642)
Net loss attributable to noncontrolling interests of continuing operations	(53)						(47)
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	(4,689)
Shares, Outstanding at Mar. 31, 2020		38,231							8,065
Issuance of Preferred B Stock (in shares)									8,065
Stock Issued During Period, Value, New Issues								$ 10,000	$ 8	$ 9,992	$ 10,000
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest		$ 38	654,442	(62,230)	(548,652)	43,606	(549)		8
Stockholders' Equity Attributable to Parent	43,057
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest	46,149	$ 38	655,606	(60,641)	(548,862)	46,149	(262)		$ 8
Stockholders' Equity Attributable to Parent	45,887
Shares, Outstanding at Dec. 31, 2020		38,424							8,065
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period		229
Stock Issued During Period, Value, Stock Options Exercised	358		358			358
APIC, Share-based Payment Arrangement, Increase for Cost Recognition	836		836			836
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax	(536)					(536)
Net Income (Loss) Attributable to Parent	(10,448)				(10,448)	(10,448)
Net loss attributable to noncontrolling interests of continuing operations	(106)						(106)
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	(10,554)
Shares, Outstanding at Mar. 31, 2021		38,653							8,065
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest	36,359	$ 38	$ 656,800	$ (61,177)	$ (559,310)	$ 36,359	$ (368)		$ 8
Stockholders' Equity Attributable to Parent	$ 35,991

XML

Description of Business and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

Description of Business and Summary of Significant Accounting Policies

Note 1. Description of Business and Summary of Significant Accounting Policies

Description of Business. RealNetworks provides digital media software and services to consumers, mobile carriers, device manufacturers, system integrators, and other businesses. Consumers use our digital media products and services to store, organize, play, manage and enjoy their digital media content, either directly from us or through our distribution partners. Over time, we have leveraged our technical expertise and access to proprietary data sources to develop a new generation of artificial intelligence (AI)-based products and solutions. The main two products and key investment initiatives in our AI portfolio are SAFR, our AI-based computer vision platform, and Kontxt, our natural language processing-based message classification and analysis product.

Rhapsody International, Inc. (doing business as Napster) was held-for-sale and treated as discontinued operations for accounting and disclosure purposes as of the third quarter of 2020. The sale of Napster was completed during the fourth quarter of 2020. The results of operations and cash flows for our discontinued operations have been segregated from the results of continuing operations and segment results, and Napster’s operating results were recast to conform to this presentation in 2020. The notes to the condensed consolidated financial statements, unless otherwise indicated, are on a continuing operations basis. See Note 5. Dispositions for additional details regarding the sale of Napster.

Inherent in our business are various risks and uncertainties, including a limited history of certain of our product and service offerings. RealNetworks' success will depend on the acceptance of our technology, products and services and the ability to generate related revenue and cash flow.

In this Quarterly Report on Form 10-Q (10-Q or Report), RealNetworks, Inc., together with its subsidiaries, is referred to as "RealNetworks," the "Company," "we," "us," or "our." "RealPlayer," "RMHD," "RealMedia," "GameHouse," "Kontxt," "SAFR" and other trademarks of ours appearing in this report are our property.

Basis of Presentation. The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries in which it has a more than 50% voting interest. Noncontrolling interests primarily represent third-party ownership in the equity of Napster and Scener Inc. ("Scener") and are reflected separately in the Company's financial statements. Intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the periods presented. Operating results for the quarter ended March 31, 2021 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ending December 31, 2021. Certain information and disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

Liquidity and Capital Resources. The Company continues to incur operating losses from continuing operations, including net operating losses of $6.2 million and $4.8 million for the quarters ended March 31, 2021 and 2020, respectively. The Company had an accumulated deficit of $559.3 million and $548.9 million as of March 31, 2021 and December 31, 2020, respectively. The Company believes that its cash and cash equivalents of $17.0 million as of March 31, 2021, as well as the unused capacity of its revolving line of credit are adequate to fund the Company's operations for at least one year from the date these financial statements were issued. Additionally, in April 2021, we received net proceeds of approximately $20.3 million from the completion of an equity offering, as described in Note 14. Subsequent Events,

Risks and Uncertainties. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus that causes COVID-19 to be a global pandemic. As the virus spread throughout the U.S. and the world, authorities implemented numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, business limitations, and shutdowns. In addition to the pandemic's widespread impact on public health and global society, reactions to the pandemic as well as measures taken to contain the virus have caused significant turmoil to the global economy and financial markets. Moreover, similar to other companies, we have taken steps to support the health and well-being of our employees, customers, partners and communities, which include working remotely and learning to operate our businesses in a fundamentally different way.

The COVID-19 pandemic and the resultant economic instability and financial market turmoil has added complexity, uncertainty and risk to nearly all aspects of our business. It is difficult to predict the near-term and long-term impacts that the pandemic will have on our results from operations, financial condition, liquidity and cash flows. In the preparation of our financial statements, certain estimates and assumptions regarding these impacts have been made, which could change in future periods and which could differ from actual outcomes.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the 10-K).

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Revenue Recognition Revenue Recognition

3 Months Ended

Mar. 31, 2021

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Note 3. Revenue Recognition

We generate all of our revenue through contracts with customers. Revenue is either recognized over time as the service is provided, or at a point in time when the product is transferred to the customer, depending on the contract type. Our performance obligations typically have an original duration of one year or less.

Disaggregation of Revenue

The following table presents our disaggregated revenue by source and segment (in thousands):

	Quarter Ended March 31, 2021
	Consumer Media		Mobile Services		Games
Business Line
Software License	$	1,875	$	1,391	$	—
Subscription Services	818		4,589		2,528
Product Sales	438		—		3,163
Advertising and Other	178		—		908
Total	$	3,309	$	5,980	$	6,599
	Quarter Ended March 31, 2020
	Consumer Media		Mobile Services		Games
Business Line
Software License	$	2,020	$	831	$	—
Subscription Services	929		5,859		2,770
Product Sales	222		—		2,978
Advertising and Other	324		—		889
Total	$	3,495	$	6,690	$	6,637

The following table presents our disaggregated revenue by sales channel (in thousands):

	Quarter Ended March 31, 2021
	Consumer Media		Mobile Services		Games
Sales Channel
Business to Business	$	2,053	$	5,885	$	1,061
Direct to Consumer	1,256		95		5,538
Total	$	3,309	$	5,980	$	6,599
	Quarter Ended March 31, 2020
	Consumer Media		Mobile Services		Games
Sales Channel
Business to Business	$	2,343	$	6,584	$	1,095
Direct to Consumer	1,152		106		5,542
Total	$	3,495	$	6,690	$	6,637

Contract Balances

The timing of revenue recognition may differ from the timing of invoicing to our customers. We record accounts receivable when the right to consideration becomes unconditional, except for the passage of time. For certain contracts, payment schedules may exceed one year; for those contracts we recognize a long-term receivable. As of March 31, 2021 and December 31, 2020, our balance of long-term accounts receivable was $0.4 million and $0.6 million, respectively, and is included in other long-term assets on our condensed consolidated balance sheets. The decrease in this balance from December 31, 2020 to March 31, 2021 is primarily due to the timing of expected cash receipts. During the quarter ended March 31, 2021, we recorded no impairments to our contract assets.

We record deferred revenue when cash payments are received in advance of our completion of the underlying performance obligation. As of March 31, 2021 and December 31, 2020, we had a deferred revenue balance of $2.3 million and $2.2 million, respectively, primarily due to deferred revenue associated with monthly subscriptions.

