RealNetworks, Inc. 2601 Elliott Avenue, Suite 1000, Seattle, WA 98121

May 7, 2004

Dear Shareholder:

      You are cordially invited to attend the 2004 Annual Meeting of Shareholders (the “Annual Meeting”) to be held at 2:00 p.m. on Friday, June 4, 2004 at the Edgewater Hotel, Pier 67, 2411 Alaskan Way, Seattle, Washington.

      At the Annual Meeting, the shareholders will be asked to (i) elect three directors to RealNetworks’ Board of Directors, and (ii) approve the RealNetworks, Inc. Director Compensation Stock Plan. The accompanying Notice of Annual Meeting and Proxy Statement describe the matters to be presented at the Annual Meeting.

      The Board of Directors unanimously recommends that shareholders vote “For” these two proposals.

      Whether or not you plan to attend the Annual Meeting, we hope that you will have your shares represented by marking, signing, dating and returning your proxy card in the enclosed envelope as soon as possible. Your shares will be voted in accordance with the instructions you have given in your proxy card. You may, of course, attend the Annual Meeting and vote in person even if you have previously submitted your proxy card.

      On behalf of the Board of Directors, I would like to express our appreciation for your support of RealNetworks. We look forward to seeing you at the meeting.

	Sincerely,
	ROBERT GLASER
	Chief Executive Officer and
	Chairman of the Board

REALNETWORKS, INC.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To the Shareholders of RealNetworks, Inc.:

      NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of RealNetworks, Inc., a Washington corporation, will be held on Friday, June 4, 2004, at 2:00 p.m., local time, at the Edgewater Hotel, Pier 67, 2411 Alaskan Way, Seattle, Washington for the following purposes as more fully described in the accompanying Proxy Statement:

      Only holders of record of RealNetworks’ Common Stock at the close of business on April 8, 2004 are entitled to notice of, and to vote at, this meeting or any adjournment or postponement of the meeting. A list of shareholders as of that date will be available at the meeting and for ten days prior to the meeting at the principal executive offices of RealNetworks, Inc. located at 2601 Elliott Avenue, Suite 1000, Seattle, Washington 98121.

	BY ORDER OF THE BOARD OF DIRECTORS
	ROBERT KIMBALL
	Vice President, Legal and Business Affairs,
	General Counsel and Corporate Secretary

Seattle, Washington

YOUR VOTE IS IMPORTANT!

     All shareholders are cordially invited to attend the meeting in person. Whether or not you expect to attend the meeting in person, we urge you to complete, sign, date and return the enclosed proxy as promptly as possible to ensure your representation at the meeting. A postage-prepaid envelope is also enclosed for that purpose. Sending in your proxy will not prevent you from voting your shares at the meeting if you desire to do so, as your proxy is revocable at your option.

REALNETWORKS, INC.

ANNUAL MEETING AND PROXY SOLICITATION INFORMATION

General

      This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of RealNetworks, Inc., a Washington corporation (“RealNetworks” or the “Company”), for use at the Annual Meeting of Shareholders (the “Annual Meeting”) to be held at 2:00 p.m. on Friday, June 4, 2004 at the Edgewater Hotel, Pier 67, 2411 Alaskan Way, Seattle, Washington, and at any adjournment or postponement of the meeting, for the purposes set forth in this Proxy Statement and in the accompanying Notice of Annual Meeting of Shareholders. This Proxy Statement, a proxy card and RealNetworks’ Annual Report on Form 10-K (the “Annual Report”), which includes financial statements for its fiscal year ended December 31, 2003, are being sent to all shareholders of record as of the close of business on April 8, 2004, and are being mailed to the shareholders of RealNetworks on or about May 7, 2004. Although the Annual Report and this Proxy Statement are being mailed together, the Annual Report is not part of this Proxy Statement.

Quorum and Voting Rights

      At the close of business on April 8, 2004, there were 168,843,727 shares of RealNetworks’ common stock, par value $0.001 per share (the “Common Stock”), outstanding. Only holders of record of the shares of Common Stock outstanding at such time will be entitled to notice of and to vote at the Annual Meeting. The presence at the Annual Meeting of at least a majority of such shares, either in person or by proxy, shall constitute a quorum for the transaction of business. Broker non-votes and shares held by persons abstaining will be counted in determining whether a quorum is present. Broker non-votes occur when an intermediary, such as a broker or other financial institution, returns a proxy but does not have the authorization from the beneficial owner to vote the beneficial owner’s shares on a particular proposal because the nominee did not receive voting instructions from the beneficial owner. Proxies are solicited to give all shareholders who are entitled to vote on the matters that come before the meeting the opportunity to do so, whether or not they choose to attend the Annual Meeting in person.

      The manner in which your shares may be voted by proxy depends on how your shares are held. If you own shares of record, meaning that your shares of Common Stock are represented by certificates or book entries in your name so that you appear as a shareholder on the records of our stock transfer agent, Mellon Investor Services LLC, a proxy card for voting those shares is included with this proxy statement. You may vote those shares by completing, signing and returning the proxy card in the enclosed envelope. Alternatively, by following the instructions on your proxy card, you may vote those shares either via the Internet at www.eproxy.com/rnwk or by telephone by calling 1-800-435-6710. We encourage you to vote your shares in advance of the Annual Meeting date even if you plan on attending the Annual Meeting. You may change or revoke your proxy at the Annual Meeting even if you have already voted.

      If you own shares through a bank or brokerage firm account, you may instead receive a voting instruction form with this proxy statement, which you may use to instruct how your shares should be voted. Just as with a proxy, you may vote those shares by completing, signing and returning the voting instruction form in the enclosed envelope. Many banks and brokerage firms have arranged for Internet or telephonic voting of shares and provide instructions for using those services on the voting instruction form. If your bank or brokerage firm uses ADP Investor Communication Services, you may vote your shares via the Internet at www.proxyvote.com or by calling the toll-free number on your voting instruction form.

      When your proxy card or voting instruction form is returned properly signed, the shares represented will be voted according to your directions. You can specify how you want your shares voted on each proposal by marking the appropriate boxes on the proxy card or voting instruction form. The proposals are identified by number and a general description on the proxy card or voting instruction form. Please review the voting instructions on the proxy card and read the text of the proposals and the recommendations of the Board of Directors in this Proxy Statement prior to marking your vote.

      If your proxy card is signed and returned without specifying a vote or an abstention on any proposal, it will be voted according to the recommendations of the Board of Directors on that proposal. For the reasons stated in more detail later in this Proxy Statement, the Board of Directors recommends a vote FOR the three individuals nominated to serve as directors and FOR the adoption of the RealNetworks Director Compensation Stock Plan. It is not expected that any matters other than those referred to in this Proxy Statement will be brought before the Annual Meeting. However, if any other matters are properly presented for action, the proxies named on the proxy card will be authorized by your proxy to vote on those other matters in their discretion.

      On each matter properly brought before the meeting, shareholders will be entitled to one vote for each share of Common Stock held. Shareholders do not have the right to cumulate their votes in the election of directors. Under Washington law and RealNetworks’ Articles of Incorporation and Bylaws, if a quorum exists at the meeting: (a) a nominee for election to a position on the Board of Directors will be elected as a director if the votes cast for the nominee exceed the votes cast for any other nominee for that position, and (b) the proposal to approve the RealNetworks Director Compensation Stock Plan will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against the proposal.

      Shareholders may abstain from voting on the nominees for director and the proposal to approve the RealNetworks Director Compensation Stock Plan. Abstention from voting on either of these matters will have no effect, since approval of each matter is based solely on the number of votes actually cast.

