REALNETWORKS INC
S-3, 2000-04-28
COMPUTER PROGRAMMING SERVICES
Previous: OMNI ENERGY SERVICES CORP, 10-K/A, 2000-04-28
Next: PRICE T ROWE REAL ESTATE FUND INC, 485BPOS, 2000-04-28



<PAGE>   1
     As filed with the Securities and Exchange Commission on April 28, 2000
                                                           Registration No. 333-
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM S-3
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933

                               REALNETWORKS, INC.
             (Exact name of Registrant as specified in its charter)

         WASHINGTON                                         91-1628146
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                         Identification Number)
                               2601 ELLIOTT AVENUE
                            SEATTLE, WASHINGTON 98121
                                 (206) 674-2700
                   (Address, including zip code, and telephone
                         number, including area code, of
                        Registrant's principal executive
                                    offices)

                                   PAUL BIALEK
                       SENIOR VICE PRESIDENT--FINANCE AND
                         OPERATIONS AND CHIEF FINANCIAL
                                     OFFICER
                               REALNETWORKS, INC.
                               2601 ELLIOTT AVENUE
                            SEATTLE, WASHINGTON 98121
                                 (206) 674-2700

 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

                                   Copies to:
                           PATRICK J. SCHULTHEIS, ESQ.
                             STEVE L. CAMAHORT, ESQ.
                           CHRISTIAN E. MONTEGUT, ESQ.
                        WILSON SONSINI GOODRICH & ROSATI
                            PROFESSIONAL CORPORATION
                               5300 CARILLON POINT
                         KIRKLAND, WASHINGTON 98033-7356

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.

        If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.

        If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]

        If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.

        If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.

        If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.


                         CALCULATION OF REGISTRATION FEE


<TABLE>
<CAPTION>
=================================================================================================================================
    TITLE OF EACH CLASS                                          PROPOSED MAXIMUM        PROPOSED MAXIMUM            AMOUNT OF
     OF SECURITIES TO                       AMOUNT TO BE          OFFERING PRICE        AGGREGATE OFFERING          REGISTRATION
       BE REGISTERED                         REGISTERED(1)         PER SHARE(2)              PRICE(2)                    FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                   <C>                  <C>                         <C>
Common Stock, $0.001 par value(3)            1,449,279             $34.21875            $49,592,515.78              $13,092.42
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  A combined prospectus is being used pursuant to Rule 429 of the Securities
     Act of 1933, as amended. Upon effectiveness, this combined prospectus will
     also relate to 1,449,279 shares previously registered by the Company on
     Registration Statement No. 333-96423 for which a fee of $60,295.46 was
     previously paid to the Commission by the Company.

(2)  Estimated solely for the purpose of computing the amount of the
     registration fee, based on the average high and low trading price of the
     Common Stock reported on the Nasdaq National Market on April 24, 2000 in
     accordance with Rule 457(c) under the Securities Act of 1933.

(3)  Includes associated preferred stock purchase rights which, prior to the
     occurrence of certain events, will not be exercisable or evidenced
     separately from the Common Stock.
<PAGE>   2
        Pursuant to Rule 429 of the Securities Act of 1933, as amended, the
prospectus included herein is a combined prospectus and relates to this
Registration Statement and Registration Statement No. 333-96423 filed on Form
S-3, which was declared effective on February 16, 2000.

        The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the SEC, acting pursuant to said Section 8(a), may
determine.

================================================================================




<PAGE>   3
       The information in this prospectus is not complete and may be changed.
We may not sell the securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

================================================================================
Subject to Completion, Dated __________________, 2000

PROSPECTUS                                            REGISTRATION NO. 333-_____


                                2,898,558 SHARES

                               REALNETWORKS, INC.

                              --------------------

                                  COMMON STOCK
                               ($0.001 PAR VALUE)
                   -------------------------------------------

        This prospectus relates to the public offering, which is not being
underwritten, of up to 2,898,558 shares of our common stock which are held by
some of our current shareholders and may be offered and sold from time
to time by the selling shareholders. Of these shares, 1,449,279 shares are
being registered hereby, and 1,449,279 shares were previously registered of
which 1,066,591 remain unsold.

        The prices at which such shareholders may sell the shares will be
determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of the
shares.

        Our common stock is traded on the Nasdaq National Market under the
symbol "RNWK." On April 24, 2000, the last reported sale price for our common
stock on the Nasdaq National Market was $35.5625 per share.

        SEE "RISK FACTORS" BEGINNING AT PAGE 6 TO READ ABOUT CERTAIN FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.

                  -------------------------------------------

        NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR STATE SECURITIES
REGULATORS HAVE APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

                   -------------------------------------------

            The date of this Prospectus is __________________, 2000.



================================================================================


<PAGE>   4
================================================================================


                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
        Special Note Regarding Forward-Looking Statements .........          3
        RealNetworks ..............................................          5
        Risk Factors ..............................................          6
        Use of Proceeds ...........................................         23
        Selling Shareholders ......................................         24
        Plan of Distribution ......................................         25
        Legal Matters .............................................         26
        Experts ...................................................         26
</TABLE>

        You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling shareholders are offering to sell, and
seeking offers to buy, shares of our common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common stock. In this
prospectus, "RealNetworks," "we," "us," and "our" refer to RealNetworks, Inc.,
its predecessors and its consolidated subsidiaries.


                       WHERE YOU CAN FIND MORE INFORMATION

        We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference facilities in Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at 7 World Trade Center, Suite 1300, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from the SEC's
web site at http://www.sec.gov.

        The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings made with the SEC under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until our
offering is completed.

        (1)     Our Annual Report on Form 10-K for the year ended December 31,
                1999;

        (2)     Our Current Reports on Form 8-K filed January 26, 2000 and
                February 8, 2000;

        (3)     Our Current Report on Form 8-K/A filed February 8, 2000;


================================================================================


                                                                               2
<PAGE>   5
        (4)     The description of our common stock contained in our
                registration statement on Form 8-A dated September 26, 1997,
                including any amendments or reports filed for the purpose of
                updating such description; and

        (5)     The description of our preferred stock purchase rights contained
                in our registration statement on Form 8-A dated December 14,
                1998 as amended on June 16, 1999 and on February 7, 2000,
                including any amendments or reports filed for the purpose of
                updating such description.

        You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:


                             RealNetworks, Inc.
                             Attn:  Secretary
                             2601 Elliott Avenue
                             Seattle, Washington 98121
                             (206) 674-2700

        All documents subsequently filed by us pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as amended, prior to
the filing of a post-effective amendment which indicates that all securities
registered have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference in this Registration
Statement and to be part hereof from the date of filing of such documents.

        You should rely on the information incorporated by reference or provided
in this prospectus or the prospectus supplement. We have authorized no one to
provide you with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus or the prospectus supplement is accurate
as of any date other than the date on the front of the document.

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements deal with our
current plans, intentions, beliefs and expectations and statements of future
economic performance. Statements containing terms such as "believes," "does not
believe," "plans," "expects," "intends," "estimates," "anticipates" and other
phrases of similar meaning are considered to contain uncertainty and are
forward-looking statements.

        Forward-looking statements involve known and unknown risks and
uncertainties which may cause our actual results in future periods to differ
materially from what is currently anticipated. We make cautionary statements in
certain sections of this prospectus, including under "Risk Factors." You should
read these cautionary statements as being applicable to all related
forward-looking statements wherever they


                                                                               3
<PAGE>   6

appear in this prospectus, in the materials referred to in this prospectus, in
the materials incorporated by reference into this prospectus, or in our press
releases.

        No forward-looking statement is a guarantee of future performance, and
you should not place undue reliance on any forward-looking statement.





                                                                               4
<PAGE>   7

                                  REALNETWORKS


        We are a leading provider of media delivery and digital distribution
solutions designed for the Internet. Our solutions enable consumers to
experience and content providers to deliver a broad range of multimedia content,
including audio, video, text and animation. We pioneered the development and
commercialization of "streaming media" systems that enable the creation,
real-time delivery and playback of multimedia content. We believe that we have
established a leadership position in the market for these systems. We have more
than 95 million unique registered users of our RealPlayer products and believe
that more than 85% of all streaming media Web pages use our technology. The
broad acceptance of the Internet as a means of content delivery and consumption,
combined with recent technological advances, has greatly increased the
practicality and popularity of a number of new online media delivery formats. In
response, we have extended our media delivery platform to include a digital
music management system that allows consumers to acquire, record, store,
organize and play their personal music collections on personal computers (PCs)
and digital playback devices.

        Our solutions include a variety of integrated products and services for
consumers, content providers, service providers and advertisers. Our products
and services include:

    -   REALSYSTEM G2, an open and extensible advanced streaming media solution
        that consists of our RealPlayer client software, through which users
        experience multimedia content, and our RealServer software and related
        software tools, which enable broadcasters and content providers to
        create and deliver multimedia content.

    -   REAL BROADCAST NETWORK, a service based on a distributed multi-tier
        network designed to enable content providers to reliably and
        cost-effectively deliver high-quality streaming media over the Internet
        to large audiences.

    -   REALJUKEBOX, a product that turns a PC into a digital music management
        system and is based on RealSystem MP, our open and extensible digital
        music management solution.

    -   REALGUIDE, a comprehensive directory that enables easy and personalized
        access to high-quality media programming on the Internet.

    -   REALSTORE, an electronic commerce website from which we market, sell and
        distribute our own and third-party media delivery products and services
        to our base of more than 95 million unique registered users.

        From our inception, we have strategically chosen to offer our basic
RealPlayer software to consumers free of charge. We believe that this strategy
promotes the widespread adoption of our software and encourages the use of the
Internet as a broadcast medium. More than half of the 95 million unique
registered users of RealPlayer are registered users of our latest generation
RealPlayer G2 software. We have also sold over two million copies of RealPlayer
Plus, a premium version of our RealPlayer product. We have continued our
strategy by offering RealJukebox to consumers free of charge, and selling
RealJukebox Plus, the premium version of this product. Since its introduction,
we have sold approximately 250,000 copies of RealJukebox Plus. By achieving
broad distribution of our products to consumers, we believe that we have created
a significant target audience for content and advertising and other commerce
opportunities.