Judgments and Estimates

Our contracts with customers can include obligations to provide multiple services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together can require significant judgment. For example, certain contracts include the sale of software licenses or subscriptions as well as services to be delivered over time. Judgment is also required to determine the standalone selling price ("SSP") for each distinct performance obligation in these arrangements. We allocate revenue to each performance obligation based on the relative SSP. We determine SSP for performance obligations based on overall pricing objectives, which take into consideration observable prices and market conditions.

For certain of our contracts, we recognize revenues using the sales- and usage-based exception as defined in the licensing guidance of Topic 606. For these contracts, we typically receive reporting of actual usage a quarter in arrears, and as such, we are required to estimate the current quarter's usage. To make these estimates, we utilize historical reporting information, as well as industry trends and interim reporting to quantify total quarterly usage. As actual usage information is received, we record a true-up in the following quarter to reflect any variance from our estimate. In the three months ended March 31, 2021 and 2020, we did not record any material true-ups to our consolidated financial statements.

Practical Expedients

For those contracts for which we recognize revenue at the amount to which we have the right to invoice for service performed, we do not disclose the value of any unsatisfied performance obligations. We also do not disclose the remaining unsatisfied performance obligations which have an original duration of one year or less. Additionally, we immediately expense sales commissions when incurred as the amortization period would have been less than one year. These costs are recorded within sales and marketing expense.

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

Note 4. Stock-Based Compensation

Total stock-based compensation expense recognized in our unaudited condensed consolidated statements of operations and comprehensive income (loss) includes amounts related to stock options and restricted stock and was as follows (in thousands):

	Quarter Ended March 31,
	2021		2020
Total stock-based compensation expense	$	836	$	380

The fair value of RealNetworks options granted determined using the Black-Scholes model used the following weighted-average assumptions:

	Quarter Ended March 31,
	2021		2020
Expected dividend yield	0	%	0	%
Risk-free interest rate	0.48	%	0.90	%
Expected life (years)	3.9		4.0
Volatility	71	%	45	%

The total stock-based compensation amounts for 2021 and 2020 disclosed above are recorded in their respective line items within operating expenses in the unaudited condensed consolidated statements of operations and comprehensive income (loss). Included in the expense for three months ended March 31, 2021 was stock compensation recorded for 2020 incentive bonuses paid in fully vested restricted stock units, which were authorized and granted during the first quarter of 2021.

As of March 31, 2021, there was $3.0 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock awards. The unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately three years.

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Dispositions (Notes)

3 Months Ended

Mar. 31, 2021

Business Combinations [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure

Note 5. Dispositions

RealNetworks, Inc. entered into a Support Agreement dated August 25, 2020 by and among its 84%-owned subsidiary, Rhapsody International, Inc. (doing business as Napster), and MelodyVR Group PLC, an English public limited company. The Support Agreement was executed in connection with an Agreement and Plan of Merger by and among Napster, MelodyVR, and a wholly owned subsidiary of MelodyVR. The transaction was completed on December 30, 2020. Pursuant to the Merger Agreement, on the closing date, MelodyVR's subsidiary merged with and into Napster, with Napster surviving and becoming a wholly owned subsidiary of MelodyVR. Other than as Securityholder Representative, RealNetworks is not a party to the Merger Agreement.

MelodyVR paid consideration of approximately $26 million to certain holders of debt and equity of Napster, comprised of $12 million in cash, shares of MelodyVR, and a $3 million 18-month indemnity escrow. Of the cash consideration, approximately $5.3 million was used to fully repay the advance to Napster on the revolving line of credit, pay Napster's transaction expenses, and pay amounts to certain of Napster's common stockholders. Additionally, $2.5 million of the cash proceeds were used and 47.8 million MelodyVR shares are to be used by RealNetworks to settle a contingent consideration obligation associated with our January 2019 acquisition from a third party of both a 42% stake in Napster and a $5 million loan to Napster. Net of these items, RealNetworks retained approximately $4.2 million in cash and 173.3 million shares of MelodyVR, as well as the right to any funds released from the $3 million escrow account. The shares of MelodyVR that RealNetworks received may not be sold or transferred, except in limited circumstances, for a period of approximately one year from the close of the transaction.

In March 2021, MelodyVR changed its name to Napster Group PLC (the "Napster Group") and the stock symbol was changed from MVR to NAPS.

Effective on the execution of the Agreement and Plan of Merger on August 25, 2020, Napster was treated as discontinued operations and held-for-sale for accounting and disclosure purposes and subsequently sold in December 2020. As such, Napster’s operating results were recast to conform to this presentation.

The following table summarizes the loss from discontinued operations for the quarter ended March 31, 2020:

Revenue	$	26,323
Cost of revenue	20,072
Gross profit	6,251
Operating expenses	6,504
Operating loss	(253)
Other income	294
Income from discontinued operations before income taxes	41
Income tax expense	114
Net loss from discontinued operations	(73)
Noncontrolling interests in net income from discontinued operations	6
Net loss from discontinued operations attributable to RealNetworks	$	(79)

The 18-month indemnity escrow, which is included in Other assets on the condensed consolidated balance sheets, was reduced from $3.0 million to $2.8 million during the quarter ended March 31, 2021. We are not aware of any additional claims against the escrow at March 31, 2021.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

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 March 31, 2021 and December 31, 2020, 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
	March 31, 2021								March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	17,015	$	—	$	—	$	17,015	$	17,015
Investments	—		—		5,693		5,693		N/A
Restricted cash equivalents	1,630		—		—		1,630		1,630
Total assets	$	18,645	$	—	$	5,693	$	24,338	N/A
Liabilities:
Accrued and other current liabilities
Napster acquisition contingent consideration	$	—	$	—	$	3,760	$	3,760	N/A
Other long-term liabilities
Simple Agreements for Future Equity	—		—		2,106		2,106		N/A
Total liabilities	$	—	$	—	$	5,866	$	5,866	N/A

	Fair Value Measurements as of								Amortized Cost as of
	December 31, 2020								December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	23,940	$	—	$	—	$	23,940	$	23,940
Investments	—		—		9,965		9,965		N/A
Restricted cash equivalents	1,630		—		—		1,630		1,630
Total assets	$	25,570	$	—	$	9,965	$	35,535	N/A
Liabilities:
Accrued and other current liabilities
Napster acquisition contingent consideration	$	—	$	—	$	4,800	$	4,800	N/A
Other long-term liabilities
Simple Agreements for Future Equity	—		—		2,106		2,106		N/A
Total liabilities	$	—	$	—	$	6,906	$	6,906	N/A

Restricted cash equivalents as of March 31, 2021 and December 31, 2020 primarily relate to maintaining a minimum balance of unrestricted cash at the bank. See Note 8. Debt for additional details.

Investments as of March 31, 2021 and December 31, 2020 are comprised of Napster Group ordinary shares received as a portion of the consideration from the Napster disposition, which closed on December 30, 2020. The fair value of these equity securities was calculated using the closing price of the shares as of March 31, 2021 and December 31, 2020 and discounted for a lack of liquidity due to the 12-month contractual restriction on selling or transferring the shares, subject to certain exceptions. The determination of the discount required the use of significant unobservable inputs, such as the lock-up period combined with an estimated equity volatility for the shares, that reflect our own estimates of assumptions that market participants would use. A 10% increase or decrease to the equity volatility rate could result in a $0.1 million decrease or increase, respectively, in the fair value of the stock. For the three months ended March 31, 2021, we recognized unrealized losses of $4.3 million in Loss on equity and other investments, net on the condensed consolidated statements of operations.