      Brokerage firms and other intermediaries holding shares of Common Stock in street name for customers are generally required to vote such shares in the manner directed by their customers. In the absence of timely directions, brokerage firms and other intermediaries will generally have discretion to vote their customers’ shares in the election of directors. The failure of a brokerage firm or other intermediary to vote its customers’ shares on the proposal for the election of directors will have no effect since the approval of this proposal is based solely on the number of votes actually cast.

Revocability of Proxies

      If you execute a proxy, you may revoke it by taking one of the following three actions:

Solicitation of Proxies

      RealNetworks will bear the expense of preparing, printing and distributing proxy materials to its shareholders. In addition to solicitations by mail, a number of employees of RealNetworks may solicit proxies on behalf of the Board of Directors in person or by telephone. RealNetworks will reimburse brokerage firms and other intermediaries for their expenses in forwarding proxy materials to beneficial owners of the Common Stock.

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Shareholder Proposals for 2005 Annual Meeting

      An eligible shareholder who desires to have a qualified proposal considered for inclusion in the proxy statement and form of proxy prepared in connection with RealNetworks’ 2005 Annual Meeting of Shareholders must deliver a copy of the proposal to the Corporate Secretary of RealNetworks, at the principal executive offices of RealNetworks, no later than January 8, 2005. To be eligible to submit a proposal, a shareholder must have continually been a record or beneficial owner of shares of Common Stock having a market value of at least $2,000 (or representing at least 1% of the shares entitled to vote on the proposal), for a period of at least one year prior to submitting the proposal, and the shareholder must continue to hold the shares through the date on which the meeting is held.

      A shareholder of record who intends to submit a proposal at the 2005 Annual Meeting that is not eligible for inclusion in RealNetworks’ Proxy Statement must provide written notice to RealNetworks, addressed to the Corporate Secretary (or to the Nominating and Corporate Governance Committee of the Board of Directors, Attn: Mr. Bleier, Chairman, if the proposal relates to the nomination of one or more directors) at the principal executive offices of RealNetworks, not later than January 8, 2005. The notice must satisfy certain requirements specified in RealNetworks’ Bylaws. A copy of the Bylaws will be sent to any shareholder upon written request to the Corporate Secretary of RealNetworks.

Shareholder Communication with the Board of Directors

      Shareholders who wish to communicate with the Company’s Board of Directors, or with any individual member of the Board, may do so by sending such communication in writing to the attention of the Corporate Secretary at the address of our principal executive office with a request to forward the same to the intended recipient. Shareholder communications must include confirmation that the sender is a shareholder of the Company. All such communications will be reviewed by the Company’s General Counsel and Corporate Secretary or Chief Financial Officer in order to create an appropriate record of the communication, to assure director privacy, and to determine whether the communication relates to matters that are appropriate for review by the Company’s Board of Directors or by any individual Director. Communications that (i) do not relate to the Company’s business, (ii) contain improper commercial solicitations, (iii) contain material that is not appropriate for review by the Board of Directors based upon the Company’s Bylaws and the established practice and procedure of the Board, or (iv) contain other improper or immaterial information will not be forwarded to Board members.

PROPOSAL 1 — ELECTION OF DIRECTORS

      At the Annual Meeting, three Class 1 directors are to be elected to serve until the 2007 Annual Meeting of Shareholders or until their earlier retirement, resignation, removal, or the election of their successors. Eric Benhamou, Edward Bleier and Kalpana Raina are nominees who currently serve as Class 1 directors of RealNetworks and have been nominated by the Nominating and Corporate Governance Committee of the Board of Directors and recommended by the Board of Directors for election or re-election, as the case may be, at the Annual Meeting. Mr. Benhamou was recommended to join our Board of Directors by one of our independent Board members and was appointed as a Class 1 director on October 30, 2003. As a result of Mr. Benhamou’s recent appointment, he is subject to election at the Annual Meeting. The accompanying proxy will be voted FOR the election of Messrs. Benhamou and Bleier and Ms. Raina to the Board of Directors, except where authority to so vote is withheld. The nominees have consented to serve as directors of RealNetworks if elected. If at the time of the Annual Meeting a nominee is unable or declines to serve as a director, the discretionary authority provided in the enclosed proxy will be exercised to vote for a substitute candidate designated by the Nominating and Corporate Governance Committee of the Board of Directors. The Board of Directors has no reason to believe that any of the nominees will be unable or will decline to serve as a director.

Nominees for Class 1 Directors

      Eric A. Benhamou has been a director of RealNetworks since October 2003. Mr. Benhamou is the Chairman of the Board of Directors of 3Com Corporation, palmOne, Inc., PalmSource, Inc. and Cypress

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      Edward Bleier has been a director of RealNetworks since April 1999. He retired from Warner Bros. in January 2004 where he had previously served as President of Pay-TV, Cable and Networks Features. Over 34 years with Warner Bros., he was involved in the development of home video, video-on-demand, pay-TV, and cable systems and networks, with ongoing responsibilities for programming, animation, sports, and the distribution of movies and television programs. Mr. Bleier previously served as a Vice President of ABC-TV, at various times overseeing sales, daytime and children’s programming, marketing and planning. Mr. Bleier chairs the Center for Communication and the Academy of the Arts Guild Hall, serves as a trustee of the Charles A. Dana Foundation and the Martha Graham Dance Center, and is a member of the Council on Foreign Relations. Mr. Bleier holds a Bachelor of Science Degree from Syracuse University and served in the U.S. Army, specializing in public information. Age 74.

      Kalpana Raina has been a director of RealNetworks since December 2001. Ms. Raina serves as an Executive Vice President at The Bank of New York. The Bank of New York, a financial holding company, provides a complete range of banking and other financial services to corporations and individuals worldwide. Currently, Ms. Raina is in charge of new business development in India. Prior to this, Ms. Raina had responsibility for the Media & Telecommunications, Healthcare, Retailing and the Western Division. Prior to her appointment as Executive Vice President in 1998, Ms. Raina served as Senior Vice President from August 1995 to December 1998, as Vice President from August 1992 to August 1995, as Assistant Vice President from November 1989 to August 1992 and as Assistant Treasurer from November 1988 to November 1989. Prior to joining The Bank of New York, Ms. Raina was employed in the Media Division of Manufacturers Hanover Trust Company. Ms. Raina serves on the Board of the Center for Communications and ADITI: Foundation for the Arts in New York City. Ms. Raina holds a B.A. Honors degree from Panjab University, India and an M.A. degree in English Literature from McMaster University. Age 48.

Director Independence

      The Board has determined that (i) all the director nominees are independent under the NASDAQ listing standards and (ii) except for Mr.Glaser, all directors not standing for election at the 2004 Annual Meeting are independent under the NASDAQ listing standards.

      THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE NOMINEES NAMED IN PROPOSAL 1.

BOARD OF DIRECTORS

      The business of RealNetworks is managed under the direction of a Board of Directors, which is divided into three classes, each class as nearly equal in number of directors as possible. The Board of Directors has responsibility for establishing broad corporate policies and for the overall performance of RealNetworks. It is not, however, involved in operating details on a day-to-day basis.

      The Board of Directors has determined that the Board of Directors shall be composed of seven directors. Edward Bleier and Kalpana Raina are Class 1 directors whose terms expire at the Annual Meeting, and Eric Benhamou is a Class 1 director who is subject to election at the Annual Meeting due to his appointment to the Board of Directors on October 30, 2003. James Breyer and Jonathan Klein are Class 2 directors, whose terms expire at the annual shareholders meeting in 2005. Robert Glaser and Jeremy Jaech are Class 3 directors,

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Identification, Evaluation and Qualification of Director Nominees

      All Board members are responsible for identifying and submitting candidates for consideration as directors. Each candidate must be presented to the Nominating and Corporate Governance Committee (the “Committee”) with a reasonably detailed statement of their qualifications for serving as a director of RealNetworks. The Committee and the Company’s Chief Executive Officer will interview and evaluate candidates that meet the criteria for serving as directors, and the Committee will select nominees that best suit the Board’s needs for recommendation to the full Board.

