Press Releases

RealNetworks Announces Record Revenue for 2004

34% Revenue Growth in Q4 Fuels Return to Profitability (excluding Antitrust Litigation expenses)

document RealNetworks, Inc. and Subsidiaries Condensed Consolidated Statement of Operations (.PDF)

SEATTLE, January 26, 2005 — RealNetworks┬«, Inc. (Nasdaq: RNWK), the leading creator of digital media services and software, today announced results for the quarter and year ended December 31st, 2004.

Highlights
- Real is reporting record revenues for the fourth quarter and full year for 2004.
- The fourth quarter represents Real's tenth consecutive quarter of revenue growth.
- Real achieved its goal of profitability excluding antitrust litigation expenses for the fourth quarter of 2004.

For the fourth quarter of 2004, revenue was $72.5 million, up 34% from $54.1 million in the fourth quarter of 2003. The GAAP net loss for the fourth quarter was $1.0 million, or a loss per share of $0.01, compared to a net loss of $5.3 million, or a loss per share $0.03, in the fourth quarter of 2003. Included in the GAAP net loss for the fourth quarter of 2004 is $3.0 million, or $0.02 per share, in expenses related to antitrust litigation. Excluding the antitrust litigation expenses, the net income for the fourth quarter was $2.0 million, or $0.01 per share. EBITDA, excluding antitrust litigation expenses, was $4.4 million for the fourth quarter of 2004.

"We are pleased to report another quarter of record revenue, driven by rapid growth in our Consumer Business, particularly games and music," said Rob Glaser, CEO of RealNetworks. "We also accomplished an important 2004 goal: to achieve profitability in the fourth quarter excluding antitrust litigation expenses. Significantly, the success of our Consumer Business has enabled us to begin to leverage our increased scale. We look forward to producing continued revenue growth and increasing profitability in 2005."

For 2004, revenue was $266.7 million, up 32% from $202.4 million in 2003. The GAAP net loss for 2004 was $23.0 million, or a loss per share of $0.14, compared to a net loss of $21.5 million, or a loss per share of $0.13 in 2003. Included in the GAAP net loss for 2004 is $11.0 million, or $0.07 per share, in expenses related to antitrust litigation. Excluding the antitrust litigation expenses, the net loss for 2004 was $11.9 million, or a loss per share of $0.07. EBITDA, excluding antitrust litigation expenses and loss on content agreement, was $4.4 million for 2004.

Financial Discussion
In 2004, the company focused on expanding its products and services sold directly to consumers over the Internet, such as downloadable games and music subscriptions. Fourth quarter revenue from consumer products and services grew 47% to $60.8 million, from $41.2 million in the fourth quarter of 2003. Music revenue grew 172% to $21.6 million from $7.9 million in the fourth quarter of 2003. Revenue from Games sales and subscriptions grew 156% to $10.1 million from $3.9 million in the fourth quarter of 2003. Video, consumer software and other revenue was down slightly to $29.1 million compared to $29.3 million in the fourth quarter of 2003. Revenue from business products and services was $11.8 million, down 8% from $12.8 million in the fourth quarter of 2003.

The gross margin was 67% in the fourth quarter compared to 62% in the fourth quarter of the prior year primarily as a result of lower content costs in Real's consumer business. Operating expenses, including antitrust litigation, were $50.7 million for the fourth quarter compared to $38.6 million in the fourth quarter of 2003. As of December 31, 2004, RealNetworks had approximately $364 million in cash, cash equivalents and short-term investments, which includes the proceeds from $100 million of convertible debt.

In the fourth quarter, Real continued to build on its success in consumer services, and at December 31, 2004, had over 1.55 million paying subscribers, up from over 1.3 million at the end of 2003. Paying subscribers to Rhapsody and premium radio services increased to over 700,000 from over 625,000 at the end of the third quarter of 2004. At the beginning of 2004, Real's music services had more than 350,000 paying subscribers. In addition, Real's consumer revenue for 2004 included $19.1 million of revenue from Real's ad-supported web services, up 132% from $8.2 million in 2003.

Foreign currency exchange rate fluctuations positively impacted 2004 fourth quarter revenue by approximately $1 million compared to the prior year's fourth quarter revenue. For the full year, foreign currency exchange rate fluctuations positively impacted 2004 revenue by approximately $4 million compared to 2003 revenue.