Accrued and other current liabilities as of March 31, 2021 and December 31, 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. The valuation methodology of the contingent consideration at March 31, 2021 and December 31, 2020 was based on RealNetworks' contractual obligation to pay the seller of the Napster interests acquired by RealNetworks in January 2019. In April 2021, the Company and the seller agreed on the form of final payment of the

contingent consideration, resulting in a cash payment of $2.5 million and the transfer of 47.8 million ordinary shares of Napster Group, valued at the December 2020 Napster sale closing date, discounted for a lack of liquidity due to the restriction on selling or transferring the shares. The change in the share price of the Napster Group ordinary shares from the sale closing date to the settlement date resulted in a fair value adjustment to the contingent consideration. During the three months ended March 31, 2021, the Company recognized a gain of $1.0 million in Fair value adjustments to contingent consideration liability on the condensed consolidated statements of operations.

In the third quarter of 2020, Scener, our non-wholly owned subsidiary, received $2.1 million in cash in exchange for the issuance of convertible securities, each a Simple Agreement for Future Equity. The conversion of these securities, or SAFE Notes, is contingent upon the occurrence of specific future capital-raising events by Scener. The future contingent events also contemplate the possibility of Scener having to pay back the original cash investment to each investor. The 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 valuation analysis model for the fair value of the SAFE Notes as of March 31, 2021 and December 31, 2020 used significant unobservable inputs that reflect our own estimates of assumptions that market participants would use. There has been no significant change in the estimated fair value since the issuance in the third quarter of 2020. Significant unobservable inputs to the valuation analysis model include the underlying conversion date for the SAFE Notes, Scener's capitalization prior to conversion of the SAFE Notes, an 80% discount rate as defined in the SAFE Note agreements, conversion price, conversion shares and an annual present value rate. All of the inputs are subject to significant judgment. Based on Scener's outstanding shares, without regard to potential dilution by the SAFE Notes or any other convertible securities, RealNetworks owns 82% of Scener. See Note 13. Related Party Transactions for additional discussion of Scener.

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 three months ended March 31, 2021 and 2020, we did not record any impairments on those assets required to be measured at fair value on a non-recurring basis.

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Accrued and Other Current Liabilities

3 Months Ended

Mar. 31, 2021

Payables and Accruals [Abstract]

Accrued and Other Current Liabilities

Note 7. Accrued and other current liabilities

Accrued and other current liabilities (in thousands):

	March 31, 2021		December 31, 2020
Royalties and other fulfillment costs	$	1,173	$	1,149
Employee compensation, commissions and benefits	3,626		4,512
Sales, VAT and other taxes payable	1,302		1,231
Operating lease liabilities	3,127		3,373
Napster acquisition contingent consideration	3,760		4,800
Other	2,242		2,785
Total accrued and other current liabilities	$	15,230	$	17,850

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Debt Disclosure Text

3 Months Ended

Mar. 31, 2021

Debt Disclosure [Abstract]

Debt

Note 8. Debt

The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law in March 2020, established the Paycheck Protection Program (PPP) to provide a direct incentive for small businesses to keep workers on their payroll. Through the PPP, participating banks write loans to eligible businesses and loan amounts are forgiven to the extent that employee retention criteria are met and proceeds are used to cover eligible costs over a 24-week measurement period following loan funding. In April 2020, following an assessment of eligibility and approval of its Board of Directors, RealNetworks issued a promissory note to a participating bank in the principal amount of $2.9 million pursuant to the PPP. The note has a maturity of 2 years, an interest rate of 1.0%, no pre-payment penalty, a ten-month deferment period starting after the 24-week measurement period, and is eligible for forgiveness pursuant to PPP guidelines. In April 2020, the Secretary of the Treasury and Small Business Administration (SBA) announced that the government will review all PPP loans of more than $2.0 million before there is forgiveness. We applied for forgiveness in January 2021. No assurance can be given that we will be granted forgiveness for the PPP loan. The PPP loan will be derecognized upon confirmation of forgiveness from the SBA and/or upon repayment of the loan in accordance with its terms.

In August 2019, RealNetworks and Napster entered into a Loan and Security Agreement (Loan Agreement) with a third-party financial institution. Under the terms of the Loan Agreement, the bank extended a revolving line of credit (Revolver) not to exceed $10.0 million in the aggregate. In December 2020, at the time of closing the sale of Napster, as further described in Note 5. Dispositions, certain terms of the Loan Agreement were amended, including the removal of Napster as a party to the lending agreement.

In February 2021, we entered into an amendment with the bank on our Revolver, whereby the borrowing base for the Revolver is comprised of accounts receivable and direct to consumer deposits for RealNetworks only. Borrowings may not exceed $6.5 million and are reduced by a $1.0 million standby letter of credit entered into with the bank in connection with certain lease agreements. Advances bear interest at a rate equal to one-half of one percentage point (0.5%) above the greater of the prime rate or 3.25%. The Revolver matures August 1, 2022. The Loan Agreement contains customary covenants, including financial covenants, minimum EBITDA levels to be updated annually, and maintaining a minimum balance of $1.5 million unrestricted cash at the bank. We are in the process of negotiating the customary covenants for 2021, and we do not expect the resulting revisions to have a material effect on the Loan Agreement.

We paid and capitalized $0.6 million of financing fees to enter into the Revolver in August 2019, and the financing fees are being amortized over the term of the credit agreement. The unamortized fees were $0.1 million at March 31, 2021 and are included in Deferred costs, current on our condensed consolidated balance sheets.

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Restructuring Charges

3 Months Ended

Mar. 31, 2021

Restructuring and Related Activities [Abstract]

Restructuring Charges

Note 9. Restructuring Charges

Restructuring and other charges in 2021 and 2020 consist of costs associated with the ongoing reorganization of our business operations and expense re-alignment efforts, which primarily relate to lease impairment and severance costs due to workforce reductions.

Restructuring charges are as follows (in thousands):

	Employee Separation and Other Costs		Asset Related and Other Costs		Total
Costs incurred and charged to expense for the three months ended March 31, 2021	$	581	$	2,590	$	3,171
Costs incurred and charged to expense for the three months ended March 31, 2020	$	86	$	—	$	86

During the quarter ended March 31, 2021, we recorded $2.5 million of lease impairment charges for an office space previously vacated.

Changes to the accrued restructuring liability (which is included in Accrued and other current liabilities) for 2021 are as follows (in thousands):

	Employee Separation Costs
Accrued liability at December 31, 2020	$	346
Costs incurred and charged to expense for the three months ended March 31, 2021, excluding noncash charges	362
Cash payments	(224)
Accrued liability at March 31, 2021	$	484

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Earnings (Loss) Per Share

3 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

Earnings (Loss) Per Share

Note 10. Loss Per Share

Basic net income (loss) per share (EPS) is computed by dividing net income (loss) attributable to RealNetworks by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) attributable to RealNetworks by the weighted average number of common and dilutive potential common shares outstanding during the period. Basic and diluted EPS (in thousands, except per share amounts):

	Quarter Ended March 31,
	2021		2020
Net loss from continuing operations attributable to RealNetworks	$	(10,448)	$	(4,563)
Net loss from discontinued operations attributable to RealNetworks	—		(79)
Net loss attributable to RealNetworks	$	(10,448)	$	(4,642)
Weighted average common shares outstanding used to compute basic EPS	38,502		38,229
Dilutive effect of stock based awards and Series B Preferred Stock	—		—
Weighted average common shares outstanding used to compute diluted EPS	38,502		38,229
Net loss per share attributable to RealNetworks- Basic:
Continuing operations	$	(0.27)	$	(0.12)
Discontinued operations	—		—
Total net loss per share - Basic	$	(0.27)	$	(0.12)
Net loss per share attributable to RealNetworks- Diluted:
Continuing operations	$	(0.27)	$	(0.12)
Discontinued operations	—		—
Total net loss per share - Diluted	$	(0.27)	$	(0.12)

During the quarters ended March 31, 2021 and 2020, 4.5 million and 7.9 million shares of common stock, respectively, of potentially issuable shares from common stock awards were excluded from the calculation of diluted EPS because of their antidilutive effect.