        Our principal executive offices are located at 2601 Elliott Avenue,
Seattle, Washington 98121. Our telephone number is (206) 674-2700. We maintain a
World Wide Web site at www.realnetworks.com. Information contained on our Web
site does not constitute part of, nor is it incorporated by reference into,
this prospectus.



                                                                               5
<PAGE>   8

                                  RISK FACTORS


        In addition to reviewing other information in this prospectus and our
Annual Report on Form 10-K and the other documents incorporated herein by
reference, you should consider carefully the following factors in evaluating us
and our business before purchasing shares of our common stock.

WE HAVE A LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS

        We were incorporated in February 1994 and have a limited operating
history. We have limited financial results on which you can assess our future
success. Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by growing companies in new and rapidly
evolving markets, such as streaming media software, media delivery systems and
electronic commerce.

        To address the risks and uncertainties we face, we must:

- -       establish and maintain broad market acceptance of our products and
        services and convert that acceptance into direct and indirect sources of
        revenues;

- -       maintain and enhance our brand name;

- -       continue to timely and successfully develop new products, product
        features and services and increase the functionality and features of
        existing products;

- -       successfully respond to competition from Microsoft and others; and

- -       develop and maintain strategic relationships to enhance the
        distribution, features and utility of our products and services.

        Our business strategy may be unsuccessful and we may be unable to
address the risks we face in a cost-effective manner, if at all. Our inability
to successfully address these risks will harm our business.

WE HAVE A HISTORY OF LOSSES AND MAY NOT MAINTAIN PROFITABILITY

        We have incurred significant losses since our inception and we may never
sustain or increase profitability. As of December 31, 1999, we had an
accumulated deficit of approximately $34.9 million. We devote significant
resources to developing, enhancing, selling and marketing our products and
services. As a result, we will need to generate significant revenues to maintain
profitability. While we had net income in 1999, we may not continue our
historical growth or generate sufficient revenues to sustain or increase
profitability on a quarterly or annual basis in the future.

OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY

        As a result of our limited operating history and the rapidly changing
nature of the markets in which we compete, our quarterly and annual revenues and
operating results are likely to fluctuate from period to period. These
fluctuations may be caused by a number of factors, many of which are beyond our
control. These factors include the following, as well as others discussed
elsewhere in this section:

                                                                               6
<PAGE>   9
- -       how and when we introduce new products and services and enhance our
        existing products and services;

- -       our ability to retain existing customers, attract new customers and
        satisfy our customers' demands;

- -       the timing and success of our brand-building and marketing campaigns;

- -       our ability to establish and maintain strategic relationships;

- -       our ability to attract, train and retain key personnel;

- -       the demand for Internet advertising and sponsorships;

- -       the emergence and success of new and existing competition;

- -       varying operating costs and capital expenditures related to the
        expansion of our business operations and infrastructure, domestically
        and internationally, including the hiring of new employees;

- -       technical difficulties with our products, system downtime, system
        failures or interruptions in Internet access;

- -       costs and effects related to the acquisition of businesses or technology
        and related integration; and

- -       costs of litigation and intellectual property protection.

        In addition, because the market for our products and services is
relatively new and rapidly changing, it is difficult to predict future financial
results. Our research and development and sales and marketing efforts, and
business expenditures generally, are partially based on predictions regarding
certain developments for media delivery. To the extent that these predictions
prove inaccurate, our revenues and operating expenses may fluctuate.

        For these reasons, you should not rely on period-to-period comparisons
of our financial results as indications of future results. Our future operating
results could fall below the expectations of public market analysts or investors
and significantly reduce the market price of our common stock. Fluctuations in
our operating results will likely increase the volatility of our stock price.

WE MAY BE UNABLE TO SUCCESSFULLY COMPETE WITH MICROSOFT AND OTHER COMPANIES IN
THE MEDIA DELIVERY MARKET

        The market for software and services for media delivery over the
Internet is relatively new, constantly changing and intensely competitive. As
media delivery evolves into a central component of the Internet experience, more
companies are entering the market for, and expending increasing resources to
develop, media delivery software and services. We expect that competition will
continue to intensify. Negative competitive developments could hurt our business
and the trading price of our stock.

        Many of our current and potential competitors have longer operating
histories, greater name recognition, more employees and significantly greater
financial, technical, marketing, public relations and distribution resources
than we do. In addition, new competitors with potentially unique or more
desirable products or services are entering  the market all the time. The
competitive environment may require us to make changes in our products, pricing,
licensing, services or marketing to maintain and extend our current brand and
technology franchise. Price concessions or the emergence of other pricing or
distribution strategies of competitors may diminish our revenues, impact our
margins or lead to a reduction in our market share, any of which will harm our
business.

        We believe that the primary competitive factors in the media delivery
market include:

- -       the quality and reliability of the overall media delivery solution;

- -       access to distribution channels necessary to achieve broad distribution
        and use of products;

- -       the availability of content for delivery over the Internet and access to
        necessary intellectual property rights;

- -       the ability to license or develop and support secure formats for digital
        media delivery, particularly music and video;

- -       the ability to license and support popular and emerging media formats
        for digital media delivery, particularly music and video, in a market
        where competitors may control the intellectual property rights for these
        formats;

- -       the size of the active audience for streaming and digital media and its
        appeal to content providers and advertisers;

- -       features for creating, editing and adapting content for the Internet;

- -       ease of use and interactive user features in products;

- -       ease of finding and accessing content over the Internet;

                                                                               7
<PAGE>   10
- -       scalability of streaming media and media delivery technology and cost
        per user;

- -       pricing and licensing terms;

- -       compatibility with new and existing media formats;

- -       compatibility with the user's existing network components and software
        systems; and

- -       challenges caused by bandwidth constraints and other limitations of the
        Internet infrastructure.

        Our failure to adequately address any of the above factors could harm
our business strategy and operating results.

        Microsoft is a principal competitor in the development and distribution
of streaming media and media distribution technology. Microsoft currently
competes with us in the market for streaming media server and player software
and has announced its intent to compete in the market for digital distribution
of media. Microsoft's commitment to and presence in the media delivery industry
has increased and Microsoft will continue to increase competitive pressure in
the overall market for streaming media and media distribution.

        Microsoft distributes its competing streaming media server and tools
products by bundling them with its Windows NT servers at no additional charge
and by making them available for download from its website for free. While we
also provide free downloads of certain of our products, including players,
servers and tools, Microsoft's practices have caused, and may continue to cause,
pricing pressure on our products. These practices have led in some cases, and
could continue to lead to, longer sales cycles, decreased sales, loss of
existing customers and reduced market share. In addition, we believe that
Microsoft has used and may continue to use its monopoly position in the computer
industry and its financial resources to secure preferential or exclusive
distribution and bundling contracts for its streaming media products with third
parties such as Internet service providers (ISPs), online service providers,
content providers, entertainment companies, media companies, broadcasters, value
added resellers (VARs) and original equipment manufacturers (OEMs), including
third parties with whom we have relationships. In addition, Microsoft has
invested significant sums of money in certain of our current and potential
customers, and we expect this trend to continue, which may cause such customers
to stop using or reduce their use of our products and services. Such
arrangements, together with Microsoft's aggressive marketing of Windows NT and
of its streaming media products, may reduce our share of the streaming media
market.

        Microsoft's Windows Media Player competes with our RealPlayer products.
The Windows Media Player is available for download from Microsoft's website for
free, and is bundled by Microsoft with its Windows 98 operating system and with
its Web browser, Internet Explorer. In addition, Microsoft has bundled certain
audio capabilities into a radio toolkit for Internet Explorer 5.0, its latest
Web browser. Internet Explorer 5.0 includes Web Events, which provides links to
multimedia content on the Internet, especially content in Microsoft's streaming
or digital media formats. We expect the Windows Media Player to be bundled with
new versions of Windows to be released this year. We expect that by leveraging
its monopoly position in operating systems and tying streaming or digital media
into its operating system and its browser, Microsoft will distribute
substantially more copies of the Windows Media Player in the future than it has
in the past and may be able to attract more users to its streaming or digital
media products. Currently, our RealPlayer has a high degree of market
penetration: we have over 95 million unique registered users and estimate that
more than 85% of all streaming media Web pages use our technology. Our market
position will be difficult to sustain, particularly in light of Microsoft's
efforts and dominant position in operating systems. In addition, Microsoft has
invested in certain digital distribution technologies that compete with
RealJukebox, such as the MusicMatch Jukebox. Microsoft bundles the MusicMatch
Jukebox with the Microsoft Windows 98 Second Edition operating system. The
MusicMatch Jukebox supports the Windows Media format, but not RealSystem G2
formats. We also expect Microsoft to develop its own jukebox product or bundle
jukebox capabilities into the Windows Media Player. Microsoft also supports and
promotes other third party products competitive to our products. We expect
Microsoft and other competitors to devote significantly greater resources to
product development in the jukebox and digital media categories. In addition, it
may be difficult or impossible for us to license the Windows Media formats and
other popular third party codec technology for use in our RealPlayer and
RealJukebox products on terms equivalent to those offered to our competitors who
do support the Windows Media format, which may harm the demand for and market
for the RealPlayer and RealJukebox products.

        In addition, Microsoft competes with us to attract broadcasters of
high quality or popular content to promote and deliver such content in
Microsoft's formats, in some cases on an exclusive or preferential basis. We
believe that Microsoft's commitment to and presence in the media delivery
industry has increased and that Microsoft will continue to increase competitive
pressure in the overall market for streaming media and media distribution.

        In addition to Microsoft, we face increasing competition from other
companies that are developing and marketing streaming media products. Apple
Computer offers the QuickTime streaming media technology, including a free

                                                                               8
<PAGE>   11
media player and a free streaming media server, and has made available free
source code to the server under the conditions of Apple Computer's end user
license agreement. We expect that Apple Computer will devote more resources to
developing and marketing streaming media systems, and will seek to compete more
vigorously with us in the marketplace. Other competitors include, but are not
limited to, Cisco Systems/Precept Software, PictureTel/Starlight Networks and
Oracle Corporation. Companies such as AOL and Yahoo! and many smaller
competitors offer various products that compete with other player and jukebox
products. As more companies enter the market with products that compete with our
servers, players and tools, the competitive landscape could change rapidly to
our disadvantage.

