Quarterly Report (10-q)

Date : 10/31/2019 @ 1:14PM
Source : Edgar (US Regulatory)
Stock : RealNetworks Inc (RNWK)
Quote : 0.733376  0.025876 (3.66%) @ 4:16PM

Quarterly Report (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 September 30, 2019
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
Seattle, Washington
 
98134
(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  ý    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  ý    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
ý
Non-accelerated filer
 
¨  
  
Smaller reporting company
ý
 
 
 
 
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   ý
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 October 29, 2019 was 38,120,035.




TABLE OF CONTENTS
 

2



PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
REALNETWORKS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 
September 30,
2019
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
18,101

 
$
35,561

Short-term investments

 
24

Trade accounts receivable, net of allowances of $616 and $560
27,947

 
11,751

Deferred costs, current portion
950

 
331

Prepaid expenses and other current assets
18,931

 
5,911

Total current assets
65,929

 
53,578

Equipment, software, and leasehold improvements, at cost:
 
 
 
Equipment and software
31,853

 
37,458

Leasehold improvements
3,255

 
3,292

Total equipment, software, and leasehold improvements, at cost
35,108

 
40,750

Less accumulated depreciation and amortization
32,171

 
37,996

Net equipment, software, and leasehold improvements
2,937

 
2,754

Operating lease assets
12,499

 

Restricted cash equivalents
5,374

 
1,630

Other assets
2,842

 
3,997

Deferred costs, non-current portion
957

 
528

Deferred tax assets, net
831

 
851

Other intangible assets, net
20,309

 
26

Goodwill
65,154

 
16,955

Total assets
$
176,832

 
$
80,319

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
4,692

 
$
3,910

Accrued royalties, fulfillment and other current liabilities
92,529

 
11,312

Commitment to Napster

 
2,750

Deferred revenue, current portion
6,134

 
2,125

Notes payable
3,599

 

Total current liabilities
106,954

 
20,097

Deferred revenue, non-current portion
139

 
268

Deferred rent

 
986

Deferred tax liabilities, net
1,225

 
1,168

Long-term lease liabilities
9,486

 

Long-term debt
3,900

 

Other long-term liabilities
11,195

 
960

Total liabilities
132,899

 
23,479

Commitments and contingencies

 


Shareholders’ equity:
 
 
 
Preferred stock, $0.001 par value, no shares issued and outstanding:
 
 
 
Series A: authorized 200 shares

 

Undesignated series: authorized 59,800 shares

 

Common stock, $0.001 par value authorized 250,000 shares; issued and outstanding 38,067 shares in 2019 and 37,728 shares in 2018
38

 
37

Additional paid-in capital
643,573

 
641,930

Accumulated other comprehensive loss
(61,929
)
 
(61,118
)
Retained deficit
(537,646
)
 
(524,009
)
Total shareholders’ equity
44,036

 
56,840

Noncontrolling interests
(103
)
 

Total equity
43,933

 
56,840

Total liabilities and equity
$
176,832

 
$
80,319

See accompanying notes to unaudited condensed consolidated financial statements.

3



REALNETWORKS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
 
Quarter Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Net revenue
$
44,993

 
$
17,579

 
$
128,713

 
$
52,953

Cost of revenue
26,278

 
4,239

 
78,430

 
14,000

Gross profit
18,715

 
13,340

 
50,283

 
38,953

Operating expenses:
 
 
 
 
 
 
 
Research and development
8,687

 
8,052

 
26,396

 
23,398

Sales and marketing
8,470

 
4,998

 
24,972

 
15,878

General and administrative
7,132

 
4,586

 
23,888

 
15,526

Restructuring and other charges
691

 
632

 
1,587

 
1,320

Lease exit and related benefit

 

 

 
(454
)
Total operating expenses
24,980

 
18,268

 
76,843

 
55,668

Operating loss
(6,265
)
 
(4,928
)
 
(26,560
)
 
(16,715
)
Other income (expenses):
 
 
 
 
 
 
 
Interest expense
(220
)
 

 
(429
)
 

Interest income

 
72

 
117

 
270

Gain (loss) on equity investment, net

 

 
12,338

 

Equity in net loss of Napster investment

 
(737
)
 

 
(737
)
Other income (expenses), net
541

 
(112
)
 
851

 
(195
)
Total other income (expenses), net
321

 
(777
)
 
12,877

 
(662
)
Income (loss) before income taxes
(5,944
)
 
(5,705
)
 
(13,683
)
 
(17,377
)
Income tax expense
310

 
272

 
812

 
708

Net income (loss) including noncontrolling interests
(6,254
)
 
(5,977
)
 
(14,495
)
 
(18,085
)
Net income (loss) attributable to noncontrolling interests
(286
)
 

 
(858
)
 

Net income (loss) attributable to RealNetworks
$
(5,968
)
 
$
(5,977
)
 
$
(13,637
)
 
$
(18,085
)
 
 
 
 
 
 
 
 
Net income (loss) per share attributable to RealNetworks- Basic
$
(0.16
)
 
$
(0.16
)
 
$
(0.36
)
 
$
(0.48
)
Net income (loss) per share attributable to RealNetworks- Diluted
$
(0.16
)
 