During 2020, approximately 8.1 million shares of Series B Preferred Stock were issued. The Series B Preferred Stock is convertible into common stock on a one-to-one basis subject to the limitation described in Note 13. Related Party Transactions. During the quarters ended March 31, 2021 and 2020, these shares were also excluded from the calculation of diluted EPS because of their antidilutive effect.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 11. Commitments and Contingencies

We have been in the past and could become in the future subject to legal proceedings, governmental investigations, and claims in the ordinary course of business, including employment claims, contract-related claims, and claims of alleged infringement of third-party patents, trademarks, and other intellectual property rights. Such claims, even if not meritorious, could force us to expend significant financial and managerial resources. In addition, given the broad distribution of some of our consumer products, any individual claim related to those products could give rise to liabilities that may be material to us. In the event of a determination adverse to us, we may incur substantial monetary liability, and/or be required to change our business practices. Either of these could have a material adverse effect on our consolidated financial statements.  

On April 6, 2020, RealNetworks Asia Pacific Co., Ltd. received notice of a civil lawsuit filed by Korean Music Copyright Association (KOMCA) seeking damages of $2.6 million. Also named as a defendant in the lawsuit is Kakao M Corp (formerly known as LOEN Entertainment Corp.), one of the largest media publishing companies in Korea, which operates the Melon music platform. The claim is for a late payment penalty under a music licensing contract, pursuant to which, from 2004 to 2017, RealNetworks licensed music for its services to LOEN for its Melon platform. The current lawsuit relates solely to the late payment of music licensing fees under the contract; the underlying music licensing fees were paid by Kakao M to KOMCA in a separate settlement prior to KOMCA’s filing of this lawsuit. While we believe we have meritorious defenses to this lawsuit and intend to vigorously defend RealNetworks, litigation is inherently uncertain and we cannot predict the outcome of this matter. We have not recorded an accrual related to this matter as of March 31, 2021 as it is early in the litigation and any potential liability cannot be reasonably estimated.

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Related Party Transactions

3 Months Ended

Mar. 31, 2021

Related Party Transactions [Abstract]

Related Party Transactions

Note 13. Related Party Transactions

The sale of Napster closed on December 30, 2020. For additional details, see Note 5. Dispositions.

In February 2020, we entered into a Series B Preferred Stock Purchase Agreement with Mr. Glaser, Chairman of the Board and Chief Executive Officer of RealNetworks, pursuant to which Mr. Glaser invested approximately $10.0 million in RealNetworks in exchange for the issuance to him of 8,064,516 shares of Series B Preferred Stock. The Series B Preferred Stock is non-voting and is convertible into common stock on a one-to-one basis, provided, however, that no conversion is permitted in the event that such conversion would cause Mr. Glaser’s beneficial ownership of our common stock to exceed the 38.5% threshold set forth in our Second Amended and Restated Shareholder Rights Plan dated November 30, 2018. The Series B Preferred Stock has no liquidation preference and no preferred dividend.

In July 2020, Mr. Glaser invested $0.7 million into a RealNetworks subsidiary, Scener. Scener is developing a platform that transforms the experience of viewing video entertainment into a social connected playground. The July 2020 funding was in addition to $0.8 million that Mr. Glaser had previously directly invested in 2019. In August 2020, this same subsidiary entered into agreements and received $1.4 million in funding from outside investors. The 2020 investments were in the form of SAFEs, as described in Note 6. Fair Value Measurements. As of March 31, 2021, RealNetworks owned approximately 82% of the subsidiary'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.

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Subsequent Events

3 Months Ended

Mar. 31, 2021

Subsequent Events [Abstract]

Subsequent Event

Note 14. Subsequent Events

In April 2021, we completed an underwritten public offering of 8,250,000 shares of common stock at a price to the public of $2.70 per share. The aggregate gross proceeds from the offering were $22.3 million. Of these proceeds, we received approximately $20.3 million, after deducting underwriting discounts, commissions, and legal and other fees. The proceeds are expected to be used for general corporate purposes and working capital.

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Description of Business and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

Description of Business

Description of Business. RealNetworks provides digital media software and services to consumers, mobile carriers, device manufacturers, system integrators, and other businesses. Consumers use our digital media products and services to store, organize, play, manage and enjoy their digital media content, either directly from us or through our distribution partners. Over time, we have leveraged our technical expertise and access to proprietary data sources to develop a new generation of artificial intelligence (AI)-based products and solutions. The main two products and key investment initiatives in our AI portfolio are SAFR, our AI-based computer vision platform, and Kontxt, our natural language processing-based message classification and analysis product.

Rhapsody International, Inc. (doing business as Napster) was held-for-sale and treated as discontinued operations for accounting and disclosure purposes as of the third quarter of 2020. The sale of Napster was completed during the fourth quarter of 2020. The results of operations and cash flows for our discontinued operations have been segregated from the results of continuing operations and segment results, and Napster’s operating results were recast to conform to this presentation in 2020. The notes to the condensed consolidated financial statements, unless otherwise indicated, are on a continuing operations basis. See Note 5. Dispositions for additional details regarding the sale of Napster.

Inherent in our business are various risks and uncertainties, including a limited history of certain of our product and service offerings. RealNetworks' success will depend on the acceptance of our technology, products and services and the ability to generate related revenue and cash flow.

In this Quarterly Report on Form 10-Q (10-Q or Report), RealNetworks, Inc., together with its subsidiaries, is referred to as "RealNetworks," the "Company," "we," "us," or "our." "RealPlayer," "RMHD," "RealMedia," "GameHouse," "Kontxt," "SAFR" and other trademarks of ours appearing in this report are our property.

Basis of Presentation

Basis of Presentation. The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries in which it has a more than 50% voting interest. Noncontrolling interests primarily represent third-party ownership in the equity of Napster and Scener Inc. ("Scener") and are reflected separately in the Company's financial statements. Intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the periods presented. Operating results for the quarter ended March 31, 2021 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ending December 31, 2021. Certain information and disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

Liquidity and Capital Resources Text Block

Liquidity and Capital Resources. The Company continues to incur operating losses from continuing operations, including net operating losses of $6.2 million and $4.8 million for the quarters ended March 31, 2021 and 2020, respectively. The Company had an accumulated deficit of $559.3 million and $548.9 million as of March 31, 2021 and December 31, 2020, respectively. The Company believes that its cash and cash equivalents of $17.0 million as of March 31, 2021, as well as the unused capacity of its revolving line of credit are adequate to fund the Company's operations for at least one year from the date these financial statements were issued. Additionally, in April 2021, we received net proceeds of approximately $20.3 million from the completion of an equity offering, as described in Note 14. Subsequent Events,

Risk and Uncertainties Text block

Risks and Uncertainties. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus that causes COVID-19 to be a global pandemic. As the virus spread throughout the U.S. and the world, authorities implemented numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, business limitations, and shutdowns. In addition to the pandemic's widespread impact on public health and global society, reactions to the pandemic as well as measures taken to contain the virus have caused significant turmoil to the global economy and financial markets. Moreover, similar to other companies, we have taken steps to support the health and well-being of our employees, customers, partners and communities, which include working remotely and learning to operate our businesses in a fundamentally different way.