      Qualifications required of individuals who are considered as board nominees will vary according to the particular areas of expertise being sought as a complement to the Company’s existing board composition at the time of any vacancy. All Directors should possess the background, skills, expertise, and commitment necessary to make a significant contribution to the Company. Relevant qualifications for the Company’s Directors include: (1) exemplary personal and professional ethics and integrity; (2) the ability to engage in objective, fair and forthright deliberations; (3) operating experience at a policy-making level in business(es) relevant to the Company’s current and future plans; (4) independent judgment; (5) adequate time and personal commitment to provide guidance and insight to management; (6) a commitment to provide long term value to the Company’s shareholders; (7) sophisticated business skills to enable rigorous and creative analysis of complex issues; and (8) understanding and experience in relevant markets, technology, operations, finance or marketing in the context of an assessment of the perceived needs of the Board as determined from time to time.

      The Committee will evaluate potential nominees by reviewing qualifications and references, conducting interviews and reviewing such other information as committee members may deem relevant. The Company has not employed consultants to assist in identifying or screening prospective directors in the past, however, the Committee may retain a search firm for this purpose in the future. Once the Committee has approved a candidate, the candidate will be referred to the full Board for review. The Board ultimately makes all nominations for directors to be considered and voted upon at the Company’s annual meetings of shareholders.

Shareholder Nominations and Recommendations for Director Candidates

     Shareholder Nominations for Director

      Shareholders who wish to nominate one or more candidates for election as directors at an annual meeting of shareholders must give timely notice of the proposal to nominate such candidate(s) in writing to the Corporate Secretary of RealNetworks not less than 120 days before the first anniversary of the date that RealNetworks’ proxy statement was released to shareholders in connection with the previous year’s annual meeting, or, if the date of the annual meeting at which the shareholder proposes to make such nomination is more than 30 days from the first anniversary of the date of the previous year’s annual meeting, then the shareholder must give notice with a reasonable time before RealNetworks begins to print and mail its proxy materials. The notice must satisfy certain requirements specified in RealNetworks’ Bylaws, a copy of which will be sent to any shareholder upon written request to the Corporate Secretary of RealNetworks.

     Shareholder Recommendations for Director

      In addition to the general nomination rights of shareholders, the Committee will consider Board candidates recommended by qualified shareholders. Shareholders who wish to recommend candidates to serve on the Board of Directors must have continuously held at least 2% of the Company’s outstanding securities for at least twelve (12) months prior to the date of the submission of the recommendation (a “Qualified Shareholder”).

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      A Qualified Shareholder may recommend a Board candidate for evaluation by the Committee by delivering a written notice to the Committee subject to the requirements set forth below (the “Notice”). The Notice must be received by the Committee not less than 120 days before the first anniversary of the date that the Company’s proxy statement was released to shareholders in connection with the previous year’s annual meeting. Where the Company changes its annual meeting date by more than 30 days from year to year, the Notice must be received by the Committee no later than the close of business on the 10th day following the day on which notice of the date of the upcoming annual meeting is publicly disclosed.

      Any Board candidate recommended by a shareholder must be independent of the recommending shareholder in all respects (e.g., free of material personal, professional, financial or business relationships from the proposing shareholder), as determined by the Committee or applicable law. Any Board candidate recommended by a shareholder must also qualify as an “independent director” under applicable Nasdaq rules.

      The Notice shall also contain or be accompanied by (i) proof of the required stock ownership (including the required holding period) of the proposing shareholder, (ii) a written statement that the Qualified Shareholder intends to continue to own the required percentage of shares through the date of the annual meeting with respect to which the Board candidate is proposed to be nominated, (iii) the name or names of each shareholder submitting the proposal, the name of the Board candidate, and the written consent of each such shareholder and the Board candidate to be publicly identified, (iv) the recommending shareholder’s business address and contact information, and (v) all other information that would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

      With respect to the proposed Board candidate, the following information must be provided:

      The Notice must also include a written statement that the recommending shareholder and the proposed Board candidate will make available to the Committee all information reasonably requested in furtherance of the Committee’s evaluation as well as the signature of each proposed Board candidate and of each shareholder submitting the recommendation.

      The Notice must be delivered in writing, by registered or certified, first-class mail, postage prepaid, to Chair, Nominating and Corporate Governance Committee, RealNetworks, Inc., c/o Corporate Secretary, 2601 Elliott Avenue, Suite 1000, Seattle, WA 98121.

Continuing Directors — Not Standing for Election This Year

      The following individuals are Class 2 directors:

      Jonathan D. Klein has been a director of RealNetworks since January 2003. Mr. Klein is a co-founder of Getty Images, Inc., a leading provider of imagery and related products and services, where he has served as Chief Executive Officer and a director since February 1998. Mr. Klein served as Chief Executive Officer and

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      James Breyer has been a director of RealNetworks since October 1995. Mr. Breyer has served as a General Partner of Accel Partners in Palo Alto, California since 1990. At Accel Partners, Mr. Breyer has sponsored investments in over 25 companies that have completed public offerings or successful mergers. Mr. Breyer is currently a director of Wal-Mart Stores, Inc. and several private companies. Mr. Breyer holds a B.S. from Stanford University and an M.B.A. from Harvard University, where he was named a Baker Scholar. Age 42.

      The following individuals are Class 3 directors:

      Robert Glaser has served as Chairman of the Board and Chief Executive Officer of RealNetworks since its inception in February 1994. Mr. Glaser served as Secretary of RealNetworks from March 1995 to April 1998 and as Treasurer from February 1994 to April 2000. Mr. Glaser also serves as RealNetworks’ Policy Ombudsman, with the exclusive authority to adopt or change the editorial policies of RealNetworks as reflected on its Web sites or other communications or media in which it has a significant editorial or media voice. Mr. Glaser holds a B.A. and an M.A. in Economics and a B.S. in Computer Science from Yale University. Age 42.

      Jeremy Jaech has been a director of RealNetworks since July 2002. Mr. Jaech was a co-founder of Visio Corporation, a developer of business drawing and diagramming software, and served as its President, Chief Executive Officer and Chairman of the Board from 1990 until its acquisition by Microsoft Corporation in 2000. Mr. Jaech served as Vice President of the Business Tools Division of Microsoft Corporation from January 2000 until June 2000. Prior to founding Visio Corporation, Mr. Jaech co-founded Aldus Corporation, a software development company, where he was the technical leader for the original development of PageMaker from April 1984 to July 1985. Mr. Jaech managed Aldus’ product development as Vice President of Engineering from July 1985 to March 1989. Prior to founding Aldus Corporation, Mr. Jaech held various positions with Battelle’s Pacific Northwest Laboratories and The Boeing Company. Mr. Jaech also serves on the Board of Directors of Alibre Incorporated, a private company. Mr. Jaech holds a B.A in Mathematics and an M.S. in Computer Science from the University of Washington. Age 49.

Meetings of the Board

      The Board meets on a regularly scheduled basis during the year to review significant developments affecting RealNetworks and to act on matters requiring Board approval. It also holds special meetings when an important matter requires Board action between regularly scheduled meetings. The Board of Directors met nine times during RealNetworks’ fiscal year ended December 31, 2003 and took action by unanimous written consent on three other occasions. No incumbent member attended fewer than 75% of the total number of meetings of the Board of Directors and of any Board committees of which he or she was a member during that fiscal year.

