Press Releases

RealNetworks Reports Quarterly Profit

Achieves Record Revenue and More than 1.85 Million Subscribers

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SEATTLE, May 4, 2005 — RealNetworks®, Inc. (Nasdaq: RNWK), the leading creator of digital media services and software, today announced results for the first quarter ended March 31, 2005.

Highlights
- Achieved GAAP profitability
- Reported record revenue, up 27% from the first quarter of 2004
- Increased total subscriber base to more than 1.85 million
- Expanded music subscribers to more than 1 million in April

For the first quarter of 2005, Real achieved record quarterly revenue of $76.6 million, up 27 percent from $60.4 million in the first quarter of 2004. The company reported net income of $0.8 million, or just under one half cent per share, compared to a net loss of ($10.4) million, or ($0.06) per share, in the first quarter of 2004. Excluding antitrust litigation expenses of approximately $3.7 million, or $0.02 per share, during the first quarter of 2005, net income for the first quarter was $4.6 million, or $0.02 per share. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) was $2.6 million compared to a loss of ($7.5) million in last year's first quarter. Absent antitrust litigation expenses, EBITDA was $6.4 million for the first quarter of 2005, up from a loss of ($0.3) million, which also excluded the loss on a content agreement, in the first quarter of 2004.

"In the first quarter, we achieved record revenue and subscriber growth, and returned to GAAP profitability," said Rob Glaser, chairman and CEO of RealNetworks. "Driven by the launch of the new Rhapsody and the growth of our games business, I believe we will continue to strengthen our leadership in the digital media marketplace."

Financial Highlights
Real continued to see strong revenue growth driven by its expanding consumer business comprised of digital media products and services, such as music subscriptions and downloadable games sold to consumers over the Internet. First quarter revenue from Real's Consumer Products and Services grew 37 percent to $64.2 million, up from $47.0 million in the first quarter of 2004 and was highlighted by rapid growth in Real's digital music and games categories. In the first quarter, music revenue grew 86 percent to $22.2 million, up from $11.9 million in the first quarter of 2004. Games revenue grew 80 percent to $12.2 million, up from $6.8 million in the first quarter of 2004. Real's Business Products and Services generated $12.4 million in revenue in the first quarter of 2005 compared to $13.4 million in the prior year's first quarter and $11.0 million in the fourth quarter of 2004.

The gross margin improved to 68 percent in the first quarter compared to 56 percent in the first quarter of 2004, which included a $4.9 million write off associated with a content agreement. Operating expenses, including antitrust litigation, were $51.6 million for the quarter compared to $43.9 million in the first quarter of 2004. As of March 31, 2005, Real had $369.7 million in cash, cash equivalents and short-term investments, which includes the proceeds from $100 million of convertible debt.

At the close of the first quarter of 2005, Real had over 1.85 million total subscribers, up from over 1.3 million for the same quarter in 2004. Total music subscribers at the end of the first quarter of 2005 increased to more than 975,000, up from more than 450,000 at the end of the first quarter of 2004. On April 20, 2005, Real reported more than one million music subscribers. These subscriber counts for the first quarter of 2005 include Comcast radio registrations resulting from our new wholesale relationship with Comcast.

Forward Looking Guidance
For the second quarter of 2005, Real expects net revenue of $79 million to $81 million and earnings per share of $0.00 to $0.01. This guidance includes approximately $1.5 million of revenue related to a legacy systems license agreement, which is substantially completed as of the end of the second quarter. Real's guidance also includes $4.7 million, or $0.02 per share, of estimated expenses related to antitrust litigation, reflecting both increased European Commission activity as well as a higher level of discovery activity in our U.S. case. This guidance also includes a gain associated with the sale of MusicNet currently estimated to be approximately $7.3 million and approximately $7 million of incremental marketing expense primarily associated with the launch of the new Rhapsody product line. Excluding antitrust litigation expenses, Real expects earnings per share of $0.02 to $0.03 for the second quarter of 2005.

Given the strong financial results reported in the first quarter, Real is increasing 2005 full-year guidance. Real now expects full-year revenues of $320 million to $330 million versus previous guidance of $310 million to $320 million, which represents a 20 percent to 24 percent growth rate over 2004 results. Real expects full year EBITDA, excluding antitrust litigation expenses, to be between $25 million and $28 million, compared to its previous guidance of $20 million to $25 million. In addition, Real expects that its antitrust litigation expenses for the full year will be approximately $16 million, or $0.08 per share.

For the full-year, Real expects 2005 earnings per share of $0.02 to $0.04 per share. Excluding antitrust litigation expenses, Real expects earnings per share of $0.10 to $0.12 per share.

Webcast Information
The company will host a web cast 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 "First Quarter" and the leader is Rob Glaser. A telephonic replay will be available until 8 pm (Eastern), May 7th, and may be accessed by dialing 800-337-6558 (402-220-9657 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-based 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 scalability of Real's financial model; © Real's leadership in the digital media marketplace; (d) the prospects for future growth; and (e) future subscriber counts and growth. 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 acquisition 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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