$
(0.16
)
 
$
(0.36
)
 
$
(0.48
)
Shares used to compute basic net income (loss) per share
38,062

 
37,618

 
37,944

 
37,549

Shares used to compute diluted net income (loss) per share
38,062

 
37,618

 
37,944

 
37,549

 
 
 
 
 
 
 
 
Comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized investment holding gains (losses), net of reclassification adjustments
$

 
$
(3
)
 
$

 
$

Foreign currency translation adjustments, net of reclassification adjustments
(232
)
 
(322
)
 
(811
)
 
(1,530
)
Total other comprehensive income (loss)
(232
)
 
(325
)
 
(811
)
 
(1,530
)
Net income (loss) including noncontrolling interests
(6,254
)
 
(5,977
)
 
(14,495
)
 
(18,085
)
Comprehensive income (loss) including noncontrolling interests
(6,486
)
 
(6,302
)
 
(15,306
)
 
(19,615
)
Comprehensive income (loss) attributable to noncontrolling interests
(286
)
 

 
(858
)
 

Comprehensive income (loss) attributable to RealNetworks
$
(6,200
)
 
$
(6,302
)
 
$
(14,448
)
 
$
(19,615
)
See accompanying notes to unaudited condensed consolidated financial statements.

4



REALNETWORKS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
Nine Months Ended
September 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income (loss) including noncontrolling interests
$
(14,495
)
 
$
(18,085
)
Adjustments to reconcile net income (loss) including noncontrolling interests to net cash used in operating activities:
 
 
 
Depreciation and amortization
4,397

 
1,738

Stock-based compensation
2,420

 
2,113

Equity in net loss of Napster

 
737

Deferred income taxes, net

 
5

(Gain) loss on equity investment, net
(12,338
)
 

Foreign currency (gain) loss
(804
)
 

Fair value adjustments to contingent consideration liability
700

 

Mark to market adjustment of warrants

 
78

Net change in certain operating assets and liabilities:
 
 
 
Trade accounts receivable
4,036

 
16,754

Prepaid expenses, operating lease and other assets
1,379

 
(979
)
Accounts payable
(64
)
 
(15,235
)
Accrued, lease and other liabilities
(5,528
)
 
(2,754
)
Net cash used in operating activities
(20,297
)
 
(15,628
)
Cash flows from investing activities:
 
 
 
Purchases of equipment, software, and leasehold improvements
(1,068
)
 
(698
)
Proceeds from sales and maturities of short-term investments
24

 
7,607

Acquisition, net of cash acquired
12,260

 
(4,192
)
Net cash provided by investing activities
11,216

 
2,717

Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock (stock options and stock purchase plan)
144

 
114

Tax payments from shares withheld upon vesting of restricted stock
(289
)
 
(243
)
Proceeds from notes payable and revolving credit facility
31,337

 

Repayments of notes payable and revolving credit facility
(35,768
)
 

Payment of financing fees
(569
)
 

Other financing activities
900

 

Net cash used in financing activities
(4,245
)
 
(129
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(390
)
 
(962
)
Net increase (decrease) in cash, cash equivalents and restricted cash
(13,716
)
 
(14,002
)
Cash, cash equivalents and restricted cash, beginning of period
37,191

 
53,596

Cash, cash equivalents, and restricted cash end of period
$
23,475

 
$
39,594

See accompanying notes to unaudited condensed consolidated financial statements.

5



REALNETWORKS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
(Deficit)
 
Total
Shareholders’
Equity
 
Non-controlling Interests
 
Total Equity
Shares
 
Amount
 
 
 
 
 
 
 
 
Balances, January 1, 2018
 
37,341

 
$
37

 
$
638,727

 
$
(59,547
)
 
$
(500,044
)
 
$
79,173

 
$

 
$
79,173

Cumulative effect of revenue recognition accounting change
 

 

 

 

 
1,024

 
1,024

 

 
1,024

Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock
 
223

 

 
(232
)
 

 

 
(232
)
 

 
(232
)
Stock-based compensation
 

 

 
1,157

 

 

 
1,157

 

 
1,157

Investments unrealized gains (losses), net of tax effects of $0
 

 

 

 
1

 

 
1

 

 
1

Foreign currency translation adjustments
 

 

 

 
396

 

 
396

 

 
396

Net income (loss)
 

 

 

 

 
(5,178
)
 
(5,178
)
 

 
(5,178
)
Balances, March 31, 2018
 
37,564

 
$
37

 
$
639,652

 
$
(59,150
)
 
$
(504,197
)
 
$
76,342

 
$

 
$
76,342

Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock
 
48

 

 
103

 

 

 
103

 

 
103

Stock-based compensation
 

 

 
457

 

 

 
457

 

 
457

Investments unrealized gains (losses), net of tax effects of $1
 

 

 

 
2

 

 
2

 

 
2

Foreign currency translation adjustments
 

 

 

 
(1,604
)
 

 
(1,604
)
 

 
(1,604
)
Net income (loss)
 

 

 

 

 
(6,930
)
 
(6,930
)
 

 
(6,930
)
Balances, June 30, 2018
 
37,612

 
$
37

 
$
640,212

 
$
(60,752
)
 