        We do not believe that clear standards have emerged with respect to
non-PC wireless and cable-based systems. Likewise, no one company has gained a
dominant position in the mobile device market. However, certain products and
services in these markets support our technology, and certain support our
competitors' technology, especially Microsoft, which can use its monopoly
position in the operating system business and other financial resources to gain
access to these markets, potentially to the exclusion of us. Other companies'
products and services or new standards may emerge in any of these areas, which
could reduce demand for our products or render them obsolete.

        In addition, our streaming media and media delivery products face
competition from "fast download" media delivery technologies such as AVI,
QuickTime and MP3. Other fast download or non-streaming IP-based content
distribution methods are likely to emerge and could compete with our products
and services, which could harm our business.

WE MAY BE UNABLE TO SUCCESSFULLY COMPETE IN OTHER PARTS OF OUR BUSINESS

        Media Hosting. Our media hosting service, the Real Broadcast Network,
competes with a variety of companies that provide streaming media hosting
services. These companies include Yahoo! Broadcast Services (formerly
Broadcast.com), Akamai/Intervu and emerging broadcast networks such as CMGI's
Magnitude Network, Enron Communications, GlobalMedia and Microcast. We may not
establish or sustain our competitive position in this market segment. Some media
hosting competitors are also customers on whom we rely to help drive product
download traffic to our website through their broadcast events. We also sell
servers and tools to companies that compete with Real Broadcast Network. As our
relationship becomes more competitive, such companies may choose to purchase
less or more of our products or services. Microsoft does not currently offer its
own media hosting services, but it does own investments in competitive hosting
services and it encourages customers who use Microsoft technology to use hosting
services that compete with Real Broadcast Network.

        Website Destinations, Content and Advertising. While Internet
advertising revenues across the industry continue to grow, the number of
websites competing for advertising revenues is also growing. Our websites,
including Real.com, RealNetworks.com, Film.com and LiveConcerts.com, compete for
user traffic and Internet advertising revenues with a wide variety of websites,
Internet portals and ISPs. In particular, aggregators of audio, video and other
media, such as Yahoo! Broadcast Services and Microsoft's Web Events, compete
with our RealGuide. We also compete with traditional media such as television,
radio and print for a share of advertisers' total advertising budgets. Our
advertising sales force and infrastructure are still in early stages of
development relative to those of our competitors. We cannot be certain that
advertisers will place advertising with us or that revenues derived from such
advertising will be meaningful. If we lose advertising customers, fail to
attract new customers, are forced to reduce advertising rates or otherwise
modify our rate structure to retain or attract customers, or if we lose website
traffic, our business could be harmed.

        Electronic Commerce. The electronic commerce features of our websites
compete with a variety of other websites for consumer traffic. To compete
successfully in the electronic commerce market, we must attract sufficient
traffic to our websites by offering high-quality, competitively priced,
desirable merchandise in a compelling, easy-to-purchase format. In addition, we
must successfully leverage our existing user base to develop the market for our
products and services. We may not compete successfully in the growing and
rapidly changing market for electronic commerce. Our failure to do so could harm
our business.

        Increased competition may result in price reductions, reduced margins,
loss of customers, and a change in our business and marketing strategies, any of
which could harm our business.

                                                                               9
<PAGE>   12
WE MAY NOT BE SUCCESSFUL IN THE MARKET FOR DOWNLOADABLE MEDIA AND LOCAL MEDIA
DELIVERY

        In May 1999, we announced the RealSystem MP, a digital music
architecture enabling integration with a wide range of Internet services and
hardware devices. In May 1999, we released RealJukebox, our client software
based on the RealSystem MP. These products represent an extension of our
business into downloadable media and local media delivery, which is a
substantial evolution from our historical focus on streaming media products and
services. We do not yet know whether there is a sustainable market for products
such as RealSystem MP and RealJukebox. Even if that market exists, we may be
unable to develop a revenue model or sufficient demand to take advantage of the
market opportunity.

        While over 25 million copies of RealJukebox have been downloaded since
its beta release on May 3, 1999, and over 250,000 copies of RealJukebox Plus
have been sold since its introduction in September 1999, it is too soon to
determine if RealJukebox will be widely received in the marketplace. There are
now a number of competitive products on the market that offer certain of the
features that RealJukebox offers. These products include WinAmp Player,
MusicMatch Jukebox, Liquid Audio Player and a2b Player. In addition, given the
size and importance of the general market for music distribution, competitors
will likely release products that directly compete with RealJukebox, which could
harm our business. Even if RealJukebox achieves widespread market acceptance, it
may not achieve a high level of use, which would lead to a low rate of upgrade
sales and electronic commerce opportunities. Our inability to achieve widespread
acceptance for RealSystem MP and RealJukebox or to create new revenue streams
from new market segments could harm our business.

        RealJukebox supports a variety of audio formats, including RealAudio G2,
MP3, Liquid Audio, Mjuice, Windows Media Audio, IBM's EMMS, and a2b. However,
technical formats and consumer preferences evolve very rapidly, and we may be
unable to adequately address consumer preferences or fulfill the market demand
to the extent it exists.

        We have had long-term relationships with recording companies, including
major record labels, many of which offer their streaming content in our formats.
However, recording companies, including those with whom we have a relationship,
may be uncomfortable with some features of RealJukebox. As a result, some record
companies may decide to withhold content from RealJukebox, or refrain from or
delay participating in promotional opportunities with respect to RealJukebox.

        RealJukebox is intended to allow users of the product to acquire,
record, play back and manage music for their personal use. It is possible for a
user of RealJukebox to elect not to use the copyright-protection features it
contains and then violate the intellectual property rights of artists and
recording companies by engaging in an unauthorized distribution of music. The
laws governing the recording, distribution and performance of digital music are
new and largely untested. While we believe we have developed RealJukebox to
comply with U.S. copyright laws, a court may find us in violation of these laws.
Similar action or other litigation in the United States or abroad directed at us
could harm our business, even if such litigation were entirely without merit. In
addition, we may be required to pay royalties associated with the digital
distribution and performance of music, which could adversely impact our
financial results.

WE MAY NOT SUCCESSFULLY DEVELOP NEW PRODUCTS AND SERVICES

        Our growth depends on our ability to continue to develop leading edge
media delivery and digital distribution products and services. Our business and
operating results would be harmed if we fail to develop products and services
that achieve widespread market acceptance or that fail to generate significant
revenues to offset development costs. We may not timely and successfully
identify, develop and market new product and service opportunities. If we
introduce new products and services, they may not attain broad market acceptance
or contribute meaningfully to our revenues or profitability.

        Because the markets for our products and services are rapidly changing,
we must develop new offerings quickly. We have experienced development delays
and cost overruns in our development efforts in the past and we may encounter
such problems in the future. Delays and cost overruns could affect our ability
to respond to technolog-

                                                                              10
<PAGE>   13
ical changes, evolving industry standards, competitive developments or customer
requirements. Our products also may contain undetected errors that could cause
increased development costs, loss of revenues, adverse publicity, reduced market
acceptance of the products or lawsuits by customers.

POTENTIAL ACQUISITIONS INVOLVE RISKS WE MAY NOT ADEQUATELY ADDRESS

        The failure to adequately address the financial and operational risks
raised by acquisitions of technology and businesses could harm our business. We
have acquired complementary technologies and businesses in the past, and intend
to do so in the future. Financial risks related to acquisitions include:

- -       potentially dilutive issuances of equity securities;

- -       use of cash resources;

- -       the incurrence of additional debt and contingent liabilities;

- -       large write-offs; and

- -       amortization expenses related to goodwill and other intangible assets.

        Acquisitions also involve operational risks, including:

- -       difficulties in assimilating the operations, products, technology,
        information systems and personnel of the acquired company;

- -       diversion of management's attention from other business concerns;

- -       impairment of relationships with our employees, affiliates, advertisers
        and content providers;

- -       inability to maintain uniform standards, controls, procedures and
        policies;

- -       the assumption of known and unknown liabilities of the acquired company;

- -       entrance into markets in which we have no direct prior experience; and

- -       loss of key employees of the acquired company.

        In August 1999, we acquired Xing Technology Corporation, an MP3 software
developer, in a transaction that was accounted for as a pooling of interests. We
may not be able to use the pooling of interests method of accounting for future
acquisitions, which could result in the future incurrence of substantial
expenses relating to the amortization of goodwill. In January 2000, we acquired
NetZip, Inc., a developer and marketer of download management software, in a
transaction that was accounted for using the purchase method of accounting. The
NetZip transaction poses particular integration risks because NetZip has been
based in Atlanta, Georgia, and we plan to relocate its operations to Seattle,
Washington. We may not adequately integrate these or any future acquisitions.

WE RELY ON CONTENT PROVIDED BY THIRD PARTIES TO INCREASE MARKET ACCEPTANCE OF
OUR PRODUCTS

        If third parties do not develop or offer compelling content to be
delivered over the Internet, our business will be harmed and our products may
not achieve or sustain broad market acceptance. We rely on third-party content
providers, such as radio and television stations, record labels, media
companies, websites and other companies, to develop and offer content in our
formats that can be delivered using our server products and played back using
our player products. While we have a number of short-term agreements with third
parties to provide content from their websites in our formats, most third
parties are not obligated to develop or offer content using our technology. In
addition, some third parties have entered into and may in the future enter into
agreements with our competitors, principally Microsoft, to develop or offer all
or a substantial portion of their content in our competitors' formats. Microsoft
has more resources to secure preferential and even exclusive relationships with
content providers. There could be less demand for and use of our products if
Microsoft or another competitor were to secure preferential or exclusive
relationships with the leading broadcasters, record companies or websites. We
cannot guarantee that third-party content providers will continue to rely on our
technology or offer compelling content in our formats to encourage and sustain
broad market acceptance of our products. Their failure to do so would harm our
business.

        As we move into the market for digital distribution of media and local
media playback, our success depends on the availability of third-party content,
especially music, that users of our RealJukebox product can lawfully and easily
access, record and play back. Our product may not achieve or sustain market
acceptance if third parties are

                                                                              11
<PAGE>   14
unwilling to offer their content for free download or purchase by users of
RealJukebox. Current concerns regarding the secure distribution of music over
the Internet are causing content owners to delay or refuse to make content
available for distribution. Competitors could secure exclusive distribution
relationships with such content providers, which would harm our business.


