RealNetworks April 15th, 2000

1. RealNetworks April 15th, 2000

2. RealNetworks April 15th, 2000 Chantal Yearwood Luiz Gustavo Saito Makoto Yokoo Paulo Passoni

3. Our message is… “RealNetworks should combine its technological expertise and content aggregation power with strategic alliances to enhance the ecosystem model and consolidate its presence in the growing streaming media worldwide”

4. Agenda What business are we in? 1 Who are the competitors? 2 What foreign markets to enter? How? 3 What Human and Financial Resources will be needed? 4 What’s in the future of this business? 5 Q & A 6

5. Agenda What business are we in? 1 Who are the competitors? 2 What foreign markets to enter? How? 3 What Human and Financial Resources will be needed? 4 What’s in the future of this business? 5 Q & A 6

6. The Streaming Chain CAGR:31% US$ bn Source: IDC Broadband 14K 56k Different music formats Platform war Content producing will result in conflict with media companies 28-36K Source: Nielsen/NetRatings Media Companies Servers Streaming server software Internet infrastructure Streams & Advertising Client software and/or Organizer End Consumer Microsoft Platform War Linux, Sun Rich-Media trend Internet will mimic real life

7. Ecosystem: highly leveraged by alliances Real Broadcast Network deal with DoubleClick. Examples: Buick, Gap, Intel, and 800.com • Music: Universal Music Group, BMG and Sony • Aggregators: Yahoo • Content providers: CNN, ESPN, ABC, FoxNews and AOL • E-commerce: amazon.com, Cdnow.com, NetRadio.com and Spinner.com Advertising Content aggregation Non-proprietary Juke box vs. proprietary RealPlayer technology Consumer Software Narrow and broadband software infrastructure • Infrastructure AT&T, Exite@Home, Cable and Wireless, Enron, Deutsche Telekom, GTE and Sprint • Application Tools: 150 soft vendors such as Intel, SGI, Sun, Lotus and Macromedia

8. Core Business: Streaming media Catalyst The Ecosystem concept is key to the Business Model Business assets: • 350k hours of streaming media creation per week (100k 2 yrs ago) Software/Streaming technology development to the end consumer Content aggregation, NOT creation • 85% of available streaming media files are in RN`s format • 100 million unique users • Technology Leader: several Awards as the best product Advertising revenues as a result of increasing traffic • Dynamic management that understands this market • Streaming media is critical to the WWW

9. RealNetworks Dilemma: Which business model? Microsoft`s cash and networking power may result in a lost battle for technology standard Leverage on Real`s strategic alliances, becoming the major hub for streaming tech and content. Yahoo core business is content aggregation Real.com is more vibrant than Broadcast.com Software Fees Website traffic revenues through content aggregation and tech innovations to end consumers (JukeBox)

10. Agenda What business are we in? 1 Who are the competitors? 2 What foreign markets to enter? How? 3 What Human and Financial Resources will be needed? 4 What’s in the future of this business? 5 Q & A 6

11. Competition Overview Players Threats How to overcome… Software: RealPlayer & RealJukeBox • RealNetworks • Microsoft • Apple Microsoft is a very strong competitor with monopoly position in PC OSs RealNetworks can capitalize in its Ecosystem and key partnerships Content Aggregation: Real Guide • RealNetworks (13th) • Yahoo Broadcast • MediaPlayer.com (42nd) Yahoo internet reach can Leverage its streaming aggregation business Continue to deliver a more vibrant product worldwide Content Producer: Take5 • RealNetworks • Large bricks-and-mortarmedia companies Media Companies eminent conflict Turn Take5 into a content hub fed by third parties

12. Agenda What business are we in? 1 Who are the competitors? 2 What foreign markets to enter? How? 3 What Human and Financial Resources will be needed? 4 What’s in the future of this business? 5 Q & A 6

13. Decision criteria: Demographic and Economic information GDP per capita Total population Telephone Penetration Internet current user base (1999) Internet projected user base for 2003 Political Environment Choosing Target Markets

14. Demographic & Economic Data

15. Demographic & Economic Data Index=(GDP*GDP growth 5yr*Telephone Penetration)/1,000

16. Internet Users (in millions)

17. Internet Users (in millions)

18. Primary Target Markets China = Fastest growth in the world, 2nd largest market by 2003 Japan = Huge market with high disposable income UK, France, Germany & Italy = Fast growth, relatively simple implementation and high disposable income

19. Demographics (source: Strategis Group) High level of education among target audience 35% college degree, 45% university degree Higher than average income Dominance of single males 71% of internet users are males 69% of males are singles Short-term content aggregation strategy: Focus on this audience, providing i.e.: sports, news, career orientation Political Environment Xenophobic, but willing to receive foreign investments (paradox) Entry strategy: Increase ties with China.com and other local content providers Look for local partners for sales, content aggregation and customer support  both for political, cultural and economic reasons China

