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"2005 was a watershed year for RealNetworks. We achieved record annual revenue, returned the company to profitability, settled our antitrust litigation in a manner that generated significant shareholder value, and dramatically grew our games business through both organic growth and acquisitions. We believe these achievements position us well for long-term growth and market leadership," said Rob Glaser, chairman and CEO of RealNetworks. "Together with our many partners, Real offers a compelling set of best-of-breed digital media software products and digital music, video and games products to consumers wherever and whenever they want them."


For the fourth quarter of 2005, revenue grew 15 percent to $83.6 million compared to $72.5 million reported in the fourth quarter of 2004. For the fourth quarter, in the Consumer Products and Services segment, Music revenue was $26.1 million, a 29% increase over the fourth quarter of 2004; Games revenue was $15.7 million, a 52% increase over the fourth quarter of 2004; Video, Consumer Software and Other revenue was $22.6 million, a decrease of 10% over the fourth quarter of 2004; and Media Properties revenue was $9.0 million, a 55% increase over the fourth quarter of 2004. In the Business Products and Services segment, revenue was $10.2 million in the fourth quarter, a decrease of 8% over the same period in 2004.

During the quarter, the Company announced a series of agreements with Microsoft ending its antitrust litigation and establishing digital music and games collaboration relationships resulting in a series of payments of up to $761 million over eighteen months. During the fourth quarter, Real received $478 million in payments related to these agreements. The Company expects to receive up to $283 million in additional payments over the next five quarters. Microsoft can earn credits against its future payments as a result of delivering music users to Real through its promotional efforts.

Net income for the fourth quarter was $295.6 million, or $1.61 per diluted share, compared to a net loss of $1.0 million, or ($0.01) per share, in the fourth quarter of 2004. Included in net income was a benefit of ($434.4) million in income related to the Microsoft agreements, net of contingent legal fees and other litigation costs. Net income also included operating expenses related to the Microsoft agreements of $6.7 million for non-income related taxes and employee bonuses; a $14.8 million donation to the RealNetworks Foundation representing five percent of after tax income in accordance with stated company policy; and an $8.5 million loss on a cancelled purchase agreement related to an element of an ongoing research and development project.

For the fourth quarter of 2005, EBITDA was $406.4 million compared to $1.4 million for the same period in the prior year. EBITDA is an alternative, non-GAAP, measure of operating results that excludes from net income expenses relating to interest, taxes, depreciation and amortization. A reconciliation of GAAP net income to EBITDA is provided in the financial tables that accompany this release.

The Company's gross margin increased to 71 percent in the fourth quarter of 2005, as compared to 67 percent in the fourth quarter of 2004.
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