Committees of the Board

      Committees of the Board consist of an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee and a Strategic Transactions Committee. All members of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are “independent” as defined in the rules of the National Association of Securities Dealers, Inc.

      Audit Committee. The Audit Committee, currently composed of Messrs. Benhamou, Jaech and Klein and Ms. Raina, reviews RealNetworks’ internal accounting procedures and consults with and reviews the services provided by its independent auditors. Prior to April 21, 2003, the Audit Committee was composed of

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      Compensation Committee. The Compensation Committee, currently composed of Messrs. Bleier, Breyer and Jaech, reviews and recommends to the Board the compensation and benefits to be provided to the executive officers of RealNetworks and reviews general policy matters relating to employee compensation and benefits. Prior to July 18, 2003, the Compensation Committee was composed of Messrs. Bleier and Breyer. The Compensation Committee met five times during the fiscal year ended December 31, 2003 and took action by unanimous written consent on six other occasions.

      Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is currently composed of Messrs. Bleier and Breyer and Ms. Raina. The Nominating and Corporate Governance Committee searches for and recommends to the Board potential nominees for Board positions, makes recommendations to the Board regarding size and composition of the Board, and develops and recommends to the Board the governance principles applicable to the Company. The Nominating and Corporate Governance Committee met four times during the fiscal year ended December 31, 2003 and took action by unanimous written consent on one other occasion.

      The Company’s Audit Committee Charter, Compensation Committee Charter and Nominating and Corporate Governance Committee Charter, each as adopted by the Board of Directors, are posted on our Web site at www.realnetworks.com/company/investor under the caption “Corporate Governance.”

      Strategic Transactions Committee. The approval of the Strategic Transactions Committee, which is currently composed of Messrs. Glaser, Breyer and Jaech, is required before the Board of Directors may:

      The Strategic Transactions Committee took action by unanimous written consent on one occasion during the fiscal year ended December 31, 2003.

Compensation of Directors

      Each director who is not an employee of the Company (an “Outside Director”) is paid $5,000 per quarter for his or her services as a director. Outside Directors are also paid (i) $1,000 for participation in each meeting of the Board that exceeds four hours in length, (ii) $500 for participation in each Board meeting that does not exceed four hours in length, (iii) $500 for each committee meeting that does not occur on the same day as a Board meeting, and (iv) $1,250 per quarter for serving as chairperson of the Audit Committee, $750 per quarter for serving as chairperson of the Compensation Committee and $375 per quarter for serving as chairperson of the Nominating and Corporate Governance Committee. Directors are also reimbursed for their reasonable expenses incurred in attending Board of Directors or Committee meetings.

      Outside Directors also receive stock options under the RealNetworks 2002 Director Stock Option Plan (the “2002 Director Plan”). The 2002 Director Plan provides for the automatic grant of nonqualified stock options to purchase 65,000 shares of the Company’s Common Stock to each Outside Director on the date that he or she is first appointed or elected as an Outside Director. The 2002 Director Plan also provides for an automatic grant of an option to purchase 35,000 shares of the Company’s Common Stock to each Outside

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      Each option granted under the 2002 Director Plan has a maximum term of ten years and an exercise price equal to the fair market value of the shares subject to the option on the date of grant. With respect to the options to purchase 65,000 shares granted to an Outside Director at the time he or she is first appointed or elected to the Board of Directors, 45,000 shares will become exercisable on the first anniversary of the applicable grant date, 10,000 shares will become exercisable on the second anniversary of the applicable grant date and the remaining 10,000 shares will become exercisable on the third anniversary of the applicable grant date, if the recipient continues to serve as a director on such dates. With respect to the options to purchase 35,000 shares granted to an Outside Director three business days following each annual meeting of shareholders, 100% of the shares subject to such options will vest on the first anniversary of the applicable grant date. If an optionee’s service on the Board of Directors is terminated due to his or her death, his or her outstanding options will immediately vest in full.

      On June 6, 2003, Messrs. Bleier and Breyer and Ms. Raina were each granted an option to purchase 35,000 shares of Common Stock at an exercise price of $8.05 per share, and 100% of the shares subject to such options will vest on the first anniversary of the grant date. On January 23, 2003, Mr. Klein was granted options to purchase 65,000 shares of Common Stock under the 2002 Director Plan at an exercise price of $3.69 per share. On October 30, 2003, Mr. Benhamou was granted options to purchase 65,000 shares of Common Stock under the 2002 Director Plan at an exercise price of $6.65 per share. With respect to the options granted to Messrs. Klein and Behnamou in 2003, 45,000 shares will become exercisable on the first anniversary of the grant date, 10,000 shares will become exercisable on the second anniversary of the grant date and the remaining 10,000 shares will become exercisable on the third anniversary of the grant date, if Messrs. Klein and Benhamou continue to serve as directors on such dates. Outside Directors are also eligible for discretionary awards under the Company’s 1996 Stock Option Plan, as amended and restated. As of the date of this Proxy Statement, options for the purchase of an aggregate of 445,000 shares of Common Stock have been granted to currently serving Outside Directors under the 1996 Stock Option Plan, as amended and restated.

Policy Regarding Director Attendance at Annual Meetings of the Shareholders

      It is the policy of RealNetworks that at least one member of its Board of Directors will attend each Annual Meeting of Shareholders, and all Directors are encouraged to attend such meetings. The Company will reimburse Directors for reasonable expenses incurred in attending Annual Meetings of Shareholders.

      One Director attended the Annual Meeting of Shareholders held on June 3, 2003.

Code of Business Conduct and Ethics

      The Company has adopted a Code of Business Conduct and Ethics that applies to all of the Company’s employees, officers and directors. The Company’s Code of Business Conduct and Ethics is publicly available on its website (www.realnetworks.com/company/investor), or can be obtained without charge by written request to the Company’s Corporate Secretary at the address of the Company’s principal executive office. If the Company makes any substantive amendments to this Code of Business Conduct and Ethics, or if the Audit Committee grants any waiver, including any implicit waiver, from a provision of this Code of Business Conduct and Ethics to the Company’s principal executive officer, principal financial officer, principal accounting officer or other persons serving in a similar capacity, the Company will disclose the nature of such amendment or waiver, the name of the person to whom the waiver was granted and the date of the waiver in a report on Form 8-K.

Contractual Arrangements

      Under a voting agreement (the “Voting Agreement”) entered into in September 1997 among RealNetworks, Accel IV, L.P. (“Accel IV”), Mitchell Kapor, Bruce Jacobsen and Robert Glaser, each of Accel IV and Messrs. Jacobsen and Kapor have agreed to vote all shares of stock of RealNetworks owned by

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      Pursuant to the terms of an agreement entered into in September 1997 among RealNetworks and Mr. Glaser, RealNetworks has agreed to use its best efforts to nominate, elect and not remove Mr. Glaser from the Board of Directors so long as Mr. Glaser owns a specified number of shares of Common Stock.

VOTING SECURITIES AND PRINCIPAL HOLDERS

Ownership Information

      The following table sets forth, as of April 8, 2004, information regarding beneficial ownership of the Common Stock by (a) each person known to RealNetworks to be the beneficial owner of more than five percent of the outstanding Common Stock, (b) each director, (c) the Chief Executive Officer and RealNetworks’ four most highly compensated executive officers other than the Chief Executive Officer for the fiscal year ended December 31, 2003 and (d) all of RealNetworks’ executive officers and directors as a group. The individuals referred to in (c) above are referred to throughout this Proxy Statement as the Named Executive Officers. Unless otherwise noted, the named beneficial owner has sole voting and investment power.

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Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Exchange Act requires RealNetworks’ executive officers, directors, and persons who own more than ten percent of a registered class of RealNetworks’ equity securities to file reports of ownership and changes of ownership with the SEC. Executive officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish RealNetworks with copies of all such reports they file. Specific due dates have been established by the SEC, and RealNetworks is required to disclose in this Proxy Statement any failure to file by those dates.