20. Agenda What business are we in? 1 Who are the competitors? 2 What foreign markets to enter? How? 3 What Human and Financial Resources will be needed? 4 What’s in the future of this business? 5 Q & A 6

21. What’s Involved in Localizing Content? Drive to improve the breadth and quality of the products and services it offers in order to provide a durable platform for growth in international markets • RealNetworks employs 650 in Seattle • Dynamic Management Software US: Localization Strategy Staff: 12 led by Webster Asia Manager Europe Manager Strategic Alliance Content China Japan UK German France Italy Strategic Alliances Improve Partnerships Editor Editor Editor Editor Operator Operator Operator Operator Editor Corp. Sales Corp. Sales Corp. Sales Corp. Sales Operator Corp. Sales

22. Increasing International Revenues result in positive cash flows…. CAGR 42% 23% … the idea is that this business model is scalable.

23. Agenda What business are we in? 1 Who are the competitors? 2 What foreign markets to enter? How? 3 What Human and Financial Resources will be needed? 4 What’s in the future of this business? 5 Q & A 6

24. RealNetworks’ Business Portfolio Star ? Advertising through content aggregation E-Commerce Wireless & Handhelds Services Potential Growth Software fees (Client/Server) Cash Cow Dog Market share to largest competitor

25. Key Drivers in the Streaming Industry Consumer Expectation • Internet will Mimic real life (1) • Provide the consumer a richmedia experience • Increasing Broadband Penetration Technology • Increasing Digital Music market • Wireless and Handheld enable • Music Industry different patterns Revenue Sources Advertising Revenues New tech incorporation • M&A activity (Stock is Currency!!!) (1) Mary Meeker, Research Analyst

26. Opportunities for the Future • Wireless • A revolution is approaching: • Internet enabled cell phones will soon be ubiquitous • Unprecedent opportunity for exploring streaming technologies: • Voice over IP in cell phones • Wireless • A revolution is approaching: • Internet enabled cell phones will soon be ubiquitous • Unprecedent opportunity for exploring streaming technologies: • Voice over IP in cell phones • Handhelds • Handhelds will eventually become multimedia devices • Microsoft is tied to the Windows CE plataform • The market leader, Palm, will need a partner • RealNetworks is uniquelly positioned to provide multimedia techology for this market • Handhelds • Handhelds will eventually become multimedia devices • Microsoft is tied to the Windows CE plataform • The market leader, Palm, will need a partner • Realnetworks is uniquelly positioned to provide multimedia techology for this market

27. Agenda What business are we in? 1 Who are the competitors? 2 What foreign markets to enter? How? 3 What Human and Financial Resources will be needed? 4 What’s in the future of this business? 5 Q & A 6

28. APPENDICES

29. Who are our competitors today? Very strong Very weak Competitive scenario in the Client & Server streaming software marketx

30. Delivery channels: Media Value Chain: Rich-Media? • Internet • Print • Audio • Video • Info processing and selection • News & Movies creation • Raw info gathering • Customers • Advertising RealNetworks Value Chain: • Media Company • Internet delivering • News, movies, music & business • End customer Delivery Value Chain: • End Customer • Decoder and/or organizer • Media company servers • Streamingsoftware • Internet Structure • Streams & Advertising • AOL/TW • Disney • ABC • NBC • News Corp • Dow Jones • Bloomberg • ESPN • Microsoft • Apple • RealNet • Cisco • Lucent • Nortel • Nokia • Erickson • AT&T • MCI • RealNetworks • Microsoft • Apple • DoubleClick • RealNetworks • Microsoft • Apple • AOL • TCI • MSN • PSINET • Earthlink • AT&T

31. About the Other Countries • Japan, France, UK, Germany & Italy • Build on existing local structures • Look for partners for sales, content aggregation and customer support • Switzerland, Scandinavian Countries, Netherlands, Singapore • High incomes and high Internet penetration, but small populations (remember that content aggregation costs are not necessarily lower because of smaller population) • Latin America, Spain, Korea, Russia • High Internet growth and sufficient income per capta, however they are not as promising as the chosen target markets • India, Thailand, Philippines • Despite fast Internet growth, infrastructure and income are still restrictions in order to achieve critical mass chart

32. Benefits Partners understand the local markets They help to avoid or minimize political issues RealNetworks may share its costs with them Rationale behind Partnerships