The COVID-19 pandemic and the resultant economic instability and financial market turmoil has added complexity, uncertainty and risk to nearly all aspects of our business. It is difficult to predict the near-term and long-term impacts that the pandemic will have on our results from operations, financial condition, liquidity and cash flows. In the preparation of our financial statements, certain estimates and assumptions regarding these impacts have been made, which could change in future periods and which could differ from actual outcomes.

Use of Estimates

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Segment Reporting (Policies)

3 Months Ended

Mar. 31, 2021

Segment Reporting [Abstract]

Segments

Note 12. Segment Information

We manage our business and report revenue and operating income (loss) in three segments: (1) Consumer Media, which includes licensing of our codec technology and our PC-based RealPlayer products, including RealPlayer Plus and related products; (2) Mobile Services, which includes our SaaS services, our integrated RealTimes® platform which is sold to mobile carriers and our computer vision platform, SAFR (Secure Accurate Facial Recognition); and (3) Games, which includes all our games-related businesses, including sales of in-game virtual goods, mobile games and games licenses, games subscription services, and in-game advertising and advertising on game sites.

RealNetworks allocates to its Consumer Media, Mobile Services and Games reportable segments certain corporate expenses which are directly attributable to supporting these businesses, including but not limited to a portion of finance, legal, human resources and headquarters facilities. Remaining expenses, which are not directly attributable to supporting these businesses, are reported as corporate items. These corporate items may also include changes in the fair value of the contingent consideration liability, restructuring charges, and stock compensation charges.

RealNetworks reports three reportable segments based on factors such as how we manage our operations and how the Chief Operating Decision Maker (CODM) reviews results. The CODM reviews financial information presented on both a consolidated basis and on a business segment basis. The accounting policies used to derive segment results are the same as those described in Note 1, Description of Business and Summary of Significant Accounting Policies, in the 2020 10-K.

Segment results for the quarters ended March 31, 2021 and 2020 (in thousands):

Consumer Media	Quarter Ended March 31,
	2021		2020
Revenue	$	3,309	$	3,495
Cost of revenue	478		611
Gross profit	2,831		2,884
Operating expenses	2,201		2,458
Operating income	$	630	$	426

Mobile Services	Quarter Ended March 31,
	2021		2020
Revenue	$	5,980	$	6,690
Cost of revenue	1,492		1,696
Gross profit	4,488		4,994
Operating expenses	6,145		7,588
Operating loss	$	(1,657)	$	(2,594)

Games	Quarter Ended March 31,
	2021		2020
Revenue	$	6,599	$	6,637
Cost of revenue	1,705		1,794
Gross profit	4,894		4,843
Operating expenses	5,098		4,923
Operating loss	$	(204)	$	(80)

Corporate	Quarter Ended March 31,
	2021		2020
Cost of revenue	$	4	$	3
Operating expenses	4,960		2,584
Operating loss	$	(4,964)	$	(2,587)

Our customers consist primarily of consumers and corporations located in the U.S., Europe, and various foreign countries (Rest of the World). Revenue by geographic region (in thousands):

	Quarter Ended March 31,
	2021		2020
United States	$	9,932	$	10,214
Europe	2,230		2,252
Rest of the World	3,726		4,356
Total net revenue	$	15,888	$	16,822

Long-lived assets (consisting of equipment, software, leasehold improvements, operating lease assets, and goodwill) by geographic region (in thousands) are as follows:

	March 31, 2021		December 31, 2020
United States	$	15,426	$	18,318
Europe	7,159		7,638
Rest of the World	1,054		1,227
Total long-lived assets	$	23,639	$	27,183

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Revenue Recognition Revenue Recognition (Tables)

3 Months Ended

Mar. 31, 2021

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

Disaggregation of Revenue

The following table presents our disaggregated revenue by source and segment (in thousands):

	Quarter Ended March 31, 2021
	Consumer Media		Mobile Services		Games
Business Line
Software License	$	1,875	$	1,391	$	—
Subscription Services	818		4,589		2,528
Product Sales	438		—		3,163
Advertising and Other	178		—		908
Total	$	3,309	$	5,980	$	6,599
	Quarter Ended March 31, 2020
	Consumer Media		Mobile Services		Games
Business Line
Software License	$	2,020	$	831	$	—
Subscription Services	929		5,859		2,770
Product Sales	222		—		2,978
Advertising and Other	324		—		889
Total	$	3,495	$	6,690	$	6,637

The following table presents our disaggregated revenue by sales channel (in thousands):

	Quarter Ended March 31, 2021
	Consumer Media		Mobile Services		Games
Sales Channel
Business to Business	$	2,053	$	5,885	$	1,061
Direct to Consumer	1,256		95		5,538
Total	$	3,309	$	5,980	$	6,599
	Quarter Ended March 31, 2020
	Consumer Media		Mobile Services		Games
Sales Channel
Business to Business	$	2,343	$	6,584	$	1,095
Direct to Consumer	1,152		106		5,542
Total	$	3,495	$	6,690	$	6,637

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation Expense

Total stock-based compensation expense recognized in our unaudited condensed consolidated statements of operations and comprehensive income (loss) includes amounts related to stock options and restricted stock and was as follows (in thousands):

	Quarter Ended March 31,
	2021		2020
Total stock-based compensation expense	$	836	$	380

Weighted-Average Assumptions Used to Determine Fair Value of Options Granted

The fair value of RealNetworks options granted determined using the Black-Scholes model used the following weighted-average assumptions:

	Quarter Ended March 31,
	2021		2020
Expected dividend yield	0	%	0	%
Risk-free interest rate	0.48	%	0.90	%
Expected life (years)	3.9		4.0
Volatility	71	%	45	%

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Dispositions (Tables)

3 Months Ended

Mar. 31, 2021

Business Combinations [Abstract]

Schedule of Napster Disposal

The following table summarizes the loss from discontinued operations for the quarter ended March 31, 2020:

Revenue	$	26,323
Cost of revenue	20,072
Gross profit	6,251
Operating expenses	6,504
Operating loss	(253)
Other income	294
Income from discontinued operations before income taxes	41
Income tax expense	114
Net loss from discontinued operations	(73)
Noncontrolling interests in net income from discontinued operations	6
Net loss from discontinued operations attributable to RealNetworks	$	(79)

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

Financial Assets 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 March 31, 2021 and December 31, 2020, 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
	March 31, 2021								March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	17,015	$	—	$	—	$	17,015	$	17,015
Investments	—		—		5,693		5,693		N/A
Restricted cash equivalents	1,630		—		—		1,630		1,630
Total assets	$	18,645	$	—	$	5,693	$	24,338	N/A
Liabilities:
Accrued and other current liabilities
Napster acquisition contingent consideration	$	—	$	—	$	3,760	$	3,760	N/A
Other long-term liabilities
Simple Agreements for Future Equity	—		—		2,106		2,106		N/A
Total liabilities	$	—	$	—	$	5,866	$	5,866	N/A