THE RATE STRUCTURE OF SOME OF OUR ADVERTISING AND SPONSORSHIP ARRANGEMENTS
SUBJECTS US TO FINANCIAL RISK

        We generate advertising revenues in part through sponsored services and
placements by third parties in our products and on our websites, in addition to
banner advertising. We may receive sponsorship fees or a portion of transaction
revenues in return for minimum levels of user impressions to be provided by us.
These arrangements expose us to potentially significant financial risks in the
event our usage levels decrease, including the following:

- -       the fees we are entitled to receive may be adjusted downwards;

- -       we may be required to "make good" on our obligations by providing
        alternative services;

- -       the sponsors may not renew the agreements or may renew at lower rates;
        and

- -       the arrangements may not generate anticipated levels of shared
        transaction revenues, or sponsors may default on the payment commitments
        in such agreements.

        Accordingly, any leveling off or decrease of our user base or the
failure to generate anticipated levels of shared transaction revenues could
result in a meaningful decrease in our revenue levels.

WE DEPEND ON KEY PERSONNEL WHO MAY NOT CONTINUE TO WORK FOR US

        Our success substantially depends on the continued employment of our
executive officers and key employees, particularly Robert Glaser, our chairman
of the board and chief executive officer. The loss of the services of Mr. Glaser
or any of our other executive officers or key employees could harm our business.
Each of these individuals has acquired specialized knowledge and skills with
respect to RealNetworks and its operations. As a result, if any of these
individuals were to leave RealNetworks, we could face substantial difficulty in
hiring qualified successors and could experience a loss in productivity while
any such successor obtains the necessary training and experience. Several of our
personnel have reached or will soon reach the five-year anniversary of their
RealNetworks hiring date and, as a result, will have become or will shortly
become fully vested in their initial stock option grants. While management
personnel are typically granted additional stock options, which will usually
vest over a period of five years, subsequent to their hire date to provide
additional incentive to remain at RealNetworks, the initial option grant is
typically the largest and an employee may be more likely to leave our employ
upon completion of the vesting period for the initial option grant. None of our
executive officers has a contract that guarantees employment. Other than the $2
million insurance policy on the life of Mr. Glaser, we do not maintain "key
person" life insurance policies. If we do not succeed in retaining and
motivating existing personnel, our business could be harmed.

OUR FAILURE TO ATTRACT, TRAIN OR RETAIN HIGHLY QUALIFIED PERSONNEL COULD HARM
OUR BUSINESS

        Our success also depends on our ability to attract, train and retain
qualified personnel, specifically those with management and product development
skills. In particular, we must hire additional skilled software engineers to
further our research and development efforts. At times, we have experienced
difficulties in hiring personnel with the right training or experience,
particularly in technical areas. Competition for qualified personnel is intense,
particularly in high-technology centers such as the Pacific Northwest, where our
corporate headquarters are located. In making employment decisions, particularly
in the Internet and high-technology industries, job candidates often consider
the value of stock options they may receive in connection with their employment.
As a result of recent volatility in our stock price, we may be disadvantaged in
competing with companies that have not experienced similar volatility or that
have not yet sold their stock publicly. If we do not succeed in attracting new
personnel or retaining and motivating our current personnel, our business could
be harmed.

                                                                              12
<PAGE>   15
WE MAY NOT SUCCESSFULLY MANAGE OUR GROWTH

        We cannot successfully implement our business model if we fail to manage
our growth. We have rapidly and significantly expanded our operations
domestically and internationally and anticipate further expansion to take
advantage of market opportunities. We have increased the number of our full-time
employees from 325 on January 1, 1998 to 648 on December 31, 1999. Managing this
substantial expansion has placed a significant strain on our management,
operational and financial resources. If our growth continues, we will need to
continue to improve our financial and managerial control and reporting systems
and procedures.

        We are in the process of implementing new management information
software systems. This will affect many aspects of our business, including our
accounting, operations, electronic commerce, customer service, purchasing, sales
and marketing functions. The purchase, implementation and testing of these
systems have resulted, and will result, in significant capital expenditures and
could disrupt our day-to-day operations. If these systems are not implemented as
expected, our ability to provide products and services to our customers on a
timely basis will suffer and delays in the recording and reporting of our
operating results could occur.

THE GROWTH OF OUR BUSINESS DEPENDS ON THE INCREASED USE OF THE INTERNET FOR
COMMUNICATIONS, ELECTRONIC COMMERCE AND ADVERTISING

        The growth of our business depends on the continued growth of the
Internet as a medium for communications, electronic commerce and advertising.
Our business will be harmed if Internet usage does not continue to grow,
particularly as a source of media information and entertainment and as a vehicle
for commerce in goods and services. Our success also depends on the efforts of
third parties to develop the infrastructure and complementary products and
services necessary to maintain and expand the Internet as a viable commercial
medium. The Internet may not be accepted as a viable commercial medium for
broadcasting multimedia content or media delivery for a number of reasons,
including:

- -       potentially inadequate development of the necessary infrastructure to
        accommodate growth in the number of users and Internet traffic;

- -       lack of acceptance of the Internet as a medium for distributing
        streaming media content or for media delivery;

- -       unavailability of compelling multimedia content;

- -       inadequate commercial support for Web-based advertising; and

- -       delays in the development or adoption of new technological standards and
        protocols or increased governmental regulation, which could inhibit the
        growth and use of the Internet.

        In addition, we believe that other Internet-related issues, such as
security, reliability, cost, ease of use and quality of service, remain largely
unresolved and may affect the amount of business that is conducted over the
Internet.

        If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by such growth, specifically the demands of
delivering high-quality media content. As a result, its performance and
reliability may decline. In addition, websites have experienced interruptions in
service as a result of outages and other delays occurring throughout the
Internet network infrastructure. If these outages or delays occur frequently in
the future, Internet usage, as well as the usage of our products, services and
websites, could grow more slowly or decline.

                                                                              13
<PAGE>   16
CHANGES IN NETWORK INFRASTRUCTURE, TRANSMISSION METHODS AND BROADBAND
TECHNOLOGIES POSE RISKS TO OUR BUSINESS

        We believe that increased Internet use may depend on the availability of
greater bandwidth or data transmission speeds (also known as broadband
transmission). If broadband access becomes widely available, we believe it
presents both a substantial opportunity and a significant business challenge for
us. Internet access through cable television set-top boxes, digital subscriber
lines or wireless connections could dramatically reduce the demand for our
products and services by utilizing alternate technology that more efficiently
transmits data. This could harm our business as currently conducted.

        Development of products and services for a broadband transmission
infrastructure involves a number of additional risks, including:

- -       changes in content delivery methods and protocols;

- -       the availability of compelling content that takes advantage of broadband
        access and helps drive market acceptance of our products and services;

- -       the emergence of new competitors, such as traditional broadcast and
        cable television companies, which have significant control over access
        to content, substantial resources and established relationships with
        media providers;

- -       the development of relationships by our current competitors with
        companies that have significant access to or control over the broadband
        transmission infrastructure or content;

- -       the need to establish new relationships with non-PC based providers of
        broadband access, such as providers of television set-top boxes and
        cable television, some of which may compete with us; and

- -       the general risks of new product and service development, including the
        challenges to develop error-free products and enhancements, develop
        compelling services and achieve market acceptance for these products and
        services.

        We depend on the efforts of third parties to develop and provide a
successful infrastructure for broadband transmission. Even if broadband access
becomes widely available, heavy use of the Internet may negatively impact the
quality of media delivered through broadband connections. If these third parties
experience delays or difficulties establishing a widespread broadband
transmission infrastructure or if heavy usage limits the broadband experience,
the release of our broadband products and services could be delayed. Even if a
broadband transmission infrastructure is developed for widespread use, our
products and services may not achieve market acceptance or generate sufficient
revenues to offset our development costs.

WE COULD LOSE STRATEGIC RELATIONSHIPS THAT ARE ESSENTIAL TO OUR BUSINESS

        The loss of certain current strategic relationships or key licensing
arrangements, the inability to find other strategic partners or the failure of
our existing relationships to achieve meaningful positive results for us could
harm our business. We rely in part on strategic relationships to help us:

- -       increase adoption of our products through distribution arrangements;

- -       increase the amount and availability of compelling media content on the
        Internet to help boost demand for our products and services;

- -       enhance our brand;

- -       expand the range of commercial activities based on our technology;

- -       expand the distribution of our streaming media content without a
        degradation in fidelity; and

- -       increase the performance and utility of our products and services.

        We would be unable to accomplish many of these goals without the
assistance of third parties. We anticipate that the efforts of our strategic
partners will become more important as the multimedia experience over the
Internet matures. For example, we may become more reliant on strategic partners
to provide multimedia content, provide more secure and easy-to-use electronic
commerce solutions and build out the necessary infrastructure for media
delivery. We may not be successful in forming strategic relationships. In
addition, the efforts of our strategic partners may be unsuccessful.
Furthermore, these strategic relationships may be terminated before we realize
any benefit.

                                                                              14
<PAGE>   17
OUR INDUSTRY IS EXPERIENCING CONSOLIDATION THAT MAY INTENSIFY COMPETITION

        The Internet industry has recently experienced substantial consolidation
and a proliferation of strategic transactions. We expect this consolidation and
strategic partnering to continue. Acquisitions or strategic relationships could
harm us in a number of ways. For example:

- -       competitors could acquire or enter into relationships with companies
        with which we have strategic relationships and discontinue our
        relationship, resulting in the loss of distribution opportunities for
        our products and services or the loss of certain enhancements or
        value-added features to our products and services;

- -       competitors could obtain exclusive access to desirable multimedia
        content and prevent that content from being available in our formats,
        thus decreasing the use of our products and services to distribute and
        experience the content that audiences most desire, and hurting our
        ability to attract advertisers to our websites and product offerings;

- -       a competitor could be acquired by a party with significant resources and
        experience that could increase the ability of the competitor to compete
        with our products and services; and

- -       other companies with related interests could combine to form new,
        formidable competition, which could preclude us from obtaining access to
        certain markets or content, or which could dramatically change the
        market for our products and services.