$
(511,127
)
 
$
68,370

 
$

 
$
68,370

Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock
 
40

 

 
1

 

 

 
1

 

 
1

Share of Napster equity transactions
 

 

 
737

 

 

 
737

 

 
737

Stock-based compensation
 

 

 
499

 

 

 
499

 

 
499

Investments unrealized gains (losses), net of tax effects of ($1)
 

 

 

 
(3
)
 

 
(3
)
 

 
(3
)
Foreign currency translation adjustments
 

 

 

 
(322
)
 

 
(322
)
 

 
(322
)
Net income (loss)
 

 

 

 

 
(5,977
)
 
(5,977
)
 

 
(5,977
)
Balances, September 30, 2018
 
37,652

 
$
37

 
$
641,449

 
$
(61,077
)
 
$
(517,104
)
 
$
63,305

 
$

 
$
63,305

















6



REALNETWORKS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
(Deficit)
 
Total
Shareholders’
Equity
 
Non-controlling Interests
 
Total Equity
Shares
 
Amount
 
 
 
 
 
 
 
 
Balances, January 1, 2019
 
37,728

 
$
37

 
$
641,930

 
$
(61,118
)
 
$
(524,009
)
 
$
56,840

 
$

 
$
56,840

Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock
 
190

 

 
(271
)
 

 

 
(271
)
 

 
(271
)
Napster acquisition
 

 

 
(1,346
)
 

 

 
(1,346
)
 
570

 
(776
)
Stock-based compensation
 

 

 
1,384

 

 

 
1,384

 

 
1,384

Foreign currency translation adjustments
 

 

 

 
(87
)
 

 
(87
)
 

 
(87
)
Net income (loss)
 

 

 

 

 
1,533

 
1,533

 
(319
)
 
1,214

Other equity transactions
 

 

 
362

 

 

 
362

 
88

 
450

Balances, March 31, 2019
 
37,918

 
$
37

 
$
642,059

 
$
(61,205
)
 
$
(522,476
)
 
$
58,415

 
$
339

 
$
58,754

Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock
 
131

 

 
128

 

 

 
128

 

 
128

Stock-based compensation
 

 

 
533

 

 

 
533

 

 
533

Foreign currency translation adjustments
 

 

 

 
(492
)
 

 
(492
)
 

 
(492
)
Net income (loss)
 

 

 

 

 
(9,202
)
 
(9,202
)
 
(253
)
 
(9,455
)
Balances, June 30, 2019
 
38,049

 
$
37

 
$
642,720

 
$
(61,697
)
 
$
(531,678
)
 
$
49,382

 
$
86

 
$
49,468

Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock
 
18

 
1

 
(3
)
 

 

 
(2
)
 

 
(2
)
Stock-based compensation
 

 

 
503

 

 

 
503

 

 
503

Foreign currency translation adjustments
 

 

 

 
(232
)
 

 
(232
)
 

 
(232
)
Net income (loss)
 

 

 

 

 
(5,968
)
 
(5,968
)
 
(286
)
 
(6,254
)
Other equity transactions
 

 

 
353

 

 

 
353

 
97

 
450

Balances, September 30, 2019
 
38,067

 
$
38

 
$
643,573

 
$
(61,929
)
 
$
(537,646
)
 
$
44,036

 
$
(103
)
 
$
43,933


See accompanying notes to unaudited condensed consolidated financial statements.

7




REALNETWORKS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2019 and 2018
Note 1
Description of Business and Summary of Significant Accounting Policies
Description of Business. RealNetworks, Inc. and subsidiaries is a leading global provider of network-delivered digital media applications and services that make it easy to manage, play, and share digital media. The Company also develops and markets software products and services that enable the creation, distribution, and consumption of digital media, including audio and video. Our Napster music business, which we acquired on January 18, 2019, offers a comprehensive set of digital music products and services designed to provide consumers with broad access to digital music. For more information on Napster, see Note 5 Acquisitions.
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. and Subsidiaries is referred to as “RealNetworks”, the “Company”, “we”, “us”, or “our”.
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 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 and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ending December 31, 2019. 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).
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, 2018 (the 10-K).
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.
Note 2
Recent Accounting Pronouncements
Recently adopted accounting pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued new guidance related to the accounting for leases. A major change in the new guidance is that lessees are now required to present right-of-use assets and lease liabilities on the balance sheet. Enhanced disclosures are also required to give financial statement users the ability to assess the amount, timing and uncertainty of cash flows arising from leases. We adopted the new guidance effective January 1, 2019 and elected to apply the new guidance at the beginning of the year of adoption, rather than applying the new guidance retrospectively to each prior reporting period presented. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward historical lease classification. We have finalized our assessment of the impacts resulting from the new standard, including the impact on our internal controls. As a result of our evaluation, we have modified certain accounting policies and practices and existing controls. Adoption of the standard resulted in the recognition of $12.5 million of operating lease assets and $14.6 million of current and long-term operating lease liabilities as of January 1, 2019. The difference between the operating lease assets and lease liabilities recorded upon adoption relates to previously accrued deferred rent and lease exit and related charges included on our balance sheet as of December 31, 2018. Lease exit and related charges previously recorded pertain to the reduction in use of RealNetworks' office space and included estimates of sublease income expected to be received. The new guidance did not materially impact our consolidated statement of operations in the quarter of adoption or in the third quarter of 2019 and did not cause revision to