	Fair Value Measurements as of								Amortized Cost as of
	December 31, 2020								December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	23,940	$	—	$	—	$	23,940	$	23,940
Investments	—		—		9,965		9,965		N/A
Restricted cash equivalents	1,630		—		—		1,630		1,630
Total assets	$	25,570	$	—	$	9,965	$	35,535	N/A
Liabilities:
Accrued and other current liabilities
Napster acquisition contingent consideration	$	—	$	—	$	4,800	$	4,800	N/A
Other long-term liabilities
Simple Agreements for Future Equity	—		—		2,106		2,106		N/A
Total liabilities	$	—	$	—	$	6,906	$	6,906	N/A

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Accrued and Other Current Liabilities (Tables)

3 Months Ended

Mar. 31, 2021

Payables and Accruals [Abstract]

Accrued and Other Liabilities

Accrued and other current liabilities (in thousands):

	March 31, 2021		December 31, 2020
Royalties and other fulfillment costs	$	1,173	$	1,149
Employee compensation, commissions and benefits	3,626		4,512
Sales, VAT and other taxes payable	1,302		1,231
Operating lease liabilities	3,127		3,373
Napster acquisition contingent consideration	3,760		4,800
Other	2,242		2,785
Total accrued and other current liabilities	$	15,230	$	17,850

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Restructuring Charges (Tables)

3 Months Ended

Mar. 31, 2021

Restructuring and Related Activities [Abstract]

Schedule of Restructuring Charges by Type of Cost

Restructuring charges are as follows (in thousands):

	Employee Separation and Other Costs		Asset Related and Other Costs		Total
Costs incurred and charged to expense for the three months ended March 31, 2021	$	581	$	2,590	$	3,171
Costs incurred and charged to expense for the three months ended March 31, 2020	$	86	$	—	$	86

During the quarter ended March 31, 2021, we recorded $2.5 million of lease impairment charges for an office space previously vacated.

Changes to the accrued restructuring liability (which is included in Accrued and other current liabilities) for 2021 are as follows (in thousands):

	Employee Separation Costs
Accrued liability at December 31, 2020	$	346
Costs incurred and charged to expense for the three months ended March 31, 2021, excluding noncash charges	362
Cash payments	(224)
Accrued liability at March 31, 2021	$	484

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Earnings (Loss) Per Share (Tables)

3 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

Calculation of Basic and Diluted Earnings Per Share

Basic and diluted EPS (in thousands, except per share amounts):

	Quarter Ended March 31,
	2021		2020
Net loss from continuing operations attributable to RealNetworks	$	(10,448)	$	(4,563)
Net loss from discontinued operations attributable to RealNetworks	—		(79)
Net loss attributable to RealNetworks	$	(10,448)	$	(4,642)
Weighted average common shares outstanding used to compute basic EPS	38,502		38,229
Dilutive effect of stock based awards and Series B Preferred Stock	—		—
Weighted average common shares outstanding used to compute diluted EPS	38,502		38,229
Net loss per share attributable to RealNetworks- Basic:
Continuing operations	$	(0.27)	$	(0.12)
Discontinued operations	—		—
Total net loss per share - Basic	$	(0.27)	$	(0.12)
Net loss per share attributable to RealNetworks- Diluted:
Continuing operations	$	(0.27)	$	(0.12)
Discontinued operations	—		—
Total net loss per share - Diluted	$	(0.27)	$	(0.12)

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Segment Information (Tables)

3 Months Ended

Mar. 31, 2021

Segment Reporting [Abstract]

Segment Results

Segment results for the quarters ended March 31, 2021 and 2020 (in thousands):

Consumer Media	Quarter Ended March 31,
	2021		2020
Revenue	$	3,309	$	3,495
Cost of revenue	478		611
Gross profit	2,831		2,884
Operating expenses	2,201		2,458
Operating income	$	630	$	426

Mobile Services	Quarter Ended March 31,
	2021		2020
Revenue	$	5,980	$	6,690
Cost of revenue	1,492		1,696
Gross profit	4,488		4,994
Operating expenses	6,145		7,588
Operating loss	$	(1,657)	$	(2,594)

Games	Quarter Ended March 31,
	2021		2020
Revenue	$	6,599	$	6,637
Cost of revenue	1,705		1,794
Gross profit	4,894		4,843
Operating expenses	5,098		4,923
Operating loss	$	(204)	$	(80)

Corporate	Quarter Ended March 31,
	2021		2020
Cost of revenue	$	4	$	3
Operating expenses	4,960		2,584
Operating loss	$	(4,964)	$	(2,587)

Revenue by Geographic Region

Our customers consist primarily of consumers and corporations located in the U.S., Europe, and various foreign countries (Rest of the World). Revenue by geographic region (in thousands):

	Quarter Ended March 31,
	2021		2020
United States	$	9,932	$	10,214
Europe	2,230		2,252
Rest of the World	3,726		4,356
Total net revenue	$	15,888	$	16,822

Long-Lived Assets by Geographic Region

Long-lived assets (consisting of equipment, software, leasehold improvements, operating lease assets, and goodwill) by geographic region (in thousands) are as follows:

	March 31, 2021		December 31, 2020
United States	$	15,426	$	18,318
Europe	7,159		7,638
Rest of the World	1,054		1,227
Total long-lived assets	$	23,639	$	27,183

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Description of Business and Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Operating income (loss)	$ (6,195)		$ (4,835)
Retained Earnings (Accumulated Deficit)	(559,310)			$ (548,862)
Cash and Cash Equivalents, at Carrying Value	$ 17,015			$ 23,940
Proceeds from Issuance of Common Stock, Net of Issuance Costs		$ 20,300

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Revenue Recognition (Disaggregation of Revenue) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Disaggregation of Revenue [Line Items]
Revenue	$ 15,888	$ 16,822
Long-term accounts receivable	400		$ 600
Deferred revenue	2,300		$ 2,200
Software License
Disaggregation of Revenue [Line Items]
Revenue
Subscription Services
Disaggregation of Revenue [Line Items]
Revenue
Product Sales
Disaggregation of Revenue [Line Items]
Revenue
Advertising and Other
Disaggregation of Revenue [Line Items]
Revenue
Consumer Media
Disaggregation of Revenue [Line Items]
Revenue	3,309	3,495
Consumer Media | Business to Business
Disaggregation of Revenue [Line Items]
Revenue	2,053	2,343
Consumer Media | Direct to Consumer
Disaggregation of Revenue [Line Items]
Revenue	1,256	1,152
Consumer Media | Software License
Disaggregation of Revenue [Line Items]
Revenue	1,875	2,020
Consumer Media | Subscription Services
Disaggregation of Revenue [Line Items]
Revenue	818	929
Consumer Media | Product Sales
Disaggregation of Revenue [Line Items]
Revenue	438	222
Consumer Media | Advertising and Other
Disaggregation of Revenue [Line Items]
Revenue	178	324
Mobile Services
Disaggregation of Revenue [Line Items]
Revenue	5,980	6,690
Mobile Services | Business to Business
Disaggregation of Revenue [Line Items]
Revenue	5,885	6,584
Mobile Services | Direct to Consumer
Disaggregation of Revenue [Line Items]
Revenue	95	106
Mobile Services | Software License
Disaggregation of Revenue [Line Items]
Revenue	1,391	831
Mobile Services | Subscription Services
Disaggregation of Revenue [Line Items]
Revenue	4,589	5,859
Mobile Services | Product Sales
Disaggregation of Revenue [Line Items]
Revenue	0	0
Mobile Services | Advertising and Other
Disaggregation of Revenue [Line Items]
Revenue	0	0
Games
Disaggregation of Revenue [Line Items]
Revenue	6,599	6,637
Games | Business to Business
Disaggregation of Revenue [Line Items]
Revenue	1,061	1,095
Games | Direct to Consumer
Disaggregation of Revenue [Line Items]
Revenue	5,538	5,542
Games | Software License
Disaggregation of Revenue [Line Items]
Revenue	0	0
Games | Subscription Services
Disaggregation of Revenue [Line Items]
Revenue	2,528	2,770
Games | Product Sales
Disaggregation of Revenue [Line Items]
Revenue	3,163	2,978
Games | Advertising and Other
Disaggregation of Revenue [Line Items]
Revenue	$ 908	$ 889