        Announcements and consolidations that could affect our business include:

- -       Microsoft's strategic investments in broadband initiatives, including
        its $5 billion investment in AT&T;

- -       AT&T's acquisition of TCI and its proposed acquisition of MediaOne
        Communications;

- -       At Home's acquisition of Excite;

- -       Yahoo!'s acquisitions of Broadcast.com and GeoCities;

- -       The Walt Disney Company's combination of its Internet assets with, and
        acquisition of a majority ownership of, Infoseek, to create a single
        business called Go.com;

- -       NBC's merger of its Internet assets with XOOM.com, Inc. and Snap.com, a
        subsidiary of CNET;

- -       AOL's recent announcement that it intends to acquire Time-Warner, and
        Time-Warner's announcement that it intends to form a joint venture with
        EMI Music; and

- -       Akamai's recent announcement of its planned acquisition of Intervu.

OUR BUSINESS WILL SUFFER IF OUR SYSTEMS FAIL OR BECOME UNAVAILABLE

        A reduction in the performance, reliability and availability of our
websites and network infrastructure will harm our ability to distribute our
products and services to our users, as well as our reputation and ability to
attract and retain users, customers, advertisers and content providers. Our
revenues depend in large part on the number of users that download our products
from our websites and access the content services on our websites. Our systems
and operations are susceptible to, and could be damaged or interrupted by
outages caused by fire, flood, power loss, telecommunications failure, Internet
breakdown, earthquake and similar events. Our systems are also subject to
computer viruses, break-ins, "denial of service" attacks, sabotage, intentional
acts of vandalism and tampering designed to disrupt our computer systems,
websites and network communications. Our computer and communications
infrastructure is located at a single leased facility in Seattle, Washington. We
do not have fully redundant systems or a formal disaster recovery plan, and we
do not carry adequate business interruption insurance to compensate us for
losses that may occur from a system outage.

        Our electronic commerce and digital distribution activities are managed
by sophisticated software and computer systems. We may encounter delays in
developing these systems, and the systems may contain undetected errors that
could cause system failures. Any system error or failure that causes
interruption in availability of products or

                                                                              15
<PAGE>   18
content or an increase in response time could result in a loss of potential or
existing business services customers, users, advertisers or content providers.
If we suffer sustained or repeated interruptions, our products, services and
websites could be less attractive to such entities or individuals and our
business would be harmed.

        A sudden and significant increase in traffic on our websites could
strain the capacity of the software, hardware and telecommunications systems
that we deploy or use. This could lead to slower response times or system
failures. Our operations also depend on receipt of timely feeds from our content
providers, and any failure or delay in the transmission or receipt of such feeds
could disrupt our operations. We depend on Web browsers, ISPs and online service
providers to provide Internet users access to our websites. Many of these
providers have experienced significant outages in the past, and could experience
outages, delays and other difficulties due to system failures unrelated to our
systems. In addition, certain ISPs have temporarily interrupted our website
operations in response to the heavy volume of e-mail transmission we generate
and send to our large user base. These types of interruptions could continue or
increase in the future.

OUR NETWORK IS SUBJECT TO SECURITY RISKS THAT COULD HARM OUR REPUTATION AND
EXPOSE US TO LITIGATION OR LIABILITY

        Online commerce and communications depend on the ability to transmit
confidential information securely over public networks. Any compromise of our
ability to transmit confidential information securely, and costs associated with
preventing or eliminating any problems, could harm our business. Online
transmissions are subject to a number of security risks, including:

- -       our own or licensed encryption and authentication technology may be
        compromised, breached or otherwise be insufficient to ensure the
        security of customer information;

- -       we could experience unauthorized access, computer viruses, system
        interference or destruction, "denial of service" attacks and other
        disruptive problems, whether intentional or accidental, that may inhibit
        or prevent access to our websites or use of our products and services;

- -       a third party could circumvent our security measures and misappropriate
        our, our partners' and our customer's proprietary information or
        interrupt operations; and

- -       credit card companies could restrict online credit card transactions.

        The occurrence of any of these or similar events could damage our
reputation and expose us to litigation or liability. In February 2000, many
commercial and governmental websites were the subject of intentional denial of
service attacks designed to disrupt or disable the operation of such websites.
We may also be required to expend significant capital or other resources to
protect against the threat of security breaches or hacker attacks or to
alleviate problems caused by such breaches or attacks.

OUR INTERNATIONAL OPERATIONS INVOLVE RISKS

        We operate subsidiaries in Australia, England, France, Germany, Japan,
Mexico, Brazil and Hong Kong, and market and sell products in several other
countries. For the year ended December 31, 1999, approximately 23% of our
revenues, excluding revenues derived from our license agreement with Microsoft,
were derived from international operations.

         We have also entered into joint ventures internationally. A key part of
our strategy is to develop localized products and services in international
markets. To date, we have only limited experience in developing localized
versions of our products and marketing and operating our products and services
internationally and we rely on the efforts and abilities of our foreign business
partners in such activities. International markets we have selected may not
develop at a rate that supports our level of investment. In particular,
international markets typically have been slower in adoption of the Internet as
an advertising and commerce medium. In addition to uncertainty about our ability
to continue to generate revenues from our foreign operations and expand our
international presence, there

                                                                              16
<PAGE>   19
are certain risks inherent in doing business on an international level. We are
subject to the normal risks of doing business internationally, as well as risks
specific to Internet-based companies in foreign markets. These risks include:

- -       delays in the development of the Internet as a broadcast, advertising
        and commerce medium in international markets;

- -       difficulties in managing operations due to distance, language and
        cultural differences, including issues associated with establishing
        management systems infrastructures in individual markets;

- -       unexpected changes in regulatory requirements;

- -       export and import restrictions, including those restricting the use of
        encryption technology;

- -       tariffs and trade barriers and limitations on fund transfers;

- -       difficulties in staffing and managing foreign operations;

- -       longer payment cycles and problems in collecting accounts receivable;

- -       potential adverse tax consequences;

- -       exchange rate fluctuations;

- -       increased risk of piracy and limits on our ability to enforce our
        intellectual property rights; and

- -       other legal and political risks.

        Any of these factors could harm our business. We do not currently hedge
our foreign currency exposures.

WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS

        Our inability to protect our proprietary rights, and the costs of doing
so, could harm our business. Our success and ability to compete partly depend on
the superiority, uniqueness or value of our technology, including both
internally developed technology and technology licensed from third parties. To
protect our proprietary rights, we rely on a combination of patent, trademark,
copyright and trade secret laws, confidentiality agreements with our employees
and third parties, and protective contractual provisions. Despite our efforts to
protect our proprietary rights, unauthorized parties may copy or infringe
aspects of our technology, products, services or trademarks, or obtain and use
information we regard as proprietary. Our proprietary rights may be especially
difficult to protect in foreign countries, where unrelated third parties may
have registered our domain names and trademarks under their own names in an
attempt to prevent us from using the domain names and trademarks in those
countries without paying them a significant sum of money. This could prevent us
from using our valuable brands in those countries, and reduce the value of our
intellectual property. In addition, others may independently develop
technologies that are similar or superior to ours, which could reduce the value
of our intellectual property.

        As of January 31, 2000, we had 29 registered U.S. trademarks or service
marks, and had applications pending for an additional 45 U.S. trademarks. We
also have several unregistered trademarks. In addition, RealNetworks has several
foreign trademark registrations and pending applications. Many of our marks
begin with the word "Real" (such as RealSystem, RealAudio and RealVideo). We
are aware of other companies that use "Real" in their marks alone or in
combination with other words, and we do not expect to be able to prevent all
third-party uses of the word "Real" for all goods and services. In addition, the
laws of some foreign countries do not protect our proprietary rights to the same
extent as the laws of the United States, and effective patent, copyright,
trademark and trade secret protection may not be available in such
jurisdictions.

        As of January 31, 2000, we had 11 U.S. patents and numerous patent
applications on file relating to various aspects of our technology. We are
preparing additional patent applications on other features of our technology.
Patents with respect to our technology may not be granted and, if granted, may
be challenged or invalidated. Issued patents may not provide us with any
competitive advantages and may be challenged by third parties. In addition,
others could independently develop substantially equivalent intellectual
property.

                                                                              17
<PAGE>   20
        Many of our current and potential competitors dedicate substantially
greater resources to protection and enforcement of their intellectual property
rights, especially patents. If a blocking patent has issued or issues in the
future, we would need to either obtain a license or design around the patent. We
may not be able to obtain such a license on acceptable terms, if at all, or
design around the patent. As with other software products, our products are
susceptible to unauthorized copying and uses that may go undetected, and
policing such unauthorized use is difficult.

        To protect our proprietary rights, we rely on a combination of patent,
trademark, copyright and trade secret laws, confidentiality agreements with our
employees and third parties, and protective contractual provisions. These
efforts to protect our intellectual property rights may not be effective in
preventing misappropriation of our technology, or may not prevent the
development and design by others of products or technologies similar to or
competitive with those we develop.

        Companies in the computer industry have frequently resorted to
litigation regarding intellectual property rights. We may have to litigate to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of other parties' proprietary rights. From time
to time, other parties' proprietary rights, including patent rights, have come
to our attention and on several occasions we have received notice of claims of
infringement of other parties' proprietary rights, and we may receive such
notices in the future.

        In August 1998, Venson M. Shaw and Steven M. Shaw filed a lawsuit
against us and co-defendant Broadcast.com in the United States District Court
for the Northern District of Texas - Dallas Division. The plaintiffs allege that
we, individually and in combination with Broadcast.com, infringe on a certain
patent by making, using, selling and/or offering to sell software products and
services directed to media delivery systems for the Internet and corporate
intranets. The plaintiffs seek to enjoin us from the alleged infringing activity
and to recover damages in an amount no less than a reasonable royalty. We
believe the allegations are without merit and intend to vigorously defend
ourselves against these claims. However, litigation is inherently uncertain, and
we may be unable to successfully defend ourselves against this claim.

        From time to time we receive claims and inquiries from third parties
alleging that our internally developed technology or technology we license from
third parties may infringe the third parties' proprietary rights. We are now
investigating several of such pending claims. We could be required to spend
significant amounts of time and money to defend ourselves against such claims.
If any of these claims were to prevail, we could be forced to pay damages,
comply with injunctions, or stop distributing our products while we re-engineer
them or seek licenses to necessary technology, which might not be available on
reasonable terms. We could also be subject to claims for indemnification
resulting from infringement claims made against our customers and strategic
partners, which could increase our defense costs and potential damages. Any of
these events could harm our business.