8



previously recorded estimates for lease exit charges. See Note 14 Leases for additional information about the new accounting standard.
In June 2018, the FASB issued new guidance related to the measurement and classification for share-based awards to non-employees. The new guidance essentially aligns the measurement and classification for these awards with that for share-based awards to employees. We adopted the new guidance effective January 1, 2019, with no material impact on our consolidated financial statements and related disclosures.
Recently issued accounting pronouncements not yet adopted
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, 2019, with early adoption permitted. We are evaluating the impact of this guidance, but do not currently expect the adoption to have a material impact on our consolidated financial statements and related disclosures.
Note 3
Revenue Recognition
On January 1, 2018, we adopted the new revenue recognition standard by applying the modified retrospective approach to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue recognition standard.
We recorded a net decrease to opening retained deficit of $1.0 million as of January 1, 2018 due to the cumulative impact of adopting the new revenue recognition standard. This impact primarily related to licensing of our RealPlayer product and full recognition of non-recurring engineering fees, which were previously deferred and amortized over the life of the contract.
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.
Napster revenue arrangements include subscription services to the Napster music streaming service sold either directly to end users (direct to consumer) or through partners (business to business), who are generally telecommunications companies, that bundle the subscription with their own services or collect payment for the stand-alone subscriptions from their end customers. Napster also sells subscriptions to third parties to provide access to the Napster platform that is typically embedded in the third party's branded or co-branded service. Such subscriptions are included in the business to business sales channel.
For services sold through third parties to end customers, we evaluate the presentation of revenue on a gross or net basis based on whether we control the service provided to the end-user and are the principal (i.e. “gross”), or we arrange for other parties to provide the service to the end-user and are an agent (i.e. “net”). In our Napster business to business revenue stream, we generally operate as a principal in arrangements with end customers as we maintain control over the service prior to being transferred to the end customer.
Certain business to business customer arrangements include variable consideration based on usage. We estimate variable consideration as part of the total transaction price that is allocated to performance obligations, or distinct service periods within a performance obligation, on a relative standalone selling price basis.
Revenues related to Napster subscription services are recognized ratably over the contract period, typically 30 days. Direct to consumer subscriptions are paid in advance, typically on a monthly basis. Subscription services offered to businesses are invoiced on a monthly basis and the timing of payment generally does not vary significantly from the timing of invoice.

9



Disaggregation of Revenue
The following table presents our disaggregated revenue by source and segment (in thousands):
 
 
Quarter Ended September 30, 2019
 
Nine Months Ended September 30, 2019
 
 
Consumer Media
 
Mobile Services
 
Games
 
Napster
 
Consumer Media
 
Mobile Services
 
Games
 
Napster
Business Line
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software License
 
$
1,987

 
$
888

 
$

 
$

 
$
3,666

 
$
2,444

 
$

 
$

Subscription Services
 
1,028

 
6,007

 
3,056

 
27,302

 
3,156

 
18,387

 
9,114

 
80,222

Product Sales
 
207

 

 
3,078

 

 
632

 

 
7,243

 

Advertising and Other
 
410

 

 
1,030

 

 
1,284

 

 
2,565

 

Total
 
$
3,632

 
$
6,895

 
$
7,164

 
$
27,302

 
$
8,738

 
$
20,831

 
$
18,922

 
$
80,222

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
 
Consumer Media
 
Mobile Services
 
Games
 
Napster
 
Consumer Media
 
Mobile Services
 
Games
 
Napster
Business Line
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Software License
 
$
2,746

 
$
520

 
$

 
$

 
$
7,891

 
$
2,324

 
$

 
$

Subscription Services
 
1,232

 
6,828

 
2,744

 

 
3,742

 
20,447

 
8,126

 

Product Sales
 
281

 

 
2,280

 

 
920

 

 
6,635

 

Advertising and Other
 
474

 

 
474

 

 
1,547

 

 
1,321

 

Total
 
$
4,733

 
$
7,348

 
$
5,498

 
$

 
$
14,100

 
$
22,771

 
$
16,082

 
$

The following table presents our disaggregated revenue by sales channel (in thousands):
 
 
Quarter Ended September 30, 2019
 
Nine Months Ended September 30, 2019
 
 
Consumer Media
 
Mobile Services
 
Games
 
Napster
 
Consumer Media
 
Mobile Services
 
Games
 
Napster
Sales Channel
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business to Business
 
$
2,398

 
$
6,784

 
$
1,362

 
$
13,084

 
$
4,951

 
$
20,482

 
$
3,513

 
$
38,983

Direct to Consumer
 
1,234

 
111

 
5,802

 
14,218

 
3,787

 
349

 
15,409

 
41,239

Total
 
$
3,632

 
$
6,895

 
$
7,164

 
$
27,302

 
$
8,738

 
$
20,831

 
$
18,922

 
$
80,222

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
 
Consumer Media
 
Mobile Services
 
Games
 
Napster
 
Consumer Media
 
Mobile Services
 
Games
 
Napster
Sales Channel
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business to Business
 