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Stock-Based Compensation (Recognized Stock-Based Compensation Expense) (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Share-based Payment Arrangement [Abstract]
Share-based Payment Arrangement, Expense	$ 836	$ 380

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Stock-Based Compensation (Weighted-Average Assumptions Used to Determine Fair Value of Options Granted) (Detail)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Share-based Payment Arrangement [Abstract]
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	0.48%	0.90%
Expected life	3 years 10 months 24 days	4 years
Volatility	71.00%	45.00%

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Stock-Based Compensation (Additional Information) (Detail) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($)
Share-based Payment Arrangement [Abstract]
Total unrecognized compensation cost	$ 3,000
Total unrecognized compensation cost, expected recognition period (in years)	3 years 3 months

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Acquisitions and Dispositions - Napster Disposition Narrative (Details) - USD ($) $ in Thousands	3 Months Ended
	Jun. 30, 2021	Mar. 31, 2021	Dec. 31, 2020	Dec. 30, 2020	Jan. 18, 2019	Dec. 01, 2016
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Interest acquired, percent					8400.00%
Portion of Proceeds from Asset Sale Used to Pay Third Parties				$ 5,300
Contingent Consideration Settlement, Cash	$ 2,500
Contingent Consideration Settlement, Shares	47,800,000
Percentage of shares acquired					42.00%
Loan principal to related party						$ 5,000
Portion of Proceeds from Asset Sale Retained, Net				$ 4,200
Proceeds Retained from Sale of Subsidiary, Shares				173,300,000
Napster Disposal
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Consideration from sale				$ 26,000
Cash consideration				12,000
Indemnity escrow		$ 2,800	$ 3,000	$ 3,000

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Acquisitions and Dispositions - Napster Disposal Income Statement Disclosures (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Net loss from discontinued operations, net of tax	$ 0	$ (73)
Net income (loss) attributable to noncontrolling interests of discontinued operations	0	6
Net loss from discontinued operations attributable to RealNetworks	$ 0	(79)
Napster Disposal
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Revenue		26,323
Cost of revenue		20,072
Gross profit		6,251
Operating expenses		6,504
Operating loss		(253)
Other income		294
Income from discontinued operations before income taxes		41
Income tax expense		114
Net loss from discontinued operations, net of tax		(73)
Net income (loss) attributable to noncontrolling interests of discontinued operations		6
Net loss from discontinued operations attributable to RealNetworks		$ (79)

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Fair Value Measurements (Financial Assets Measured at Fair Value on a Recurring Basis) (Detail) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	$ 24,338	$ 35,535
Accrued royalties, fulfillment and other current liabilities, Napster acquisition contingent consideration	3,127	3,373
Future Issuance Of Equity, Liability	2,106	2,106
Nonfinancial Liabilities Fair Value Disclosure	5,866	6,906
Cash and Cash Equivalents | Cash
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	17,015	23,940
Amortized Cost	17,015	23,940
Securities Investment [Member] | Equity Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	5,693	9,965
Restricted Cash Equivalents And Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	1,630	1,630
Amortized Cost	1,630	1,630
Level 1
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	18,645	25,570
Future Issuance Of Equity, Liability	0	0
Nonfinancial Liabilities Fair Value Disclosure	0	0
Level 1 | Cash and Cash Equivalents | Cash
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	17,015	23,940
Level 1 | Securities Investment [Member] | Equity Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 1 | Restricted Cash Equivalents And Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	1,630	1,630
Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Future Issuance Of Equity, Liability	0	0
Nonfinancial Liabilities Fair Value Disclosure	0	0
Level 2 | Cash and Cash Equivalents | Cash
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 2 | Securities Investment [Member] | Equity Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 2 | Restricted Cash Equivalents And Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 3
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	5,693	9,965
Future Issuance Of Equity, Liability	2,106	2,106
Nonfinancial Liabilities Fair Value Disclosure	5,866	6,906
Level 3 | Cash and Cash Equivalents | Cash
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Level 3 | Securities Investment [Member] | Equity Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	5,693	9,965
Level 3 | Restricted Cash Equivalents And Investments [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value	0	0
Napster
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Accrued royalties, fulfillment and other current liabilities, Napster acquisition contingent consideration	3,760	4,800
Napster | Level 1
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Accrued royalties, fulfillment and other current liabilities, Napster acquisition contingent consideration	0	0
Napster | Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Accrued royalties, fulfillment and other current liabilities, Napster acquisition contingent consideration	0	0
Napster | Level 3
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Accrued royalties, fulfillment and other current liabilities, Napster acquisition contingent consideration	$ 3,760	$ 4,800

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Fair Value Measurements - Additional Information (Detail) - USD ($) $ in Thousands, shares in Millions	3 Months Ended
	Jun. 30, 2021	Mar. 31, 2021	Sep. 30, 2020	Mar. 31, 2020
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Unrestricted Cash And Cash Equivalents Minimum Amount Required		$ 1,500
Cash received for future issuance of equity			$ 2,100
Contingent Consideration Settlement, Cash	$ 2,500
Contingent Consideration Settlement, Shares	47.8
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability		$ (1,040)		$ (300)
Equity Unit Purchase Agreements
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Unobservable Measurement Input, Uncertainty, Description		In the third quarter of 2020, Scener, our non-wholly owned subsidiary, received $2.1 million in cash in exchange for the issuance of convertible securities, each a Simple Agreement for Future Equity. The conversion of these securities, or SAFE Notes, is contingent upon the occurrence of specific future capital-raising events by Scener. The future contingent events also contemplate the possibility of Scener having to pay back the original cash investment to each investor. The 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 valuation analysis model for the fair value of the SAFE Notes as of March 31, 2021 and December 31, 2020 used significant unobservable inputs that reflect our own estimates of assumptions that market participants would use. There has been no significant change in the estimated fair value since the issuance in the third quarter of 2020. Significant unobservable inputs to the valuation analysis model include the underlying conversion date for the SAFE Notes, Scener's capitalization prior to conversion of the SAFE Notes, an 80% discount rate as defined in the SAFE Note agreements, conversion price, conversion shares and an annual present value rate. All of the inputs are subject to significant judgment. Based on Scener's outstanding shares, without regard to potential dilution by the SAFE Notes or any other convertible securities, RealNetworks owns 82% of Scener. See Note 13. Related Party Transactions for additional discussion of Scener.
Equity Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Unobservable Measurement Input, Uncertainty, Description		Investments as of March 31, 2021 and December 31, 2020 are comprised of Napster Group ordinary shares received as a portion of the consideration from the Napster disposition, which closed on December 30, 2020. The fair value of these equity securities was calculated using the closing price of the shares as of March 31, 2021 and December 31, 2020 and discounted for a lack of liquidity due to the 12-month contractual restriction on selling or transferring the shares, subject to certain exceptions. The determination of the discount required the use of significant unobservable inputs, such as the lock-up period combined with an estimated equity volatility for the shares, that reflect our own estimates of assumptions that market participants would use. A 10% increase or decrease to the equity volatility rate could result in a $0.1 million decrease or increase, respectively, in the fair value of the stock. For the three months ended March 31, 2021, we recognized unrealized losses of $4.3 million in Loss on equity and other investments, net on the condensed consolidated statements of operations.
Fair Value, Asset, Recurring Basis, Still Held, Unrealized Gain (Loss)		$ (4,300)