33. Measuring the return of Guide and Take5: ROIC CFROI Conceptually better, but unfeasible ROI A Measured by a software that tracks consumer surfing in RN`s website Software License fees generated by RealGuide and Take5 A Cost of Advertising Revenues * Advertising revenues SG&A Total Revenues Advertising Costs Ways of measuring return on an investment:

34. Why RealNetworks won’t become a Netscape? Proprietary integrated platform Relationships with content providers that block Windows MediaPlayer Strong presence in client platforms & key partnerships 85% market share and RealPlayer is bundled in most new PCs and several apps Strong presence in server platforms & key partnerships RealServer comes bundled in major server oper. systems (Sun, Linux RedHat, etc) More knowledge in software and portal business Real.com Guide 13thvsWindowsMedia 42nd Positive cash flow Network of companies that rely on RealNetworks technology Content creators, software developers, ISPs and streaming professionals • Superior technological system • Best Product Awards from several opinion makers

35. RealNetworks’ Strenghts • Huge User Base (>100mm) • Superior Technology (Awards) • Flexible product to new stream standards • Highly leveraged Ecosystem • First Mover Edge • Brand Recognition • Successful International entering (Japanese) • High Mkt Cap can be used for further acquisition

36. RealNetworks’ Threats • Content creation causes conflicts with its current partners • Microsoft: • War for industry standard • MSFT can leverage its products through networking and bundling • Is better positioned for International expansion • The Company already has handheld software that can be used to adapt Media Player • Different Audio standards (I.e. MP3) • Search engines as alternative guides

37. RealNetworks’ Opportunities • International Market is relatively unexplored • Broadband and new complex streaming tech demand (rich-media) • Provide and aggregate streaming content • Develop handheld market • Important new corporate market (cost reduction opportunity, conference call)

38. RealNetworks’ Weaknesses • No clear definition on core business • Therefore, lack of focus • Lack of qualified personnel, specially outside of US • Lack of knowledge in foreign countries, besides Japan • No handheld devices software • Relatively low cash power compared to main competitor

39. Forecasted Income Statement Increasing Asian Revenues… Increasing Advertisement Revenues… A cash generating company… Increasing net income…

40. Market Data Asia will become the largest market… Digital Music is a big business… The Company`s Market Cap reflect this awesome potential… Advertising dollars are real…

41. Alternative Business Models: • As today • Give up software (core so far) • Give up content • Become a content producer • Partner with MSFT rivals (Sun) • Outsource aggregating INITIALS

42. How to deal with talent shortage in US and abroad? US Seattle Concentrate all software localization in Seattle Bring language/cultural experts (in which international expansion is essential) to headquarters Promote foreign students recruiting in schools all over America Hire from software houses that have experience with software localization Content Aggregation: Must cater to local needs in both cataloging and developing proactive aggregation LOCAL EXPERIENCE Abroad

43. Presentation Directory How to enter… Core Business International Expansion Investments The Streaming Chain Rationale behind partnerships Ecosystem RealNetworks`core business Expansion Organization Get Noticed in Foreign Markets Industry International Pricing Strategy RealNetworks`dilemma Business alternatives Foreign Markets Industry Drivers Choosing Criteria Our Message New Ventures Demographic&Economic Data Summary Value Chain Demographic&Economic Graph Key Success Factors Internet Users Data Competition Internet Users Graph BCG Portfolio Analysis Primary Target Markets Competition Overview China Competition in the Server & Client Other Countries Becoming Netscape? International Pricing Financials and other SWOT Analysis Forecasted Income Statement RealNetworks` Strengths Market Data Analysis RealNetworks` Weaknesses Calculating return in Guide and Take5 RealNetworks` Threats Talent Problem RealNetworks` Opportunities

44. Creative Ways to Get Noticed in Foreign Markets Make Deals with major Radio and TV Stations Alternative advertisements (Malls, Billboards) Major Events Coverage: Music Concerts Interviews with celebrities Sports Broadcast Religious Events

45. International Pricing Strategy Services Advertising Client Software Can be downloaded from any country website Not downloadable, must be treated locally Pricing may follow regional strategies Pricing must be the same worldwide Tradeables Non-Tradeables Server Software: It’s possible to be sold directly to clients at lower prices than from the website.

46. Key Success Factors First Mover Advantage Helps create a “de facto” standard Huge Client Base Leverage dominance in the server markets Technology Leadership Promotes client and server dominance through continuous product improvements Alliances • With content providers: increases adoption by end and business users • With streaming professionals: helps creating an industry support for the product • With other technology providers: helps creating a standard and increase influence in platform.

47. Internet access: Dial-up or Cable? China: TV penetration 25:1 PC penetration India: Huge access to cable WebTV may be very successful there RealNetworks should make a provision for streaming technology over Web enabled appliances that access the Internet through cable