Forward Looking Guidance
For the first quarter of 2005, Real expects to report net revenues of $73 million to $74.5 million. On a GAAP basis, which includes an estimated $3.75 million expense relating to antitrust litigation, Real expects a net loss per share of ($0.02) to ($0.01). Excluding the antitrust litigation expenses, earnings per share for the first quarter are expected to be $0.00 to $0.01. Real expects EBITDA before antitrust litigation expenses to be flat to slightly down in the first quarter as compared to the fourth quarter of 2004.

For the full year, Real expects 2005 revenue to grow 16% to 20% over 2004 results, which represents expected revenue of $310 million to $320 million for the year. Real estimates that it will spend approximately $15 million on antitrust litigation expenses during the year, which includes expenses for both domestic and international antitrust activities.

Regarding net income for 2005, Real expects that an increasing percentage of its revenue growth will drop to the bottom line. Over the course of 2005, Real expects approximately 35% of each incremental revenue dollar will go to cost of revenue, approximately 35%-40% will go to increased operating expenses and approximately 25-30% will go to operating income. As a result, Real expects to maintain quarterly profitability excluding antitrust litigation expenses in 2005. Real expects full year EBITDA excluding antitrust litigation to be between $20 million and $25 million. Real's forward guidance for 2005 excludes the impact of accounting changes relating to stock compensation, which are currently scheduled to be effective in the third quarter, any gains or losses related to minority investments and any potential future acquisitions.

Webcast Information
The company will host a web cast and conference call today at 5:00 pm EST/ 2:00 pm (PST). The live webcast, featuring slides and audio, will be available at http://www.realnetworks.com/company/investor/earnings.html. Listeners will require RealPlayer® to listen to the conference call, which can be downloaded for free at www.real.com. The on-demand webcast will be available approximately two hours following the conclusion of the live webcast. Participants may access the conference call by dialing 1-800-857-5305 (773-681-5857 for international callers). The passcode is "Fourth Quarter" and the leader is Rob Glaser. A telephonic replay will be available until 8 pm (Eastern), January 29th, and may be accessed by dialing 1-866-424-7873; (1-203-369-0863 for international callers).

For More Information:
Press Inquiries - Scott Sutherland, SutherlandGold Communications, (866) 262-7373 ext 101, scott@sutherlandgold.com
Financial Inquiries - Roy Goodman, RealNetworks, (206) 892-6841, rgoodman@real.com

ABOUT REALNETWORKS
RealNetworks, Inc. is the leading creator of digital media services and software including the award-winning Rhapsody® Internet jukebox service and RealPlayer 10, the first product to integrate finding, organizing, buying, playing and managing digital audio and video in a single product. Consumers can access and experience audio/video programming and download RealNetworks' consumer software at http://www.real.com. Broadcasters, network operators, media companies and enterprises use RealNetworks' products and services to create and deliver digital media to PCs, mobile phones and consumer electronics devices. RealNetworks' corporate information is located at http://www.realnetworks.com.

This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to: Real's future revenues, expenses, margins, profitability and net income. Actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: development and consumer acceptance of legal online music distribution services; risks associated with the sustained adoption and use of RealNetworks' services by customers, including the uncertainty of whether consumers will continue to pay for subscription content over the Internet, which is a relatively new and unproven business model; the potential that we will be unable to continue to enter into commercially attractive agreements with third parties for the provision of compelling content for our subscription service offerings; the risk that the costs of our antitrust litigation will be greater than we anticipate; the emergence of new entrants and competition in the market for digital media subscription offerings and on-line music sales; the impact on our gross margins from content costs and from the mix of subscribers to subscription offerings with higher content costs than others; competitive risks, including competing technologies, products and services, and the competitive activities of our larger competitors, some of which have strong ties to streaming media users through other products; risks relating to the timely development, production, marketing and acceptance of the products, services and technologies contemplated by the GameHouse acquisition; potential funding decisions by companies in which we have a significant equity position; and RealNetworks' independent decisions, from time to time, based on all factors it deems relevant, whether to repurchase shares under its stock buyback program. More information about potential risk factors that could affect RealNetworks' business and financial results is included in RealNetworks' annual report on Form 10-K for the year ended December 31, 2003, and its quarterly reports on Form 10-Q and from time to time in other reports filed by RealNetworks with the Securities and Exchange Commission.

RealNetworks, RealAudio, RealVideo, Helix, Rhapsody, RealArcade, GameHouse and RealPlayer are trademarks or registered trademarks of RealNetworks, Inc. All other companies or products listed herein are trademarks or registered trademarks of their respective owners.

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