$
3,220

 
$
7,209

 
$
806

 
$

 
$
9,438

 
$
22,312

 
$
2,393

 
$

Direct to Consumer
 
1,513

 
139

 
4,692

 

 
4,662

 
459

 
13,689

 

Total
 
$
4,733

 
$
7,348

 
$
5,498

 
$

 
$
14,100

 
$
22,771

 
$
16,082

 
$

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 September 30, 2019 and December 31, 2018, our balance of long-term accounts receivable was $0.3 million and $0.7 million, respectively, and is included in other long-term assets on our condensed consolidated balance sheets. The decrease in this balance from December 31, 2018 to September 30, 2019 is primarily due to the timing of expected cash receipts. During the quarter and nine months ended September 30, 2019, 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 September 30, 2019, we had a deferred revenue balance of $6.3 million, an increase of $3.9 million from December 31, 2018, primarily due to deferred revenue associated with Napster.


10



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, restricted stock, and employee stock purchase plans and was as follows (in thousands):
 
Quarter Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Total stock-based compensation expense
$
503

 
$
499

 
$
2,420

 
$
2,113

The fair value of RealNetworks options granted determined using the Black-Scholes model used the following weighted-average assumptions:
 
Quarter Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Expected dividend yield
0
%
 
0
%
 
0
%
 
0
%
Risk-free interest rate
1.71
%
 
2.78
%
 
2.16
%
 
2.69
%
Expected life (years)
3.8

 
3.8

 
4.1

 
3.9

Volatility
41
%
 
35
%
 
41
%
 
35
%
The total stock-based compensation amounts for 2019 and 2018 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 the nine months ended September 30, 2019 and 2018 was stock compensation expense recorded in the first quarter of 2019 and 2018 related to our 2018 and 2017 incentive bonuses paid in fully vested restricted stock units, which were authorized and granted in the first quarter of 2019 and 2018, respectively.
As of September 30, 2019, $2.7 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 3.0 years.
Note 5
Acquisitions
Napster
On January 18, 2019, RealNetworks acquired an additional 42% interest in Rhapsody International, Inc. (doing business as Napster) bringing our aggregate ownership to 84% of Napster's outstanding equity, thus giving RealNetworks a majority voting interest. Napster's music streaming service provides users with broad access to digital music, offering on-demand streaming and conditional downloads through unlimited access to a catalog of millions of music tracks. Napster offers music services worldwide and generates revenue primarily through subscriptions to its music services either directly to consumers or through distribution partners.
Initially formed in 2007 and branded then as Rhapsody, Napster began as a joint venture between RealNetworks and MTV Networks, a division of Viacom International, Inc. Prior to the acquisition of the additional 42% interest in Napster, we accounted for our investment using the equity method of accounting.
Following the January 2019 acquisition, RealNetworks has the right to nominate directors constituting a majority of the Napster board of directors, however, Napster will continue to operate as an independent business with its own board of directors, strategy and leadership team. We are consolidating Napster's financial results into our financial statements for fiscal periods following the closing of the acquisition, and Napster is reported as a separate segment in RealNetworks' consolidated financial statements. Napster, however, remains a distinct legal entity and RealNetworks assumes no ownership or control over the assets or liabilities of Napster.

11



We have preliminarily recorded 100% of the estimated fair value of the assets acquired and liabilities assumed as of January 18, 2019 based on the results of an independent valuation. The 16% of Napster that we do not own is accounted for as a noncontrolling interest in our consolidated financial statements, and as part of this consolidation, the carrying value of our previous 42% equity method investment was remeasured to fair value on the acquisition date. The remeasurement to fair value of the historical 42% ownership interest resulted in the recognition of a $2.7 million gain in the first quarter of 2019, which is a component of the overall gain recognized as a part of this transaction. Our consolidated balance sheet reflects Napster's working capital deficit, which results in a consolidated working capital deficit. RealNetworks does not have any contractual or implied obligation to provide funding or other financial support to Napster, or to guarantee or provide other such support related to Napster's third party borrowing or Napster's other obligations on our consolidated balance sheet, except as discussed in Note 15 Commitments and Contingencies.
The terms of the transaction included initial cash consideration of $1.0 million and additional contingent consideration. Initial cash consideration of $0.2 million was paid at closing and the remainder of the initial cash consideration is included in accrued royalties, fulfillment and other current liabilities and will be paid when due with existing cash balances. With regards to contingent consideration, over the five years following the acquisition, RealNetworks will pay the lesser of the following:
(a) an additional $14.0 million to seller, or
(b) if RealNetworks sells the interest to a third party for less than $15.0 million, the actual amount received by RealNetworks, minus the $1.0 million initial payment.
In the event that RealNetworks sells such equity interest for consideration in excess of $15.0 million, RealNetworks will pay seller additional consideration, dependent on the sale price, which shall in no event exceed an additional $25.0 million. In order for seller to receive the full $40.0 million, the proceeds from the sale of Napster received by RealNetworks for the 42% equity interest acquired would have to exceed $60.0 million. These contingent consideration amounts were part of the total consideration at estimated fair value, as described in more detail below.