WE ARE SUBJECT TO RISKS ASSOCIATED WITH GOVERNMENTAL REGULATION AND LEGAL
UNCERTAINTIES

        Few existing laws or regulations specifically apply to the Internet,
other than laws and regulations generally applicable to businesses. Certain U.S.
export controls and import controls of other countries, including controls on
the use of encryption technologies, may apply to our products. However, it is
likely that a number of laws and regulations may be adopted in the United States
and other countries with respect to the Internet. These laws may relate to areas
such as content issues (such as obscenity, indecency and defamation), copyright
and other intellectual property rights, encryption, use of key escrow data,
caching of content by server products, electronic authentication or "digital
signatures," personal privacy, advertising, taxation, electronic commerce
liability, e-mail, network and information security and the convergence of
traditional communication services with Internet communications, including the
future availability of broadband transmission capability. Other countries and
political organizations are likely to impose or favor more and different
regulation than that which has been proposed in the United States, thus
furthering the complexity of regulation. In addition, state and local
governments may impose regulations in addition to, inconsistent with, or
stricter than federal regulations. The adoption of such laws or regulations, and
uncertainties associated with their validity and enforcement, may affect the
available distribution channels for and costs associated with our products and
services, and may affect the growth of the Internet. Such laws or regulations
may therefore harm our business.

        We do not know for certain how existing laws governing issues such as
property ownership, copyright and other intellectual property issues, taxation,
illegal or obscene content, retransmission of media, and personal privacy and
data protection apply to the Internet. The vast majority of such laws were
adopted before the advent of the Internet

                                                                              18
<PAGE>   21
and related technologies and do not address the unique issues associated with
the Internet and related technologies. Most of the laws that relate to the
Internet have not yet been interpreted. Changes to or the interpretation of
these laws could:

- -       limit the growth of the Internet;

- -       create uncertainty in the marketplace that could reduce demand for our
        products and services;

- -       increase our cost of doing business;

- -       expose us to significant liabilities associated with content available
        on our websites or distributed or accessed through our products or
        services, and with our provision of products and services, and with the
        features or performance of our products and websites;

- -       lead to increased product development costs, or otherwise harm our
        business; or

- -       decrease the rate of growth of our user base and limit our ability to
        effectively communicate with and market to our user base.

        On October 28, 1998, the Digital Millennium Copyright Act (DMCA) was
enacted. The DMCA includes statutory licenses for the performance of sound
recordings and for the making of recordings to facilitate transmissions. Under
these statutory licenses, we and our broadcast customers will be required to pay
licensing fees for sound recordings we deliver in original and archived
programming and through retransmissions of radio broadcasts. The DMCA does not
specify the rate and terms of the licenses, which will be determined either
through voluntary inter-industry negotiations or arbitration. We will soon
engage in arbitration with the Recording Industry Association of America to
determine what, if any, licensee fee should be paid. Depending on the rates and
terms adopted for the statutory licenses, our business could be harmed both by
increasing our own cost of doing business, as well as by increasing the cost of
doing business for our customers.

        The Child Online Protection Act and the Child Online Privacy Protection
Act (COPPA) were enacted in October 1998. The COPPA impose civil and criminal
penalties on persons distributing material harmful to minors (e.g., obscene
material) over the Internet to persons under the age of 17, or collecting
personal information from children under the age of 13. We do not knowingly
collect and disclose personal information from such minors. The manner in which
the COPPA may be interpreted and enforced cannot be fully determined, and future
legislation similar to the COPPA could subject us to potential liability, which
in turn could harm our business. Such laws could also damage the growth of the
Internet generally and decrease the demand for our products and services.

WE MAY BE SUBJECT TO MARKET RISK AND LEGAL LIABILITY IN CONNECTION WITH THE DATA
COLLECTION CAPABILITIES OF OUR PRODUCTS AND SERVICES

        Many of our products are interactive Internet applications that by their
very nature require communication between a client and server to operate. To
provide better consumer experiences and to operate effectively, our products
occasionally send information to servers at RealNetworks. Many of the services
we provide also require that a user provides certain information to us. We post
privacy policies concerning the use and disclosure of our user data. Any failure
by us to comply with our posted privacy policies could impact the market for our
products and services, subject us to litigation and harm our business.

        Between November 1999 and March 2000, a total of fourteen purported
class action lawsuits were filed against us in state and/or federal courts in
California, Illinois, Pennsylvania, Washington and Texas. The plaintiffs in
federal court in Pennsylvania and in Illinois state court have voluntarily
dismissed their lawsuits in response to our motion to compel arbitration of the
claims under the terms of our End User License Agreements. The remaining twelve
actions, which seek to certify classes of plaintiffs, allege breach of contract,
invasion of privacy, deceptive trade practices, negligence, fraud and violation
of certain federal and state laws in connection with various communications
features of our RealPlayer and RealJukebox products. Plaintiffs are seeking both
damages and injunctive relief. We have filed various answers denying the claims
and have filed suit in Washington state court to compel the plaintiffs who have
filed actions in Texas, California and Illinois state courts to arbitrate their
claims as required by our End User License Agreements.

                                                                              19
<PAGE>   22
        On February 10, 2000, the federal district court for the Northern
District of Illinois granted our motion to stay the court proceedings in that
case because the claims are subject to arbitration under our End User License
Agreements. Also on that date, the federal Judicial Panel on Multidistrict
Litigation transferred all federal cases pending at that time to the federal
court in Illinois that has ruled that the claims are arbitrable.  Plaintiffs in
the transferred federal cases are seeking to overturn the district court's
ruling that the claims must be arbitrated. Although we can give no assurance as
to the outcome of these lawsuits, we believe the allegations in these actions
are without merit, and we intend to vigorously defend ourselves against these
claims. If the plaintiffs prevail in their claims, we could be required to pay
damages or other penalties, in addition to complying with injunctive relief,
which could have a material adverse effect on our operating results.


WE MAY BE SUBJECT TO LEGAL LIABILITY FOR THE PROVISION OF THIRD-PARTY PRODUCTS,
SERVICES OR CONTENT

        We periodically enter into arrangements to offer third-party products,
services, or content under the RealNetworks' brand or via distribution on
various RealNetworks' websites or in RealNetworks' products. We may be subject
to claims concerning these products, services or content by virtue of our
involvement in marketing, branding, broadcasting or providing access to them,
even if we do not ourselves host, operate, provide, or provide access to these
products, services or content. While our agreements with these parties often
provide that we will be indemnified against such liabilities, such
indemnification may not be adequate. It is also possible that, if any
information provided directly by us contains errors or is otherwise negligently
provided to users, third parties could make claims against us, including for
defamation, negligence, copyright or trademark infringement, unlawful activity,
tort, including personal injury, fraud, or other theories based on the nature
and content of information that we provide links to. Investigating and defending
any of these types of claims is expensive, even to the extent that the claims do
not result in liability.

REALNETWORKS' DIRECTORS AND EXECUTIVE OFFICERS BENEFICIALLY OWN APPROXIMATELY
47.7% OF OUR STOCK; THEIR INTERESTS COULD CONFLICT WITH YOURS; SIGNIFICANT SALES
OF STOCK HELD BY THEM COULD HAVE A NEGATIVE EFFECT ON REALNETWORKS' STOCK PRICE;
SHAREHOLDERS MAY BE UNABLE TO EXERCISE CONTROL

        As of December 31, 1999, our executive officers, directors and
affiliated persons beneficially own approximately 47.7% of our common stock.
Robert Glaser, our chief executive officer and chairman of the board,
beneficially owns approximately 36.4% of our common stock. As a result, our
executive officers, directors and affiliated persons will have significant
influence to:

- -       elect or defeat the election of our directors;

- -       amend or prevent amendment of our articles of incorporation or bylaws;

- -       effect or prevent a merger, sale of assets or other corporate
        transaction; and

- -       control the outcome of any other matter submitted to the shareholders
        for vote.

        As a result of their ownership and positions, our directors and
executive officers collectively are able to significantly influence all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. In addition, sales of significant amounts
of shares held by RealNetworks' directors and executive officers, or the
prospect of these sales, could adversely affect the market price of RealNetworks
common stock. Management's stock ownership may discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of
RealNetworks, which in turn could reduce our stock price or prevent our
shareholders from realizing a premium over our stock price.

                                                                              20
<PAGE>   23
PROVISIONS OF OUR CHARTER DOCUMENTS, SHAREHOLDER RIGHTS PLAN AND WASHINGTON LAW
COULD DISCOURAGE OUR ACQUISITION BY A THIRD PARTY

        Our articles of incorporation provide for a strategic transaction
committee of the board of directors currently comprised of Messrs. Glaser,
Breyer and Kapor. Without the prior approval of this committee, and subject to
certain limited exceptions, the board of directors does not have the authority
to:

- -       adopt a plan of merger;

- -       authorize the sale, lease, exchange or mortgage of:

        (A) assets representing more than 50% of the book value of our assets
        prior to the transaction; or

        (B) any other asset or assets on which our long-term business strategy
        is substantially dependent;

- -       authorize our voluntary dissolution; or

- -       take any action that has the effect of any of the above.

        RealNetworks also entered into an agreement providing Mr. Glaser with a
direct contractual right to require RealNetworks to abide by and perform all
terms of the articles of incorporation with respect to the strategic
transactions committee. This agreement also provides that so long as Mr. Glaser
owns a specified number of shares, RealNetworks will use its best efforts to
cause him to be nominated to, elected to, and not removed from the board of
directors. In addition, the articles provide that Mr. Glaser will serve, or will
appoint another officer of RealNetworks to serve, as our policy ombudsman, with
the exclusive authority to adopt or change our editorial policies as reflected
on our websites or in other communications or media in which we have a
significant editorial or media voice. The provisions with respect to the
authority of the strategic transactions committee and the policy ombudsman may
be amended only with the approval of 90% of the shares entitled to vote on an
amendment to the articles.