      Based solely on its review of the copies of such reports received by RealNetworks, and on written representations by the executive officers and directors of RealNetworks regarding their compliance with the applicable reporting requirements under Section 16(a) of the Exchange Act, RealNetworks believes that, with respect to its fiscal year ended December 31, 2003, all of the executive officers and directors of RealNetworks, and all of the persons known to RealNetworks to own more than ten percent of the Common Stock, complied with all such reporting requirements.

Compensation Committee Interlocks and Insider Participation

      During the fiscal year ended December 31, 2003, RealNetworks’ Compensation Committee was composed of Messrs. Bleier and Breyer, and as of July 18, 2003, Mr. Jaech. No executive officer of RealNetworks served as a member of the board of directors or compensation committee of any entity that had one or more executive officers serving as a member of RealNetworks’ Board of Directors or Compensation

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Certain Relationships and Related Transactions

      MusicNet, Inc., a Delaware corporation (“MusicNet”), is a joint venture among RealNetworks and several media companies to create a platform for online music subscription services. Robert Glaser, the Chairman and Chief Executive Officer of RealNetworks, was the Chairman and a member of the Board of Directors of MusicNet until March 14, 2003. Mr. Glaser received no cash or equity remuneration for his services as Chairman and Director of MusicNet. In 2003, RealNetworks recognized approximately $1.1 million of revenue related to agreements with MusicNet pursuant to the terms of license and service agreements with MusicNet and paid approximately $0.7 million to MusicNet for services and royalties. In addition, in 2003, MusicNet reimbursed RealNetworks approximately $0.8 million for office space subleased from RealNetworks.

Change-in-Control Arrangements

      Under RealNetworks’ 1995 Stock Option Plan, 1996 Stock Option Plan, 2000 Stock Option Plan and 2002 Director Plan, as any of such plans have been amended and restated (the “Plans”), each outstanding option issued under the Plans will become exercisable in full in respect of the aggregate number of shares covered thereby, notwithstanding any contrary vesting schedule in the option agreement evidencing the option (except to the extent the option agreement expressly provides otherwise), in the event of:

      In addition, if within a 12 month period following a Change of Control (as defined below) the employment of Ms. MacArthur, RealNetworks’ Senior Vice President and Chief of Staff, is (i) terminated by RealNetworks or its successor in interest other than for Cause (as defined below), or (ii) terminated by Ms. MacArthur for Good Reason (as defined below), then 50% of the options for the purchase of an aggregate of 450,000 shares of RealNetworks Common Stock granted to Ms. MacArthur on October 12, 2001 that are unvested as of the date her employment terminates shall become immediately vested and exercisable by Ms. MacArthur.

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      For purposes of the arrangements involving Ms. MacArthur, the following terms have the following definitions:

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COMPENSATION AND BENEFITS

Executive Officer Compensation

      Compensation Summary. The following table sets forth information regarding compensation earned during RealNetworks’ fiscal year ended December 31, 2003, and during the preceding two fiscal years, by the Named Executive Officers.

Summary Compensation Table

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      Option Grants. The following table shows information concerning stock options granted to the Named Executive Officers during RealNetworks’ fiscal year ended December 31, 2003.

Option Grants in 2003

      Option Exercises. The following table shows information concerning stock options exercised by the Named Executive Officers during RealNetworks’ fiscal year ended December 31, 2003, including the aggregate value of any gains realized on such exercise. The table also shows information regarding the number

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Aggregated Option Exercises in Fiscal Year 2003 and Fiscal Year-End Option Values

Report of the Compensation Committee of the Board of Directors

      The Compensation Committee of the Board of Directors consists of three non-employee directors, Edward Bleier, James W. Breyer and Jeremy Jaech. The Compensation Committee works with management to establish the general compensation policies and programs for RealNetworks’ executive officers, including the determination of salaries, the establishment of bonus programs and the granting of stock options. In establishing executive compensation, the Compensation Committee is guided by the following principles:

      RealNetworks’ executive compensation program is designed to align executive compensation with RealNetworks’ business objectives and the executive’s individual performance, and to enable RealNetworks to attract, retain and reward executive officers who contribute, and are expected to continue to contribute, to RealNetworks’ long-term success. The Compensation Committee believes that executive compensation should be designed to motivate executives to increase shareholder value, and further believes that executive officers can best increase shareholder value by conceiving, developing and positioning the best products and services in RealNetworks’ chosen markets.

      Each executive officer’s performance for the past fiscal year and objectives for the current year are reviewed, together with the executive officer’s responsibility level and RealNetworks’ fiscal performance versus objectives for the past fiscal year and potential performance targets for the current year. When salaries,

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      With respect to executive officers other than the Chief Executive Officer, the recommendations of the Chief Executive Officer are taken into consideration when executive compensation is determined. The method for determining compensation varies from case to case based on a discretionary and subjective determination of what is appropriate at the time.

      In the fiscal year ended December 31, 2003, the relationship between executive compensation and RealNetworks’ financial performance was primarily established through long-term incentives consisting of stock options. In addition, executives had a component of their cash compensation tied to RealNetworks’ overall financial performance. Executives whose primary responsibilities are in the area of sales had a significant component of their cash compensation tied to their own and their business units’ performance against sales revenue goals. The Human Resources department of RealNetworks obtains executive compensation data from salary surveys that reflect a peer group of other high technology companies, including high technology companies of similar sizes that are located in the same geographic region, and considers this data in establishing employment offers to and compensation increases for executive officers.

      The executive compensation program is designed to create a strong linkage between total rewards and performance. This linkage is achieved through the establishment and maintenance of multiple compensation elements including base salary, performance bonuses, variable cash compensation and long-term incentives (equity). These elements are addressed separately.

      Quantitative methods or mathematical formulas are not used exclusively in setting any element of compensation. In determining each component of compensation, all elements of an executive officer’s total compensation package are considered, including insurance and other benefits.

      Base Salaries. The primary role of base salary is to provide a foundation that reflects the value of each job in the marketplace. Base salaries are determined for executive officers by reviewing the salaries for comparable positions in high-growth companies in RealNetworks’ industry and geographic region, other companies which compete for comparable talent, the historical and comparative compensation levels of RealNetworks’ executives, and the executive’s individual performance in the preceding year. Base salaries are adjusted from time to time to recognize various levels of responsibility, individual performance, market conditions and internal equity issues. Each executive officer’s base salary is reviewed annually.

      RealNetworks’ Human Resources department obtains executive salary data directly from national and regional executive compensation surveys. It also utilizes the services of a consulting firm when appropriate, to provide additional relevant salary information.

      In 2003, salary increases were awarded to certain executive officers in connection with performance, promotion, and/or the assumption of additional responsibilities.

      Variable Cash Compensation. In addition to base compensation, most executives receive some kind of sign-on or relocation bonus if they must relocate to be employed by RealNetworks, determined at the commencement of their employment with RealNetworks. These bonuses generally are paid in one or two

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      In 2002, RealNetworks initiated a formal Executive Management by Objective (“MBO”) program with direct financial incentives in the form of annual cash bonuses to promote the achievement of corporate and individual performance goals. This component is designed to provide rewards for short-term (quarterly to annual) tactical results. It is not automatic and is dependent on the achievement of identified goals and objectives. In 2003, the target MBO portion for most executives was approximately 30% of his or her annual base salary, with a few exceptions, most notably Mr. Jacobson’s, whose target MBO payment equals one-third of his total potential earnable bonus and the remaining two-thirds to be awarded at the Compensation Committee’s discretion. These payments may be over-achieved dependent on meeting identified goals and objectives. Notwithstanding individual executives’ performance, the Compensation Committee may in its discretion decline to distribute MBO payments if it determines that other factors do not warrant the payment of bonuses. No executive received 100% of the target MBO payment in 2003. The Company’s General Counsel and Chief Financial Officer are not eligible to participate in the MBO program due to their responsibilities for financial reporting and accountability, and therefore, they are eligible to receive bonuses only at the discretion of the Compensation Committee and the Company’s Chief Executive Officer.

      The other component of the variable cash compensation program relates to executives whose primary area of responsibility is sales. The compensation of these executives generally also includes a commission component. In 2003, RealNetworks assigned a certain percentage of its sales executives’ commission targets to the overall corporate MBO program based on RealNetworks’ overall performance against certain business objectives.

      Long-Term Incentives. In keeping with RealNetworks’ philosophy of providing a total compensation package that includes at-risk components of pay, long-term incentives consisting of stock option grants comprise a component of an executive’s total compensation package. These incentives are based on strategic rather than tactical determinations and are designed to motivate and reward executives for maximizing shareholder value and encourage the long-term employment of key employees.

      When stock options are granted to executive officers, the executives’ levels of responsibility, prior experience, individual performance criteria, previous stock option grants and compensation practices at similar companies in RealNetworks’ industry are considered in evaluating total compensation. The size of stock option grants is generally intended to reflect an executive’s position with RealNetworks and his or her contributions to RealNetworks, and as a result, the number of shares underlying stock option awards varies. Options generally have a five-year vesting period to encourage key employees to continue in RealNetworks’ employ. In 2003, options to purchase a total of 250,000 shares were granted to new executive officers and options to purchase a total of 1,500,000 shares were granted to existing executive officers as a group.

      Because all of the above grants were made at option prices equal to the fair market value of the Common Stock on the dates of grant, the stock options have value only if the stock price appreciates from the value on the date the options were granted. The use of stock options is intended to focus executives on the enhancement of shareholder value over the long-term and to encourage equity ownership in RealNetworks.

      Subject to certain restrictions, RealNetworks provides benefits to executive officers that are also available to other Company employees, including a 401(k) plan, an employee stock purchase plan that permits employees to purchase RealNetworks stock at a discount, a transportation subsidy, medical and dental benefits, and a cafeteria plan.

      The compensation for RealNetworks’ Chief Executive Officer has remained at the same level since April 1999. In 2002 and 2003, the imputed costs associated with the occupancy of vacant office space in the Company’s headquarters by the Glaser Progress Foundation, a charitable foundation of which Mr. Glaser is

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      Section 162(m) of the Internal Revenue Code of 1986, as amended, generally limits the federal corporate income tax deduction for compensation paid to executive officers named in the summary compensation table in the proxy statement of a public company to $1 million, unless the compensation is “performance-based compensation” or qualifies under certain other exceptions. The Compensation Committee intends to qualify executive compensation for deductibility under Section 162(m) to the extent consistent with the best interests of RealNetworks. Since corporate objectives may not always be consistent with the requirements for full deductibility, it is conceivable that RealNetworks may enter into compensation arrangements in the future under which payments are not deductible under Section 162(m); deductibility will not be the sole factor used by the Compensation Committee in ascertaining appropriate levels or modes of compensation.

      The Compensation Committee believes these executive compensation policies and programs effectively serve the interests of shareholders and RealNetworks. The various pay vehicles offered are appropriately balanced to provide increased motivation for executives to contribute to the overall future success of RealNetworks, thereby enhancing the value of RealNetworks for the shareholders’ benefit.

Securities Authorized for Issuance Under Equity Compensation Plans

      The following table sets forth information concerning the Company’s equity compensation plans as of December 31, 2003:

      Equity Compensation Plans Not Approved by Security Holders. The Board adopted the RealNetworks, Inc. 2000 Stock Option Plan (the “2000 Plan”) to enable the grant of nonqualified stock options to employees, consultants, agents, advisors and independent contractors of the Company and its subsidiaries who are not otherwise officers or directors of the Company. The 2000 Plan has not been approved by the Company’s shareholders. The Compensation Committee of the Board is the administrator of the 2000 Plan, and as such determines all matters relating to options granted under the 2000 Plan, including the selection of the recipients, the size of the grants and the conditions to vesting and exercisability.

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      The Compensation Committee has delegated authority to make grants under the 2000 Plan to the Company’s Chief Executive Officer, subject to specified limitations on the terms of such grants. A maximum of 4,000,000 shares of Common Stock were reserved for issuance under the 2000 Plan.

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Comparative Performance Graph

      Set forth below is a graph comparing the cumulative total return to shareholders on RealNetworks’ Common Stock with the cumulative total return of the Nasdaq Composite Index and the Dow Jones Technology Index for the period beginning on December 31, 1998 and ended on December 31, 2003.

Comparison of 5 Year Cumulative Total Return Among RealNetworks, Inc. Common

      The total return on the Common Stock and each index assumes the value of each investment was $100 on December 31, 1998, and that all dividends were reinvested, although dividends have not been declared on the Common Stock. Return information is historical and not necessarily indicative of future performance.

PROPOSAL TWO — APROVAL OF DIRECTOR COMPENSATION STOCK PLAN

      Shareholders are being asked to approve the RealNetworks, Inc. Director Compensation Stock Plan (the “Director Plan”) so that RealNetworks can continue to attract and retain outstanding and highly skilled individuals to serve on its Board of Directors. The Board of Directors has approved the Director Plan, subject to approval from shareholders at the Annual Meeting. Although the Outside Directors have an interest in acquiring approval of the Director Plan because they will be the beneficiaries of the approval, the Board of Directors believes that the adoption of the Director Plan will benefit the Company because it will assist the Company in attracting and retaining highly qualified Board members and will also potentially further align the interests of directors and shareholders if Board members elect to receive their Board compensation in the form of RealNetworks Common Stock.

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      In accordance with the rules of the Nasdaq Stock Market, shareholders must approve certain equity compensation plans, such as the Director Plan, pursuant to which stock may be acquired by Outside Directors.

      The Director Plan is attached as Appendix A to this Proxy Statement. The following summary of the Director Plan does not contain all of the terms and conditions of the Director Plan, and is qualified in its entirety by reference to the Director Plan. You should refer to Appendix A for a complete set of terms and conditions of the Director Plan.

Summary of the Director Compensation Stock Plan

      The following is a summary of the principal provisions of the Director Plan, and is subject to and qualified in its entirety by reference to the Director Plan. You should refer to Appendix A for a complete set of terms and conditions of the Director Plan.

      Purpose. The purpose of the Director Plan is to allow the Company’s Outside Directors to participate in the ownership of the Company through ownership of shares of the Company’s Common Stock, and to promote identification of such directors’ interests with those of the Company’s shareholders.

      Authorized Shares. The Board of Directors has reserved a total of 350,000 shares of the Company’s Common Stock for issuance under the Director Plan.

      Administration. The Director Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”), on behalf of the Board of Directors. Subject to the terms of the Director Plan, the Committee has the sole discretion to interpret the provisions of the Director Plan. All decisions of the Committee are final and binding in all matters relating to the Director Plan and shall be given the maximum deference permitted by law.

      Eligibility. Each Outside Director is eligible to participate in the Director Plan. There are currently six Outside Directors serving on the Company’s Board of Directors.

