Press Releases

RealNetworks Reports Record Revenue and Increased Quarterly Profit

Achieves More than Two Million Paid Subscribers Announces $75 Million Stock Buyback Authorization

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SEATTLE, August 2, 2005 — RealNetworks®, Inc. (Nasdaq: RNWK), the leading creator of digital media services and software, today announced results for the second quarter ended June 30, 2005.

Highlights
- Record revenue of $82.7 million, up 26% from the second quarter of 2004
- Net income of $4.7 million
- Increased total paid subscribers to more than 2 million

For the second quarter of 2005, Real reported record quarterly revenue of $82.7 million, up 26 percent from $65.5 million in the second quarter of 2004. The company reported GAAP net income of $4.7 million, or $0.03 per share, compared to a net loss of ($4.6) million, or ($0.03) per share, in the second quarter of 2004. The results for the second quarter of 2005 include a gain of approximately $7.6 million associated with the divestiture of its investment in MusicNet which was offset by approximately $6.5 million of incremental marketing expenses associated with the launch of our new Rhapsody music products during the quarter. Excluding antitrust litigation expenses of approximately $4.7 million, or $0.03 per share, during the second quarter of 2005, net income for the second quarter was $9.4 million, or $0.05 per share.

EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) was $6.4 million compared to a loss of ($1.5) million in last year's second quarter. Absent antitrust litigation expenses, EBITDA was $11.0 million for the second quarter of 2005, up from $1.3 million in the comparable period during 2004.

"With increased profitability, record revenue and a base of more than 2 million paid subscribers, we continue to make solid progress," said Rob Glaser, chairman and CEO of RealNetworks. "We're especially pleased with our launch of Rhapsody 25, a compelling and legitimate free music alternative to illegal P2P sites, and our industry-leading base of 1.15 million premium music subscription customers."

Real also today announced that its Board of Directors has authorized the repurchase of up to $75 million of the Company's outstanding common stock. Any repurchases may be made in the open market or through private transactions, in accordance with Securities and Exchange Commission requirements. The timing and amounts of repurchases will depend upon market conditions and other factors. To facilitate its repurchase plan, Real has entered into a Rule 10(b)5-1 plan designed to facilitate the repurchase of a portion of the authorized repurchase amount.

Financial Overview
Real continued to see revenue growth driven by its consumer segment, including Music and Games products and services. Second quarter revenue from the Consumer Products and Services segment grew 31 percent to $70.6 million, up from $53.7 million in the second quarter of 2004 and was highlighted by growth in Music, Games and Media Properties advertising-related products. In the second quarter, Music revenue grew 61 percent to $24.1 million, up from $15.0 million in the second quarter of 2004. Games revenue grew 63 percent to $13.6 million, up from $8.4 million in the second quarter of 2004. Media Properties revenue, which includes advertising, increased 22 percent to $8.2 million, up from $6.7 million during the same quarter last year and compared to $5.6 million in the first quarter of 2005.

Real's Business Products and Services generated $12.1 million in revenue in the second quarter of 2005, compared to $11.7 million in the prior year's second quarter.

Real's gross margin improved to 70 percent in the second quarter of 2005 as compared to 67 percent in the second quarter of 2004 driven primarily by a changing revenue mix associated with high margin Media Properties revenue. Operating expenses, including antitrust litigation, were $62.9 million for the quarter compared to $48.0 million in the second quarter of 2004 due principally to higher marketing expenses associated with the launch of the new Rhapsody products and services. As of June 30, 2005, Real had approximately $363.2 million in cash, cash equivalents and short-term investments, which includes the proceeds from $100 million of convertible debt.

At the close of the second quarter of 2005, Real had over 2 million paid subscribers to its premium digital media services, up from over 1.4 million for the same quarter in 2004. Of the total paid subscribers, Real had more than 1.15 million music subscribers at the end of the second quarter of 2005, up from more than 550,000 for the same quarter in 2004. The music subscriber counts include Rhapsody, premium commercial-free radio services and Rhapsody radio registrations bundled with broadband internet service providers.

Forward Looking Guidance
For the third quarter of 2005, Real expects net revenue to be between $80 million and $82 million, which is slightly below the net revenue for the second quarter of 2005, based in part on the discontinuation of several low margin standalone video products and a $1.5 million revenue decrease related to a previously disclosed expiring legacy systems license agreement. The company expects revenue in the third quarter of 2005 related to its expanded advertising relationships to be comparable to the second quarter of 2005, complemented by growth in revenue from its Music and Games businesses.

Real expects earnings per share of $0.04 to $0.05 for the third quarter of 2005. This guidance includes an estimated $8 million, or $0.04 per share, associated with the gain on the sale of certain equity investments and ($3.9) million, or ($0.02) per share, of estimated expenses related to antitrust litigation. Excluding antitrust litigation expenses, Real expects earnings per share of $0.06 to $0.07 for the third quarter of 2005.

Real reaffirms full-year revenue guidance between $323 million and $333 million, which represents a 21 percent to 25 percent growth rate over 2004 results. For the full-year, Real previously expected 2005 earnings of $0.02 to $0.04 per share which it is now raising to $0.06 to $0.08 per share based on the estimated third quarter investment gain of $0.04 per share. Excluding antitrust litigation expenses, Real previously expected earnings per share of $0.10 to $0.12 per share for the full year and is now raising its estimate to between $0.14 to $0.16 per share.

Real previously expected full year EBITDA, excluding antitrust litigation expenses, to be between $25 million and $28 million and is now raising its guidance to be between $33 million and $36 million based on the estimated $8 million equity investment gain. In addition, Real expects that its antitrust litigation expenses for the full year will be approximately $16 million, or ($0.09) per share.

Webcast Information
The company will host a webcast and conference call today at 5:00 pm (Eastern)/ 2:00 pm (Pacific). 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 800-857-5305 (773-681-5857 for international callers). The passcode is "Second Quarter Earnings," and the leader is Rob Glaser. A telephonic replay will be available until 8 pm (Eastern), August 9th, and may be accessed by dialing 866-417-5772 (203-369-0740 for international callers).

For More Information Contact
Press: Jeremy Pemble, RealNetworks, (206) 892-6614, jpemble@real.com
Financial: Roy Goodman, RealNetworks, (206) 892-6841, rgoodman@real.com

ABOUT REALNETWORKS
RealNetworks, Inc. is the leading creator of digital media services and software including Rhapsody®, RealPlayer 10, and casual PC and mobile games. With more than one million subscribers, the company is the market leader in premium music subscription services. 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/company.

Forward Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to: (a) Real's future revenues, expenses, margins, profitability, net income, earnings per share and other measures of results of operation; (b) the growth of Real's music and games businesses; © the prospects for future growth; (d) the potential repurchase of shares; (e) future advertising revenue; and (f) future gain on equity investments. 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; risks associated with consumer adoption of devices that support portable subscription content; 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 associated with the introduction of new products and services; risks associated with Real's ability to repurchase its shares in the open market or dispose of certain equity investments currently held by Real; risks associated with acquisitions that we may undertake in the future; 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 most recent year ended December 31,and its quarterly reports on Form 10-Q and from time to time in other reports filed by RealNetworks with the Securities and Exchange Commission.

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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