        We have adopted a shareholder rights plan that provides that shares of
our common stock have associated preferred stock purchase rights. These rights
become exercisable and detachable from the associated common stock only
following the acquisition by a person or a group of 15% or more of our
outstanding common stock or 10 days following the announcement of a tender or
exchange offer for 15% or more of our outstanding common stock. The rights
entitle our shareholders, other than the person or entity that has acquired or
made an exchange or tender offer for 15% or more of our outstanding common
stock, to acquire additional shares of our capital stock at a price equal to
one-half of the market price at the time of the event and, in certain
circumstances, would allow our shareholders to acquire capital stock in the
entity that has acquired or made an exchange or tender offer for 15% or more of
our outstanding common stock at a similar discount. The exercise of these rights
would make the acquisition of RealNetworks by a third party more expensive to
that party and has the effect of discouraging third parties from acquiring our
company without the approval of our board of directors, which has the power to
redeem these rights and prevent their exercise.

        Washington law imposes restrictions on some transactions between a
corporation and certain significant shareholders. Chapter 23B.19 of the
Washington Business Corporation Act prohibits a "target corporation," with some
exceptions, from engaging in certain significant business transactions with an
"acquiring person," which is defined as a person or group of persons that
beneficially owns 10% or more of the voting securities of the target
corporation, for a period of five years after such acquisition, unless the
transaction or acquisition of shares is approved by a majority of the members of
the target corporation's board of directors prior to the acquisition. Such
prohibited transactions include, among other things:

- -       a merger or consolidation with, disposition of assets to, or issuance or
        redemption of stock to or from the acquiring person;

- -       termination of 5% or more of the employees of the target corporation as
        a result of the acquiring person's acquisition of 10% or more of the
        shares; or

- -       allowing the acquiring person to receive any disproportionate benefit as
        a shareholder.

        After the five-year period, a "significant business transaction" may
occur, as long as it complies with certain "fair price" provisions of the
statute. A corporation may not opt out of this statute. This provision may have
the effect of delaying, deterring or preventing a change in control of
RealNetworks.

                                                                              21
<PAGE>   24
        The foregoing provisions of our charter documents, shareholder rights
plan and Washington law, as well as those relating to a classified board of
directors and the availability of "blank check" preferred stock, could have the
effect of making it more difficult or more expensive for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
us. These provisions may therefore have the effect of limiting the price that
investors might be willing to pay in the future for our common stock.

OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE

        The trading price of our common stock has been and is likely to continue
to be highly volatile. For example, during the 52-week period ended January 31,
2000, the price of our common stock ranged from $13.25 to $93.00 per share. Our
stock price could be subject to wide fluctuations in response to factors such
as:

- -       actual or anticipated variations in quarterly operating results;

- -       announcements of technological innovations, new products or services by
        us or our competitors;

- -       changes in financial estimates or recommendations by securities
        analysts;

- -       the addition or loss of strategic relationships or relationships with
        our key customers;

- -       conditions or trends in the Internet, media streaming, media delivery
        and online commerce markets;

- -       changes in the market valuations of other Internet, online service or
        software companies;

- -       announcements by us or our competitors of significant acquisitions,
        strategic partnerships, joint ventures or capital commitments;

- -       legal or regulatory developments;

- -       additions or departures of key personnel;

- -       sales of our common stock; and

- -       general market conditions.

        The historical volatility of our stock price may make it more difficult
for you to resell shares when you want at prices you find attractive. Sharp
increases in our stock price could have a negative impact on our financial
condition.

        In addition, the stock market in general, and the Nasdaq National Market
and the market for Internet and technology companies in particular, have
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of these companies. These broad
market and industry factors may reduce our stock price, regardless of our
operating performance. The trading prices of the stocks of many technology
companies are at or near historical highs and reflect price-earnings ratios
substantially above historical levels. These trading prices and price-earnings
ratios may not be sustained.

WE MAY BE SUBJECT TO ASSESSMENT OF SALES AND OTHER TAXES FOR THE SALE OF OUR
PRODUCTS, LICENSE OF TECHNOLOGY OR PROVISION OF SERVICES

        We may have to pay past sales or other taxes that we have not collected
from our customers. We do not currently collect sales or other taxes on the sale
of our products, license of technology or provision of services in states and
countries other than those in which we have offices or employees.

        In October 1998, the Internet Tax Freedom Act (ITFA) was signed into
law. Among other things, the ITFA imposes a three-year moratorium on
discriminatory taxes on electronic commerce. Nonetheless, foreign countries or,
following the moratorium, one or more states, may seek to impose sales or other
tax obligations on companies that engage in such activities within their
jurisdictions. Our business would be harmed if one or more states or any foreign
country were able to require us to collect sales or other taxes from current or
past sales of products, licenses of technology or provision of services,
particularly because we would be unable to go back to customers to collect sales
taxes for past sales and may have to pay such taxes out of our own funds.

WE INTEND TO DONATE A PORTION OF NET INCOME TO CHARITY

        For the year ended December 31, 1999, we were profitable and donated 5%
of our pretax net income to charity. If we sustain profitability,
we intend to donate 5% of our annual net income to charitable organizations.
This will reduce our net income.

                                                                              22
<PAGE>   25
                                 USE OF PROCEEDS

        The proceeds from the sale of the common stock offered pursuant to this
prospectus are solely for the account of the selling shareholders. Accordingly,
we will not receive any proceeds from the sale of the shares by the selling
shareholders.

                                                                              23
<PAGE>   26
                              SELLING SHAREHOLDERS

        The shares of common stock to be sold by the selling shareholders
pursuant to this prospectus represent shares issued to the selling shareholders
by us in connection with our acquisition of NetZip. The following table sets
forth the aggregate number of shares of common stock held by each selling
shareholder who beneficially owns more than 1% of the outstanding shares of our
common stock and the aggregate number of shares of common stock offered by each
such selling shareholder as well as the aggregate numbers of shares of common
stock held by and offered by the remainder of the selling shareholders as a
group. As of March 20, 2000, there were 154,360,374 shares of common stock
outstanding. Beneficial ownership is determined according to the rules of the
SEC, and includes shares subject to options currently exercisable or exercisable
within 60 days of March 20, 2000. Shares subject to such options are deemed
outstanding for computing the percentage ownership of the person holding such
options but not for computing the percentage ownership of any other person.


<TABLE>
<CAPTION>
                                                 OWNERSHIP PRIOR TO OFFERING                   OWNERSHIP AFTER OFFERING(1)
                                   ---------------------------------------------------     -----------------------------------
                                     NUMBER OF SHARES
                                      BENEFICIALLY                          NUMBER OF      NUMBER OF SHARES
                                         OWNED                            SHARES BEING     BENEFICIALLY OWNED
 NAME OF SELLING SHAREHOLDER       PRIOR TO OFFERING       PERCENTAGE        OFFERED         AFTER OFFERING         PERCENTAGE
- ----------------------------       -----------------       ----------     ------------     ------------------       ----------
<S>                               <C>                     <C>            <C>               <C>                      <C>
NETZIP FORMER SHAREHOLDERS:
Jerkunica, Boris ............         1,752,030              1.14%          1,553,864(3)         198,166                 *
Other former NetZip
   Shareholders(2) ..........         1,102,774                 -             962,006(4)         140,768                 -
   TOTAL ....................         2,854,804                 -           2,515,870            338,934                 -
</TABLE>


- -------------------

(1)   Assumes the sale of all of the shares of common stock, registered hereby
      and previously registered on Registration Statement No. 333-96423, offered
      by each of the selling shareholders.

(2)   Consists of 13 former NetZip shareholders who own an aggregate of
      1,100,462 shares (but each hold less than 1% of the outstanding shares of
      RealNetworks common stock) and includes an aggregate of 2,312 shares
      subject to options currently exercisable or exercisable within 60 days of
      March 20, 2000.

(3)   In addition to the 971,851 shares of common stock held by Mr. Jerkunica
      which are being registered hereby, RealNetworks previously registered
      734,513 shares held by Mr. Jerkunica in connection with Registration
      Statement No. 333-96423, 582,013 of which were not sold by Mr. Jerkunica
      as of April 24, 2000.

(4)   In addition to the 477,428 shares of common stock held by the 13 other
      former NetZip shareholders which are being registered hereby,
      RealNetworks previously registered 714,766 shares held by these former
      NetZip shareholders in connection with Registration Statement No.
      333-96423, 484,578 of which were not sold by them as of April 24, 2000.

*     Less than 1% of the outstanding shares of common stock.

                                                                              24
<PAGE>   27

                              PLAN OF DISTRIBUTION


        The shares covered by this prospectus may be offered and sold from time
to time by the selling shareholders. The selling shareholders will act
independently of us in making decisions with respect to the timing, manner and
size of each sale. The selling shareholders may sell the shares being offered
hereby on the Nasdaq National Market, or otherwise, at prices and under terms
then prevailing or at prices related to the then current market price or at
negotiated prices. Shares may be sold by one or more of the following means of
distribution:

        -   Block trades in which the broker-dealer so engaged will attempt to
            sell such shares as agent, but may position and resell a portion of
            the block as principal to facilitate the transaction;

        -   Purchases by a broker-dealer as principal and resale by such
            broker-dealer for its own account pursuant to this prospectus;

        -   Over-the-counter distributions in accordance with the rules of the
            Nasdaq National Market;

        -   Ordinary brokerage transactions and transactions in which the broker
            solicits purchasers; and

        -   Privately negotiated transactions.

        To the extent required, this prospectus may be amended and supplemented
from time to time to describe a specific plan of distribution. In connection
with distributions of such shares or otherwise, the selling shareholders may
enter into hedging transactions with broker-dealers or other financial
institutions. In connection with such transactions, broker-dealers or other
financial institutions may engage in short sales of our common stock in the
course of hedging the positions they assume with the selling shareholders. The
selling shareholders may also sell our common stock short and redeliver the
shares to close out such short positions. The selling shareholders may also
enter into option or other transactions with broker-dealers or other financial
institutions which require the delivery to such broker-dealer or other financial
institution of the shares offered hereby, which shares such broker-dealer or
other financial institution may resell pursuant to this prospectus (as
supplemented or amended to reflect such transaction). The selling shareholders
may also pledge such shares to a broker-dealer or other financial institution,
and, upon a default, such broker-dealer or other financial institution, may
effect sales of such pledged shares pursuant to this prospectus (as supplemented
or amended to reflect such transaction). In addition, any such shares that
qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than
pursuant to this prospectus.

