2K Sports 2008 Annual Report Download - page 81

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revenue from the sale of interactive software titles published by third parties, hardware and accessories
(‘‘Distribution revenue’’).
We recognize revenue upon the transfer of title and risk of loss to our customers. We apply the provisions
of Statement of Position 97-2, ‘‘Software Revenue Recognition,’’ in conjunction with the applicable
provisions of Staff Accounting Bulletin No. 104, ‘‘Revenue Recognition.’’ Accordingly, we recognize
revenue for software titles when there is (1) persuasive evidence that an arrangement with the customer
exists, which is generally a customer purchase order, (2) the product is delivered, (3) the selling price is
fixed or determinable and (4) collection of the customer receivable is deemed probable. Our payment
arrangements with customers typically provide net 30 and 60 day terms. Advances received for licensing
and exclusivity arrangements are reported on the balance sheet as deferred revenue until we meet our
performance obligations, at which point we recognize the revenue.
Some of our software products provide limited online functionality at no additional cost to the consumer.
Generally, we consider such features to be incidental to the overall product offering and an
inconsequential deliverable. Accordingly, we do not defer revenue related to products containing such
online features. We determine whether our products contain substantial online functionality by evaluating
the significance of the development effort and the nature of the online features, the extent of anticipated
marketing focus on the online features; the significance of the online features to the customers’ anticipated
overall gameplay experience, and the significance of our post sale obligations to customers. Overall, online
play functionality is still an emerging area for us, and we continue to monitor this developing functionality
and its significance to our products.
Certain of our software products include in-game advertising for third party products. Advance payments
received for in-game advertising are reported on the balance sheet as deferred revenue until we meet our
performance obligations, at which point we recognize the revenue, which is generally at the time of the
initial release of the product.
Revenue is recognized after deducting estimated reserves for returns, price concessions and other
allowances. In circumstances when we do not have a reliable basis to estimate returns and price
concessions or are unable to determine that collection of a receivable is probable, we defer the revenue
until such time as we can reliably estimate any related returns and allowances and determine that
collection of the receivable is probable.
Allowances for Returns, Price Concessions and Other Allowances
We accept returns and grant price concessions in connection with our publishing arrangements. Following
reductions in the price of our products, we grant price concessions to permit customers to take credits
against amounts they owe us with respect to merchandise unsold by them. Our customers must satisfy
certain conditions to entitle them to return products or receive price concessions, including compliance
with applicable payment terms and confirmation of field inventory levels.
Our distribution arrangements with customers do not give them the right to return titles or to cancel firm
orders. However, we sometimes accept returns from our distribution customers for stock balancing and
make accommodations to customers, which include credits and returns, when demand for specific titles
falls below expectations.
We make estimates of future product returns and price concessions related to current period product
revenue. We estimate the amount of future returns and price concessions for published titles based upon,
among other factors, historical experience and performance of the titles in similar genres, historical
performance of the hardware platform, customer inventory levels, analysis of sell-through rates, sales force
and retail customer feedback, industry pricing, market conditions and changes in demand and acceptance
of our products by consumers.
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