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Accrued and Other Current Liabilities (Detail) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Product Warranty Liability [Line Items]
Royalties and other fulfillment costs	$ 1,173	$ 1,149
Employee compensation, commissions and benefits	3,626	4,512
Sales, VAT and other taxes payable	1,302	1,231
Accrued royalties, fulfillment and other current liabilities, Napster acquisition contingent consideration	3,127	3,373
Operating Lease, Liability, Current	3,760	4,800
Other	2,242	2,785
Total accrued and other liabilities	$ 15,230	$ 17,850

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Debt Disclosure Detail - USD ($) $ in Thousands	1 Months Ended	3 Months Ended
	Apr. 30, 2020	Mar. 31, 2021	Aug. 31, 2019
Line of Credit Facility [Line Items]
Unrestricted Cash And Cash Equivalents Minimum Amount Required		$ 1,500
Other Current Assets [Member]
Line of Credit Facility [Line Items]
Unamortized Debt Issuance Expense		$ 100
Notes Payable to Banks [Member]
Debt Instrument [Line Items]
Proceeds from issuance of debt	$ 2,900
Debt instrument, term		2 years
Debt instrument rate		1.00%
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity		$ 6,500	$ 10,000
Letters of Credit Outstanding, Amount		$ 1,000
Debt Instrument, Description of Variable Rate Basis		3.25
Debt Issuance Costs, Line of Credit Arrangements, Gross			$ 600
Revolving Credit Facility [Member] | Prime Rate [Member]
Line of Credit Facility [Line Items]
Debt Instrument, Basis Spread on Variable Rate		0.50%

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Restructuring Charges (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Restructuring Cost and Reserve [Line Items]
Costs incurred and charged to expense	$ 3,171	$ 86
Restructuring Reserve [Roll Forward]
Operating Lease, Impairment Loss	2,461	0
Employee Separation Costs
Restructuring Cost and Reserve [Line Items]
Costs incurred and charged to expense	581	86
Restructuring Reserve [Roll Forward]
Accrued liability beginning balance	346
Costs incurred and charged to expense	362
Cash payments	224
Accrued liability ending balance	484
Asset Related and Other Costs
Restructuring Cost and Reserve [Line Items]
Costs incurred and charged to expense	$ 2,590	$ 0

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Earnings (Loss) Per Share (Calculation of Basic and Diluted Earnings Per Share) (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Earnings Per Share [Abstract]
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	$ (10,448)	$ (4,563)
Income (Loss) from Discontinued Operations, Net of Tax, Attributable to Parent	0	(79)
Net Income (Loss) Attributable to Parent	$ (10,448)	$ (4,642)
Shares used to compute basic net income (loss) per share	38,502,000	38,229,000
Weighted Average Number Diluted Shares Outstanding Adjustment	0	0
Shares used to compute diluted net income (loss) per share	38,502,000	38,229,000
Continuing operations, basic (USD per share)	$ (0.27)	$ (0.12)
Discontinued operations, basic (USD per share)	0	0
Basic net income (loss) per share (USD per share)	(0.27)	(0.12)
Continuing operations, diluted (USD per share)	(0.27)	(0.12)
Discontinued operations, diluted (USD per share)	0	0
Diluted net income (loss) per share (USD per share)	$ (0.27)	$ (0.12)

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Earnings (Loss) Per Share (Additional Information) (Detail) - shares	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Shares of common stock excluded from the calculation of diluted net income per share because of antidilutive effect	4,500,000	7,900,000
Share of preferred stock in exchange for additional funding	8,100,000

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Commitments and Contingencies Commitments and Contingencies (Details) $ in Millions	Apr. 06, 2020 USD ($)
Korean Music Copyright Association (KOMCA)
Loss Contingencies [Line Items]
Damages sought	$ 2.6

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Segment Information (Additional Information) (Detail)	3 Months Ended
	Mar. 31, 2021 Segment
Segment Reporting Information [Line Items]
Number of reporting segments	3

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Segment Information (Segment Results) (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Segment Reporting Information [Line Items]
Revenue	$ 15,888	$ 16,822
Cost of revenue	3,679	4,104
Gross profit	12,209	12,718
Operating expenses	18,404	17,553
Operating income (loss)	(6,195)	(4,835)
Consumer Media
Segment Reporting Information [Line Items]
Revenue	3,309	3,495
Mobile Services
Segment Reporting Information [Line Items]
Revenue	5,980	6,690
Games
Segment Reporting Information [Line Items]
Revenue	6,599	6,637
Operating Segments | Consumer Media
Segment Reporting Information [Line Items]
Revenue	3,309	3,495
Cost of revenue	478	611
Gross profit	2,831	2,884
Operating expenses	2,201	2,458
Operating income (loss)	630	426
Operating Segments | Mobile Services
Segment Reporting Information [Line Items]
Revenue	5,980	6,690
Cost of revenue	1,492	1,696
Gross profit	4,488	4,994
Operating expenses	6,145	7,588
Operating income (loss)	(1,657)	(2,594)
Operating Segments | Games
Segment Reporting Information [Line Items]
Revenue	6,599	6,637
Cost of revenue	1,705	1,794
Gross profit	4,894	4,843
Operating expenses	5,098	4,923
Operating income (loss)	(204)	(80)
Corporate
Segment Reporting Information [Line Items]
Cost of revenue	4	3
Operating expenses	4,960	2,584
Operating income (loss)	$ (4,964)	$ (2,587)

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Segment Information (Revenue by Geographic Region) (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 15,888	$ 16,822
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	9,932	10,214
Europe
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	2,230	2,252
Rest of the World
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 3,726	$ 4,356

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Segment Information (Long-Lived Assets by Geographic Region) (Detail) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	$ 23,639	$ 27,183
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	15,426	18,318
Europe
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	7,159	7,638
Rest of the World
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	$ 1,054	$ 1,227

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Related Party Transactions Related Party Transactions (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020	Jul. 17, 2020	Feb. 29, 2020
Related Party Transaction [Line Items]
Maximum Ownership Mr Glaser Can Have	38.50%
Future Issuance Of Equity, Liability	$ 2,106	$ 2,106
Percentage of ownership interest in Rhapsody	82.00%
Mr. Glaser Member
Related Party Transaction [Line Items]
Additional funding in exchange for preferred stock		$ 800
Future Issuance Of Equity, Liability			$ 700
Outside Investors
Related Party Transaction [Line Items]
Future Issuance Of Equity, Liability			$ 1,400
Series B Preferred Stock
Related Party Transaction [Line Items]
Additional funding in exchange for preferred stock				$ 10,000
Preferred stock, shares issued	8,065,000	8,065,000		8,064,516

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Subsequent Events (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Apr. 27, 2021	Mar. 31, 2021	Dec. 31, 2020
Subsequent Event [Line Items]
Proceeds from Issuance of Common Stock, Net of Issuance Costs		$ 20.3
Common Stock [Member]
Subsequent Event [Line Items]
Common stock, issued			8,250,000	38,653,000	38,424,000
Shares Issued, Price Per Share			$ 2.70
Proceeds from Issuance of Common Stock	$ 22.3