        In effecting sales, brokers, dealers or agents engaged by the selling
shareholder may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
selling shareholders in amounts to be negotiated prior to the sale. Such brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with such sales, and any such commissions, discounts or concessions may be
deemed to be underwriting discounts or commissions under the Securities Act of
1933. We will pay all reasonable expenses incident to the registration of the
shares being offered hereby other than any commissions and discounts of
underwriters, dealers or agents.

        In order to comply with the securities laws of certain states, if
applicable, the shares being offered hereby must be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states such shares may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and there has been compliance thereof.

                                                                              25
<PAGE>   28
        We have advised the selling shareholders that the anti-manipulation
rules of Regulation M under the Securities Exchange Act of 1934 may apply to
sales of shares in the market and to the activities of the selling shareholders
and their affiliates. In addition, we will make copies of this prospectus
available to the selling shareholder and have informed them of the need for
delivery of copies of this prospectus to purchasers at or prior to the time of
any sale of the shares offered hereby. The selling shareholders may indemnify
any broker-dealer that participates in transactions involving the sale of the
shares against certain liabilities, including liabilities arising under the
Securities Act of 1933.

        At the time a particular offer of shares is made, if required, a
prospectus supplement will be distributed that will set forth the number of
shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation, any discount,
commission or concession allowed or reallowed or paid to any dealer, and the
proposed selling price to the public.

        We have agreed to indemnify the selling shareholder and any person
controlling the selling shareholder against certain liabilities, including
liabilities under the Securities Act of 1933. The selling shareholders have
agreed to indemnify us and certain related persons against certain liabilities,
including liabilities under the Securities Act of 1933.

        We have agreed with the selling shareholders to keep the registration
statement of which this prospectus constitutes a part effective for a period of
twelve months or, if earlier, with respect to each selling shareholder, until
the selling shareholder is able to sell all shares offered pursuant to this
registration statement in a single three-month period in accordance with Rule
144 under the Securities Act of 1933.

                                  LEGAL MATTERS

        Certain legal matters relating to the validity of the securities offered
hereby will be passed upon for us by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Kirkland, Washington.

                                     EXPERTS

        The consolidated balance sheets of RealNetworks, Inc., and subsidiaries
as of December 31, 1999 and 1998 and the consolidated statements of operations
and comprehensive income (loss), shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1999 and the related
financial statement schedule and the consolidated balance sheet of RealNetworks,
Inc. and subsidiaries as of December 31, 1997 and the consolidated statements of
operations and comprehensive loss, shareholders' equity (deficit) and cash flows
for the year ended December 31, 1996 and related financial statement schedule,
have been incorporated by reference herein and in the registration statement in
reliance upon the reports of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.

        The financial statements of NetZip, Inc. incorporated by reference in
this registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report dated January 21,
2000 with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.



                                       26
<PAGE>   29




                                2,898,558 SHARES



                               REALNETWORKS, INC.



                              --------------------






                                  COMMON STOCK






                                   PROSPECTUS











                                 ___________________, 2000






<PAGE>   30
                               REALNETWORKS, INC.

                       REGISTRATION STATEMENT ON FORM S-3

                                     PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS



 ITEM
NUMBER

Item 14 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

        The following table sets forth costs and expenses of the sale and
distribution of the securities being registered. All amounts except SEC fees and
the Nasdaq National Market listing fee are estimates.

<TABLE>
<S>                                                                       <C>
               Registration Statement--SEC ......................         $ 13,092
               Printing expenses ................................         $  5,000
               Accounting fees ..................................         $ 10,000
               Legal fees .......................................         $ 20,000
               Miscellaneous ....................................         $ 11,908
                                                                          --------
               Total ............................................         $ 60,000
</TABLE>

Item 15 INDEMNIFICATION OF DIRECTORS AND OFFICERS.

        Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). The registrant's Restated Articles of Incorporation and
Amended and Restated Bylaws provide for indemnification of the registrant's
directors, officers, employees and agents to the maximum extent permitted by
Washington law. The directors and officers of the registrant also may be
indemnified against liability they may incur for serving in that capacity
pursuant to a liability insurance policy maintained by the registrant for such
purpose. Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary damages
for acts or omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal corporate loans or
distributions, or any transaction from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. The registrant's Amended and Restated Articles of Incorporation
contain provisions implementing, to the fullest extent permitted by Washington
law, such limitations on a director's liability to the registrant and its
shareholders. The registrant has entered into certain indemnification agreements
with its officers and directors. The indemnification agreements provide the
registrant's officers and directors with indemnification to the maximum extent
permitted by the WBCA.



                                                                            II-1

<PAGE>   31
Item 16 EXHIBITS.


<TABLE>
<CAPTION>
          Exhibit
          Number
          ------
<S>                  <C>
            5.1       Opinion of Wilson Sonsini Goodrich & Rosati, Professional
                      Corporation.

            23.1      Consent of KPMG LLP.

            23.2      Consent of Arthur Andersen LLP.

            23.3      Consent of Wilson Sonsini Goodrich & Rosati (included in
                      Exhibit 5.1).

            24.1      Power of Attorney (included on signature page).
</TABLE>


Item 17 UNDERTAKINGS.

        The undersigned registrant hereby undertakes:

        (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.

        (2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

        (3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

        (4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

        The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
as that time shall be deemed to be the initial bona fide offering thereof.

        Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or




                                                                            II-2
<PAGE>   32
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.






                                                                            II-3
<PAGE>   33

                                   SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Seattle, State of Washington, on the 27th day of
April, 2000.



                                        REALNETWORKS, INC.

                                        By  /s/  Paul Bialek
                                            -----------------------------------
                                            PAUL BIALEK, SENIOR VICE PRESIDENT
                                            FINANCE AND OPERATIONS AND
                                            CHIEF FINANCIAL OFFICER



                        SIGNATURES AND POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert Glaser and Paul Bialek, joint and
severally, his or her attorneys-in-fact, each with the power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement on Form S-3 (including
post-effective amendments or any abbreviated registration statement and any
amendments thereto filed pursuant to Rule 462(b) increasing the number of
securities for which registration is sought), and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof. Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated below on the 27th day of April, 2000.


<TABLE>
<CAPTION>
         SIGNATURE                                       TITLE
         ---------                                       -----
<S>                                     <C>
     /s/ Robert Glaser                   Chief Executive Officer,
- ----------------------------------       Chairman of the Board and Treasurer
       Robert Glaser                     (Principal Executive Officer and
                                         Chairman of the Board)


      /s/ Paul Bialek                    Senior Vice President,
- ----------------------------------       Finance and Operations and
        Paul Bialek                      Chief Financial Officer
                                         (Principal Financial and Accounting
                                         Officer)


     /s/ Edward Bleier                   Director
- ----------------------------------
       Edward Bleier



      /s/ James Breyer                   Director
- ----------------------------------
        James Breyer



     /s/ Bruce Jacobson                  Director
- ----------------------------------
       Bruce Jacobson



     /s/ Mitchell Kapor                  Director
- ----------------------------------
       Mitchell Kapor
</TABLE>




<PAGE>   34
                                INDEX TO EXHIBITS



<TABLE>
<CAPTION>
  Exhibit
  Number
<S>          <C>
    5.1      Opinion of Wilson Sonsini Goodrich & Rosati, Professional
             Corporation.

   23.1      Consent of KPMG LLP.

   23.2      Consent of Arthur Andersen LLP.

   23.3      Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit
             5.1).

   24.1      Power of Attorney (included on signature page).
</TABLE>






<PAGE>   1

                                 April 25, 2000


RealNetworks, Inc.
2601 Elliott Avenue
Seattle, Washington 98121

        RE:  REGISTRATION STATEMENT ON FORM S-3

Ladies and Gentlemen:

        We have examined the Registration Statement on Form S-3 to be filed by
you with the Securities and Exchange Commission on or about April 27, 2000
(the "Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of a total of 1,449,279 shares of your
Common Stock (the "Shares"), to be offered for sale by the Selling Shareholders
named therein. As legal counsel for RealNetworks, Inc., we have examined the
proceedings taken in connection with the sale of the Shares by the Selling
Shareholders in the manner set forth in the Registration Statement in the
Section entitled "Plan of Distribution." It is our opinion that the Shares are
legally and validly issued, fully paid and nonassessable.

        We consent to the use of this opinion as an exhibit to the Registration
Statement, including the prospectus constituting a part thereof, and further
consent to the use of our name wherever it appears in the Registration Statement
and any amendments thereto.



                                           Very truly yours,

                                           WILSON SONSINI GOODRICH & ROSATI
                                           Professional Corporation



                                           /s/ WILSON SONSINI GOODRICH & ROSATI




<PAGE>   1

                                                                    EXHIBIT 23.1

                        CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
RealNetworks, Inc.:


We consent to the incorporation by reference in the Registration Statement on
Form S-3 of RealNetworks, Inc. of our reports dated January 21, 2000 relating to
the consolidated balance sheets of RealNetworks, Inc. and subsidiaries as of
December 31, 1999 and 1998 and the related consolidated statements of operations
and comprehensive income (loss), shareholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1999, and the related
financial statement schedule, which reports appear in the 1999 Annual Report on
Form 10-K of RealNetworks, Inc., or are incorporated by reference therein from
the 1999 annual report to shareholders of RealNetworks, Inc.

We also consent to the incorporation by reference in the Registration Statement
on Form S-3 of RealNetworks, Inc. of our report dated January 25, 2000 related
to the consolidated balance sheets of RealNetworks, Inc. as of December 31,
1998 and 1997 and the related consolidated statements of operations and
comprehensive loss, shareholders' equity (deficit) and cash flows for each of
the years in the three-year period ended December 31, 1998, and the related
financial statement schedule, which report appears in a Form 8-K of
RealNetworks, Inc. filed with the Securities and Exchange Commission on
February 8, 2000. We also consent to the reference to our firm under the heading
"Experts" in the Prospectus.


/s/ KPMG LLP


Seattle, Washington
April 25, 2000

<PAGE>   1
                                                                    EXHIBIT 23.2

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the use of our report
dated January 21, 2000 (and to all references to our Firm) included in or made
a part of this registration statement.

/s/ Arthur Andersen LLP


Atlanta, Georgia
April 21, 2000


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission