EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This compensation discussion and analysis describes the principles underlying our executive compensation program and discusses how those
principles affected our policies and decisions regarding the compensation of our named executive officers.
EXECUTIVE
SUMMARY FOR 2019
Overview. In 2019, RealNetworks made progress on
key growth initiatives and scaled back operating expenses, making 2019 a solid year strategically. Continuing to focus on its two main growth initiatives, the company benefitted from increased revenue in its Games segment, a reflection of early
success with free-to-play games, and saw significant progress in both customer deployment and partnership development for its SAFR product. While strategically investing
in these growth initiatives, the company continued to carefully manage operating expenses and saw improvement in losses for the period.
In January 2019, RealNetworks acquired an additional 42% interest in Rhapsody International, Inc., which does business as Napster, increasing
its ownership to 84%. Napster delivers a comprehensive offering of digital music products and services designed to provide consumers with broad access to digital music. Napster continues to operate as an independent business with its own board of
directors, strategy, and leadership team, although its financial results were reported on a consolidated basis in the RealNetworks financial statements as of January 18, 2019.
Throughout 2019, Chairman and Chief Executive Officer, Rob Glaser drove the companys efforts, together with a strong senior leadership
team comprised of Max Pellegrini, President of RealNetworks, Cary Baker, Chief Financial Officer, and Michael Parham, General Counsel. Aligning the compensation of our management team with our overall corporate strategy and growth plans, our
compensation program is substantially performance-based and aims to encourage the performance necessary to drive growth and profitability for RealNetworks. In general, the compensation provided to our named executive officers in 2019 was consistent
with compensation in prior years. Nevertheless, as reported in the Summary Compensation Table that follows this Compensation Discussion and Analysis, all of the companys officers have 2019 total compensation that is lower than the total
compensation reported for 2018. Further, the total compensation value provided to all of the named executive officers, again as reported in the Summary Compensation Table, was below the median value provided by peer group companies.
Financial Results. Overall, our 2019 financial results reflect efforts to advance key growth initiatives, enhance
profitability, and improve cost structure. In addition, our 2019 financial statements include the financial results of Napster beginning January 18, 2019; accordingly, year-over-year fluctuations in our consolidated financial statements are
primarily attributable to the inclusion of nearly a full 12 months of Napsters 2019 financial results. Consolidated revenue increased by 148% from 2018 when calculated in accordance with U.S. generally accepted accounting principles, or GAAP.
Aside from the impact of the inclusion of Napster revenue, this increase reflected an increase in revenue of 18% in our Games segment, but decreases of 28% and 9%, respectively, in our Consumer Media and Mobile Services segments. Operating expenses
increased overall year over year, again primarily due to the inclusion of Napster results. In our other segments, operating expenses declined 22% over the prior year in Consumer Media, increased 5% in Mobile Services, and declined 1% in Games. Net
loss attributable to RealNetworks improved 20% on a consolidated basis, from a loss of $25.0 million in 2018 to a loss of $20.0 million in 2019; for 2019, the $20.0 million loss includes a gain of $12.3 million recognized in
connection with the consolidation of Napsters financial results. Adjusted EBITDA worsened from a loss of $16.2 million in 2018 to a loss of $20.1 million in 2019, as we invested in our most promising growth initiatives and focused on
partnership opportunities, and improved overall efficiencies. Adjusted EBITDA for 2019 consisted of GAAP net income (loss) including noncontrolling interests, excluding interest income (expense); income tax expense; gain on equity investment, net;
foreign currency (gain) loss;
20