      Election to Receive Common Stock in Lieu of Director Service Fees. Prior to commencement of a plan year (a “Plan Year”) on February 1 of each year, an Outside Director may make an irrevocable election (a “Stock Election”) to receive all or a portion of the cash compensation payable to such Outside Director for the coming year in shares of the Company’s Common Stock in lieu of cash. Each Stock Election must be made by the Director by filing an election form with the Secretary of the Company, and once filed, the election may not be revoked or changed. If an Outside Director does not file an election form each year by the specified date, the Outside Director will be deemed to have elected to receive his or her compensation for the coming year in the manner elected by the Outside Director in his or her last valid election. The Committee has determined that shares of Common Stock may be issued pursuant to Stock Elections commencing with the second quarter of the 2004 fiscal year.

      Transfer of Shares. Shares of Common Stock issuable to an Outside Director pursuant to the Director Plan will be determined and transferred to such Outside Director on the last business day of each calendar quarter in a calendar year (the “Compensation Date”). The number of shares of Common Stock to be issued to an Outside Director on any Compensation Date in respect of the Outside Director’s annual retainer fee is equal to one-fourth of the amount of such annual retainer fee to be paid in shares, as elected by the Outside Director, for the Plan Year divided by the fair market value of a share of Common Stock on the Compensation Date. The number of shares of Common Stock to be issued to an Outside Director on any Compensation Date in respect of the fees payable to an Outside Director who serves as the chairperson of the Audit Committee, the Compensation Committee or the Nominating and Corporate Governance Committee of the Board of Directors will be equal to one-fourth of the amount of such fees to be paid in shares of Common Stock, as elected by the Outside Director, for the Plan Year divided by the fair market value of a share of Common Stock on the Compensation Date. The number of shares of Common Stock to be issued to an Outside Director on any Compensation Date in respect of the fees payable to Outside Directors for attendance at Board and committee meetings will be equal to the amount of such fees to be paid in shares of Common Stock, as elected by the Outside Director, for the quarter during which the meetings being

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      Notwithstanding anything to the contrary set forth in the Director Plan, if on any Compensation Date the number of shares of Common Stock otherwise issuable to the Outside Directors shall exceed the number of authorized shares of Common Stock remaining available under the Director Plan, the available shares shall be allocated among the Outside Directors in proportion to the number of shares they would otherwise be entitled to receive and the remainder of the compensation payable to such Outside Directors shall be payable in cash.

      Holding Period. Unless the Committee otherwise determines, shares of Common Stock issued to an Outside Director pursuant to the Director Plan may not be sold, pledged, assigned, encumbered or otherwise transferred or disposed of by the Outside Director for a period of one year from the date of issuance of such shares.

      Effect of Certain Changes in Capitalization. In the event of any recapitalization, stock split, reverse stock split, stock dividend, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event affecting the Common Stock, the maximum number or class of shares available under the Director Plan, and the number or class of shares of Common Stock to be delivered hereunder shall be adjusted by the Committee to reflect any such change in the number or class of issued shares of Common Stock. In the event that as a result of any such change an Outside Director will, in his or her capacity as the owner of shares subject to the holding period described in the Director Plan (the “Prior Shares”), be entitled to new or additional or different shares of stock, cash or securities, such new or additional or different shares, cash or securities will be subject to the same holding period and other terms and conditions of the Director Plan that are applicable to the Prior Shares. The Committee (in its absolute discretion) at any time may accelerate the release of the holding period of all or any portion of such new or additional shares of stock, cash or securities.

      Amendment; Termination. The Board of Directors or the Committee may at any time and from time to time alter, amend, or terminate the Director Plan in whole or in part; provided, however, that no such action shall, without the consent of a Outside Director, affect the rights of such Outside Director in any Common Stock previously issued to such Outside Director under the Director Plan, and provided further that no amendment shall be effective prior to approval by the Company’s shareholders to the extent such approval is deemed necessary or advisable by the Committee.

      Nontransferability. The rights and benefits under the Director Plan are not transferable by an Outside Director other than by the laws of descent and distribution.

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      Participation in the Director Plan by Certain Individuals and Groups. The following table sets forth the benefits or amounts that will be received by or allocated to each of the following individuals or groups under the Director Plan for fiscal year 2004 if the Director Plan is approved by the shareholders at the Annual Meeting. Under the method for determining shares of Common Stock issuable to Outside Directors, the total number of shares of Common Stock to be issued to Outside Directors during any fiscal year will depend on a number of factors, including the total number of Outside Directors who serve on the Board of Directors, the number of Outside Directors who elect to receive shares of Common Stock in lieu of cash compensation for Board service, the fair market value of the Company’s Common Stock on each Compensation Date during a Plan Year, and the number of meetings held and attended by each Outside Director.

      THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE REALNETWORKS, INC. DIRECTOR COMPENSATION STOCK PLAN.

Audit and Related Fees

      The following table presents fees for professional audit services rendered by KPMG LLP for the audit of the Company’s annual financial statements for 2002 and 2003, and fees billed for other services rendered by KPMG LLP.

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(2) Tax fees consisted of fees for tax consultation and tax compliance services.

Pre-Approval Policies and Procedures

      The Audit Committee approves in advance all audit and non-audit services to be performed by the Company’s independent auditors. As part of its pre-approval procedures, the Audit Committee considers whether the provision of any proposed non-audit services is consistent with the SEC’s rules on auditor independence. In accordance with its pre-approval procedures, the Audit Committee has pre-approved certain specified audit and non-audit services to be provided by KPMG LLP for up to twelve (12) months from the date of the pre-approval. If there are any additional services to be provided, a request for pre-approval must be submitted by management to the Audit Committee for its consideration.

Annual Independence Discussions

      The Audit Committee has determined that the provision by KPMG LLP of non-audit services to RealNetworks is compatible with KPMG LLP maintaining its independence.

      Representatives of KPMG LLP are expected to be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so. It is also expected that they will be available to respond to appropriate questions.

Report of the Audit Committee of the Board of Directors

      The following is the report of the Audit Committee with respect to RealNetworks’ audited financial statements, which include the consolidated balance sheets of RealNetworks as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2003, and the notes thereto.

      The Audit Committee has reviewed and discussed RealNetworks’ audited financial statements with management.

      The Audit Committee has discussed with KPMG LLP, RealNetworks’ independent accountants, the matters required to be discussed by Statement on Auditing Standards No. 61 which includes, among other items, matters related to the conduct of the audit of RealNetworks’ financial statements.

      The Audit Committee has also received written disclosures and the letter from KPMG LLP required by Independence Standards Board Standard No. 1 (which relates to the accountant’s independence from RealNetworks and its related entities) and has discussed with KPMG LLP its independence from RealNetworks.

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      Based on the review and discussions referred to above, the Audit Committee recommended to RealNetworks’ Board of Directors that RealNetworks’ audited consolidated financial statements be included in RealNetworks’ Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

OTHER BUSINESS

      The Board of Directors does not intend to bring any other business before the meeting, and, so far as is known to the Board, no matters are to be brought before the meeting except as specified in the Notice of Annual Meeting of Shareholders. However, as to any other business that may properly come before the meeting, it is intended that proxies, in the form enclosed, will be voted in respect to those proxies in accordance with the judgment of the persons voting such proxies.

      The information contained above under the captions “Report of the Compensation Committee of the Board of Directors”, “Report of the Audit Committee of the Board of Directors” and “Comparative Performance Graph” shall not be deemed to be “soliciting material” or to be “filed‘ with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference into such filing.

      IT IS IMPORTANT THAT PROXIES ARE RETURNED PROMPTLY AND THAT YOUR SHARES ARE REPRESENTED. SHAREHOLDERS ARE URGED TO MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.

	BY ORDER OF THE BOARD OF DIRECTORS
	ROBERT KIMBALL
	Vice President, Legal and Business Affairs,
	General Counsel and Corporate Secretary

May 7, 2004

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APPENDIX A

REALNETWORKS, INC.

DIRECTOR COMPENSATION STOCK PLAN

      1.     Purpose. The Director Compensation Stock Plan (the “Plan”) is established to allow the outside directors of RealNetworks, Inc. (the “Company”) to participate in the ownership of the Company through ownership of shares of the Company’s Common Stock, and to promote identification of such directors’ interests with those of the Company’s shareholders.

      2.     Definitions. As used in the Plan:

      3.     Authorized Shares. The total number of shares of Common Stock available for issuance under the Plan is Three Hundred Fifty Thousand (350,000), subject to adjustment pursuant to Section 12 hereof. Shares available for issuance under the Plan may be authorized and unissued shares, as the Company may determine from time to time.

      4.     Administration of the Plan. The Plan shall be administered by the Committee. The Committee shall, subject to the provisions of the Plan, adopt such rules as it may deem appropriate in order to carry out the purpose of the Plan. All questions of interpretation, administration, and application of the Plan shall be determined by a majority of the members of the Committee, except that the Committee may authorize any one or more of its members, or any officer or employee of the Company, to execute and deliver documents on behalf of the Committee. The determination of such majority shall be final and binding in all matters relating to the Plan and shall be given the maximum deference permitted by law. No member of the Committee shall be liable for any act done or omitted to be done by such member or by any other member of the Committee in connection with the Plan, except for such member’s own willful misconduct or as expressly provided by statute. All costs and expenses involved in administration of the Plan shall be borne by the Company.

      5.     Participation. Each Nonemployee Director shall be eligible to participate in the Plan.

      6.     Election to Receive Common Stock in Lieu of Director Service Fees. Prior to the first day of each Plan Year, each Nonemployee Director may make an election to receive all or a portion of his or her Director Service Fees for such Plan Year in Common Stock (a “Stock Election”) in lieu of cash. Such shares of Common Stock shall be transferred in accordance with Section 7 hereof. Any Stock Election shall be made in such form and manner as the Company may specify from time to time, shall specify the percentage of the Director Service Fees to be paid in Common Stock, and shall be irrevocable for the Plan Year for which the Stock Election is made. Notwithstanding the foregoing, any Nonemployee Director who is newly elected or appointed to the Board after the first day of a Plan Year must make the election under this Section 6 within 30 days after becoming a Director with respect to the percentage of the Director Service Fees that are payable for the remainder of that Plan Year. Each election must be made by the Director by filing an election form with the Secretary of the Company. If a Director does not file an election form for each Plan year by the specified date, the Director will be deemed to have elected to receive the Director Service Fees in the manner elected by the Director in his or her last valid election. Any person who becomes a Director during a Plan Year and does not file the required election within 30 days will be deemed to have elected to receive all of the Director Service Fees in cash. When an election is made for a Plan Year, the Director may not revoke or change that election.

      7.     Transfer of Shares. Shares of Common Stock issuable to a Nonemployee Director pursuant to Section 6 hereof shall be determined and transferred to such Nonemployee Director on the Compensation Dates as follows:

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      The Company will instruct its registrar to make an entry on the Company’s shareholder records evidencing that the shares of Common Stock have been issued as of the Compensation Dates.

      Notwithstanding anything to the contrary herein, if on any Compensation Date the number of shares of Common Stock otherwise issuable to the Nonemployee Directors shall exceed the number of authorized shares of Common Stock remaining available under the Plan, the available shares shall be allocated among the Nonemployee Directors in proportion to the number of shares they would otherwise be entitled to receive and the remainder of the Nonemployee Directors’ Director Service Fees shall be payable in cash.

      8.     Fractional Shares. No fraction of a share of Common Stock will be issued by virtue of a Stock Election made by a Nonemployee Director, but in lieu thereof, a Nonemployee Director who would otherwise be entitled to a fraction of a share of Common Stock shall receive an amount of cash (rounded to the nearest whole cent) equal to the product of such fraction multiplied by the Fair Market Value of the Common Stock on the applicable Compensation Date.

      9.     Holding Period. Unless the Committee otherwise determines, shares of Common Stock issued to a Nonemployee Director pursuant to Section 6 hereof may not be sold, pledged, assigned, encumbered or otherwise transferred or disposed of by the Nonemployee Director for a period of one year from the date of issuance of such shares.

      10.     Legends. Each certificate representing shares of Common Stock issued under the Plan shall, unless the Committee otherwise determines, contain on its reverse a legend in form substantially as follows, together with any other legends that are required by law, the terms and conditions of the Plan or that the Committee in its discretion deems necessary or appropriate:

      The Company may cause the transfer agent for the Common Stock to place a stop transfer order with respect to such shares.

      11.     Rights as a Shareholder. A Nonemployee Director shall have no rights as a shareholder of the Company with respect to any Common Stock to be issued under the Plan until he or she becomes the holder of record of such shares.

      12.     Effect of Certain Changes in Capitalization. In the event of any recapitalization, stock split, reverse stock split, stock dividend, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event affecting the Common Stock, the maximum number or class of shares available under the Plan, and the number or class of shares of Common Stock to be delivered hereunder shall be adjusted by the Committee to reflect any such change in the number or class of issued shares of Common Stock. In the event that as a result of any such change a Nonemployee Director will, in his or her capacity as the owner of Shares subject to the holding period described in Section 9 (the “Prior Shares”), be entitled to new or additional or different shares of stock, cash or securities, such new or additional or different shares, cash or securities will be subject to the same holding period and other terms and conditions of the Plan that are applicable to the Prior Shares. The Committee (in its absolute discretion) at

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      13.     Effectiveness. The Plan shall become effective on February 1, 2004, provided that the Plan shall have been approved by the Company’s shareholders at the 2004 annual meeting of shareholders.

      14.     Amendment; Termination. The Board or the Committee may at any time and from time to time alter, amend, or terminate the Plan in whole or in part; provided, however, that no such action shall, without the consent of a Nonemployee Director, affect the rights of such Nonemployee Director in any Common Stock previously issued to such Nonemployee Director under the Plan, and provided further that no amendment shall be effective prior to approval by the Company’s shareholders to the extent such approval is deemed necessary or advisable by the Committee.

      15.     Rights of Directors. Nothing contained in the Plan shall confer upon any Nonemployee Director any right to continue in the service of the Company as a director.

      16.     Government and Other Regulations. The obligations of the Company to deliver shares under the Plan shall be subject to all applicable laws, rules and regulations and such approvals by any government agency as may be required, including, without limitation, compliance with the Securities Act of 1933, as amended.

      17.     Nontransferability. The rights and benefits under the Plan shall not be transferable by a Nonemployee Director other than by the laws of descent and distribution.

      18.     Withholding. To the extent required by applicable federal, state and local law, a Nonemployee Director shall make arrangements satisfactory to the Company for the payment of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any Common Stock under the Plan until such obligations are satisfied. The method or methods of payment of any withholding tax obligations that arise in connection with the Plan may consist of (i) cash, (ii) check, (iii) the delivery to the Company of whole shares of Common Stock already owned by the Nonemployee Director having an aggregate Fair Market Value equal to the amount required to be withheld, (iv) the retention by the Company of whole shares of Common Stock that are issuable to the Nonemployee Director as compensation under this Plan, which shares have an aggregate Fair Market Value equal to the minimum amount required to be withheld, or (v) any combination of the foregoing methods of payment.

      19.     Governing Law. The Plan shall be governed by, and construed in accordance with, the laws of the State of Washington.

      20.     Headings. The headings of sections herein are included solely for convenience of reference and shall not affect the meaning of any of the provisions of the Plan.

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A COPY OF REALNETWORKS’ ANNUAL REPORT ON FORM 10-K FOR THE 2003 FISCAL

INVESTOR RELATIONS DEPARTMENT