12



The following table summarizes the preliminary allocation of the total consideration to the estimated fair values of the assets acquired and liabilities assumed as of January 18, 2019 (in thousands):
Consideration, at estimated fair value:
 
 
Cash
 
$
1,000

Contingent consideration
 
11,600

RealNetworks' preexisting 42% equity interest in Napster
 
2,700

Effective settlement of Napster debt and warrants, held by RealNetworks
 
6,408

Total consideration
 
$
21,708

 
 
 
Assets acquired and liabilities assumed, at estimated fair value:
 
 
Cash and cash equivalents
 
$
10,138

Accounts receivable
 
20,838

Prepaid expenses and other current assets
 
12,879

Restricted cash
 
2,322

Equipment, software and leasehold improvements
 
474

Operating lease assets
 
2,314

Other long-term assets
 
77

Deferred tax assets, net
 
5,942

Intangible assets
 
23,700

Goodwill
 
48,474

  Total assets acquired
 
127,158

 
 
 
Accounts payable
 
937

Accrued royalties and fulfillment
 
71,980

Accrued and other current liabilities
 
7,475

Deferred revenue, current portion
 
3,600

Notes payable
 
12,115

Deferred tax liabilities, net
 
6,061

Long-term lease liabilities
 
1,197

Other long-term liabilities
 
1,515

   Total liabilities assumed
 
104,880

       Total net assets acquired
 
22,278

Noncontrolling interests
 
570

       Net assets acquired
 
$
21,708

Under the acquisition method of accounting, the purchase price is allocated to the assets acquired and the liabilities assumed based on their estimated fair values. Due to the complexity and limited time since closing the transaction, the purchase price allocation is subject to change, which may result from additional information becoming available and additional analyses being performed on these acquired assets and assumed liabilities. Such changes could impact estimated fair values of intangible assets, accrued royalties and fulfillment, deferred revenue, and assets and liabilities assumed, as well as the contingent consideration, noncontrolling interests, and gain recognized from consolidation. Purchase price allocation adjustments may be recorded during the measurement period (a period not to exceed 12 months from the acquisition date). The final purchase price allocation could result in material differences, which could have a material impact on our financial statements.

13



Acquired intangible assets have a total weighted average useful life of approximately 8 years, are being amortized using the straight line method, and are comprised of the following (in thousands):
Intangible category
 
Estimated fair value
 
Method used to calculate fair value
 
Estimated remaining useful life
Trade name and trademarks
 
$
6,800

 
Relief-from-royalty
 
15 years
Developed technology
 
5,900

 
Excess earnings
 
4 years
Customer relationships
 
5,900

 
Cost-to-replace
 
3 years
Partner relationships
 
5,100

 
Distributor method
 
8 years
Total
 
$
23,700

 
 
 
 
The estimated fair value amounts for each of these intangibles were determined using a fair value measurement categorized within Level 3 of the fair value hierarchy.
The fair value of the trade name and trademarks intangible asset was estimated using the income approach, utilizing the relief from royalty method, which values the assets by estimating the savings achieved by ownership of trade name and trademarks when compared with the cost of licensing them from an independent owner.
The fair value of developed technology was estimated using the income approach, utilizing the excess earnings method. Under this method, cash flows attributable to the asset are estimated by deducting economic costs, including operating expenses and contributory asset charges, from revenue expected to be generated by the asset.
The fair value of customer relationships was estimated using a cost-to-replace approach, whereby the number of subscribers and the cost to acquire subscribers are key estimates utilized in the valuation.
The fair value of partner relationships was estimated using the income approach, which uses market-based distributor data to value underlying distributor relationships. Revenue, earnings, and cash flow estimates associated with these underlying distributor relationships are key estimates in determining the fair value of the partner relationships intangibles.
The fair value of deferred revenue was estimated using the income approach, utilizing a cost to fulfill analysis by estimating the direct and indirect costs related to supporting remaining obligations plus an assumed operating margin.
The fair value of our preexisting 42% equity method investment has been remeasured to an estimated fair value of $2.7 million, which resulted in a pretax gain of $2.7 million, as our existing carrying value was zero. This gain, as well as the settlement of preexisting relationships and other purchase accounting adjustments discussed below, comprise the total gain of $12.3 million recognized in Other income (expenses) in the Consolidated statement of operations in the first quarter of 2019.
The fair value of our preexisting equity method investment was calculated using an average of the income and market approach to arrive at estimated total enterprise value. The income approach fair value measurement was based on significant inputs that are not observable in the market and thus represents a fair value measurement categorized within Level 3 of the fair value hierarchy. Key assumptions used in estimating future cash flows included projected revenue growth and operating expenses, as well as the selection of an appropriate discount rate. Estimates of revenue growth and operating expenses were based on internal projections and considered the historical performance of Napster's business. The discount rate applied was based on Napster's weighted-average cost of capital and included a small-company risk premium. The market approach fair value measurement was based on a market comparable methodology. We used a group of comparable companies and selected an appropriate EBITDA and revenue multiple to apply to Napster's trailing twelve months and projected 2019, 2020 and 2021 EBITDA (weighted 90%) and revenues (weighted 10%). Assumptions in both the income and market approaches are significant to the overall valuation of Napster and changes to these assumptions could materially impact the preliminary fair values of assets acquired and liabilities assumed, noncontrolling interests, total consideration, and gain on consolidation.
The fair value of the contingent consideration was estimated using multiple scenarios for each tranche of contingent consideration and then probability weighting each scenario and discounting them to estimated fair value of $11.6 million. This fair value calculation is directly impacted by the estimated total enterprise value described above. After the completion of the measurement period or in conjunction with changes in fair value unrelated to our preliminary estimate of fair value, the contingent consideration will be adjusted quarterly to fair value through earnings. Of the total amount of $11.6 million, we accrued $2.6 million and $9.0 million in Accrued royalties, fulfillment and other current liabilities, and Other long-term liabilities, respectively, as of March 31, 2019. See Note 6 Fair Value Measurements for details on the adjustment to this liability.
The effective settlement of Napster's debt and warrants totaling $6.4 million represents the estimated fair value of debt and warrants held between RealNetworks and Napster as of the acquisition date. The estimated fair value is derived from the estimated total enterprise value described above. The resulting net gain of $5.5 million is included in Other income (expenses) in the Consolidated statement of operations.

14



As discussed in Note 15 Commitments and Contingencies, the preexisting $2.8 million guarantee related to Napster's outstanding indebtedness on their revolving credit facility was eliminated upon the consolidation of Napster. This resulted in RealNetworks recording a gain of $2.8 million, which is included in Other income (expenses) in the Consolidated statement of operations.
Prior to our acquisition of Napster, we accounted for our investment under the equity method of accounting and recorded Napster 's foreign currency translation adjustments in our equity. As part of the acquisition method of accounting, we released these amounts and recorded a gain of $1.3 million, which is included in Other income (expenses) in the Consolidated statement of operations.
We recorded the fair value of noncontrolling interests on the acquisition date, estimated at $0.6 million, using the estimated total enterprise value described above.
We also recorded goodwill of $48.5 million, representing the intangible assets that do not qualify for separate recognition for accounting purposes, including the expected growth in Napster's business to business model and the assembled workforce. The goodwill is reported in our Napster segment and is not deductible for income tax purposes. As discussed above, during the measurement period, purchase price allocation adjustments or changes in assumptions used in determining the total estimated enterprise value of Napster could materially impact goodwill recognized. Moreover, future performance of the Napster business will factor into our goodwill impairment analysis.
We began consolidating Napster's results of operations and cash flows into our consolidated financial statements after January 18, 2019. For the quarter ended September 30, 2019, Napster's revenue and net loss including noncontrolling interests in our consolidated statements of operations was $27.3 million and $1.0 million, respectively. For the nine months ended September 30, 2019, Napster's revenue and net loss including noncontrolling interests in our consolidated statements of operations was $80.2 million and $4.3 million, respectively.
The following table provides the supplemental pro forma revenue and net results of the combined entity had the acquisition date of Napster been the first day of our first quarter of 2018 rather than during our first quarter of 2019 (in thousands):
 
Quarter Ended - Pro Forma (Unaudited)
September 30,
 
Nine Months Ended - Pro Forma (Unaudited)
September 30,
 
2019
 
2018
 
2019
 
2018
Net revenue
$
45,074

 
$
52,888

 
$
135,267

 
$
165,033

Net income (loss) attributable to RealNetworks (1)
(5,386
)
 
(3,748
)
 
(23,358
)
 
(1,453
)
(1) The pro forma net earnings attributable to RealNetworks for the quarter ended September 30, 2018 include $0.1 million of transaction costs, and for the nine months ended September 30, 2018, pro forma net earnings attributable to RealNetworks include the acquisition related gain of $12.3 million and $1.3 million of transaction costs. The amounts in the supplemental pro forma earnings for the periods presented above fully eliminate intercompany transactions and conform Napster's accounting policies to RealNetworks'. These pro forma results also reflect amortization of acquisition-related intangibles and fair value adjustments to deferred revenue and contingent consideration.
The unaudited pro forma amounts are based upon the historical financial statements of RealNetworks and Napster and were prepared using the acquisition method of accounting and are not necessarily indicative of results for any current or future period. The purchase price allocation is preliminary and is subject to change prior to finalization. The final purchase price allocation could result in material differences, which could have a material impact on the accompanying pro forma amounts.
For the quarter and nine months ended September 30, 2019, we incurred approximately $0.1 million and $1.3 million, respectively, in acquisition-related costs, including regulatory, legal, and other advisory fees, which we have recorded within general and administrative expenses.
Games
As described in more detail in our 2018 10-K, in order to acquire a full workforce, we purchased 100% of the shares of a small, privately-held Netherlands-based game development studio for net cash consideration of $4.2 million in April 2018.

15



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 September 30, 2019 and December 31, 2018, 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
 
September 30, 2019
 
September 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
 
 
Cash
$
16,980

 
$

 
$

 
$
16,980

 
$
16,980

Money market funds
1,121

 

 

 
1,121

 
1,121

Total cash and cash equivalents
18,101

 

 

 
18,101

 
18,101

Restricted cash equivalents

 
5,374

 

 
5,374

 
5,374

Total assets
$
18,101

 
$
5,374

 
$

 
$
23,475

 
$
23,475

Liabilities:
 
 
 
 
 
 
 
 
 
Accrued royalties, fulfillment and other current liabilities
 
 
 
 
 
 
 
 
 
Napster acquisition contingent consideration
$

 
$

 
$
2,746

 
$
2,746

 
N/A

Other long-term liabilities
 
 
 
 
 
 
 
 
 
Napster acquisition contingent consideration

 

 
9,554

 
9,554

 
N/A

Total liabilities
$

 
$

 
$
12,300

 
$
12,300

 
N/A

 
Fair Value Measurements as of
 
Amortized Cost as of
 
December 31, 2018
 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
 
 
Cash
$
22,853

 
$

 
$

 
$
22,853

 
$
22,853

Money market funds
12,708

 

 

 
12,708

 
12,708

Total cash and cash equivalents
35,561

 

 

 
35,561

 
35,561

Short-term investments:
 
 
 
 
 
 
 
 
 
Corporate notes and bonds

 
24

 

 
24

 
24

Total short-term investments

 
24

 

 
24

 
24

Restricted cash equivalents

 
1,630

 

 
1,630

 
1,630

Warrants issued by Napster (included in Other assets)

 

 
865

 
865

 

Total assets
$
35,561

 
$
1,654

 
$
865

 
$
38,080

 
$
37,215

Restricted cash equivalents as of September 30, 2019 and December 31, 2018 relate to cash pledged as collateral against letters of credit in connection with certain lease agreements and, as of September 30, 2019, our recently entered into Loan and Security Agreement ("Loan Agreement") requires us to maintain a minimum balance of $3.5 million unrestricted cash at the bank. See Note 10 Notes Payable and Long-term debt for additional details.
Accrued royalties, fulfillment and other current liabilities and Other long-term liabilities as of September 30, 2019 include 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. As discussed in Note 5 Acquisitions, after completion of the measurement period or in conjunction with changes in fair value unrelated to our preliminary estimate of fair value, this liability is adjusted quarterly to fair value through earnings. During the quarter and nine months ended September 30, 2019, we recorded the change in fair value of the contingent consideration of $0.4 million and $0.7 million, respectively, as an increase to the total liability on the consolidated balance sheet and as general and administrative expense on the consolidated statement of operations.

16



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 nine months ended September 30, 2019 and 2018, we did not record any impairments on those assets required to be measured at fair value on a non-recurring basis.
Note 7
Other Intangible Assets
Other intangible assets (in thousands):
 
 
 
September 30, 2019
 
December 31, 2018
 
 
 
Gross
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Amortizing intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
$
40,050

 
$
31,075

 
$
8,975

 
$
30,993

 
$
30,993

 
$

 
Developed technology
 
29,446

 
24,591

 
4,855

 
24,446

 
24,446

 

 
Patents, trademarks and tradenames
 
10,345

 
3,866

 
6,479

 
3,765

 
3,765

 

 
Service contracts
 
5,344

 
5,344

 

 
5,538

 
5,512

 
26

 
Total
 
$
85,185

 
$
64,876

 
$
20,309

 
$
64,742

 
$
64,716

 
$
26

Amortization expense related to other intangible assets during the quarters ended September 30, 2019, and September 30, 2018, was $1.1 million and insignificant. Amortization expense related to other intangible assets during the nine months ended September 30, 2019, and September 30, 2018, was $3.2 million and $0.3 million, respectively.
Estimated future amortization of other intangible assets (in thousands):
 
 
Future Amortization
2019 (Excluding the nine months ended September 30, 2019)
 
$
1,125

2020
 
4,501

2021
 
4,501

2022
 
2,617

2023
 
1,121

Thereafter
 
6,444

 
 
$
20,309

See Note 5 Acquisitions for details on our acquisitions. No impairments of other intangible assets were recognized in either of the nine months ended September 30, 2019 or 2018.

17



Note 8
Goodwill
The following table presents changes in goodwill (in thousands):
Balance, December 31, 2018
$
16,955

Increases due to current year acquisitions
48,474

Effects of foreign currency translation
(275
)
Balance, September 30, 2019
$
65,154

See Note 5 Acquisitions for details on our acquisitions and the impact to goodwill.
The following table presents goodwill by segments (in thousands):
 
September 30,
2019
Consumer Media
$
580

Mobile Services
1,959

Games
14,141

Napster
48,474

Total goodwill
$
65,154

No impairment of goodwill was recognized in either of the nine months ended September 30, 2019 or in 2018.

18




Note 9
Accrued royalties, fulfillment and other current liabilities
Accrued royalties, fulfillment and other current liabilities (in thousands):
 
September 30, 2019
 
December 31, 2018
Royalties and other fulfillment costs
$
70,371

 
$
1,989

Employee compensation, commissions and benefits
6,750

 
4,444

Sales, VAT and other taxes payable
3,423

 
785

Operating Lease Liabilities - Current
4,804