Blizzard 2009 Annual Report Download - page 37

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SoftwareDevelopmentCostsandIntellectualPropertyLicenses.Softwaredevelopmentcosts
includepaymentsmadetoindependentsoftwaredevelopersunderdevelopmentagreements,aswellas
directcostsincurredforinternallydevelopedproducts.
WeaccountforsoftwaredevelopmentcostsinaccordancewiththeFASBguidanceforthecosts
ofcomputersoftwaretobesold,leased,orotherwisemarketed(“ASCSubtopic98520”).Software
developmentcostsarecapitalizedoncethetechnologicalfeasibilityofaproductisestablishedandsuch
costsaredeterminedtoberecoverable.Technologicalfeasibilityofaproductencompassesbothtechnical
designdocumentationandgamedesigndocumentation,orthecompletedandtestedproductdesignand
workingmodel.Significantmanagementjudgmentsandestimatesareutilizedintheassessmentofwhen
technologicalfeasibilityisestablished.Forproductswhereproventechnologyexists,thismayoccurearly
inthedevelopmentcycle.Technologicalfeasibilityisevaluatedonaproductbyproductbasis.Priortoa
product’srelease,weexpense,aspartof“costofsales—softwareroyaltiesandamortization,”capitalized
costswhenwebelievesuchamountsarenotrecoverable.Capitalizedcostsforthoseproductsthatare
cancelledorabandonedarechargedtoproductdevelopmentexpenseintheperiodofcancellation.Amounts
relatedtosoftwaredevelopmentwhicharenotcapitalizedarechargedimmediatelytoproductdevelopment
expense.
Commencinguponproductrelease,capitalizedsoftwaredevelopmentcostsareamortizedto“cost
ofsales—softwareroyaltiesandamortization”basedontheratioofcurrentrevenuestototalprojected
revenuesforthespecificproduct,generallyresultinginanamortizationperiodofsixmonthsorless.
Intellectualpropertylicensecostsrepresentlicensefeespaidtointellectualpropertyrightsholders
foruseoftheirtrademarks,copyrights,software,technology,music,orotherintellectualpropertyor
proprietaryrightsinthedevelopmentofourproducts.Dependingupontheagreementwiththerights
holder,wemayobtaintherightstouseacquiredintellectualpropertyinmultipleproductsovermultiple
years,oralternatively,forasingleproduct.Priortotherelatedproduct’srelease,weexpense,aspartof
“costofsales—intellectualpropertylicenses,”capitalizedintellectualpropertycostswhenwebelievesuch
amountsarenotrecoverable.Capitalizedintellectualpropertycostsforthoseproductsthatarecancelledor
abandonedarechargedtoproductdevelopmentexpenseintheperiodofcancellation.
Commencingupontherelatedproduct’srelease,capitalizedintellectualpropertylicensecostsare
amortizedto“costofsales—intellectualpropertylicenses”basedontheratioofcurrentrevenuesforthe
specificproducttototalprojectedrevenuesforallproductsinwhichthelicensedpropertywillbeutilized.
Asintellectualpropertylicensecontractsmayextendformultipleyears,theamortizationofcapitalized
intellectualpropertylicensecostsrelatingtosuchcontractsmayextendbeyondoneyear.
Weevaluatethefuturerecoverabilityofcapitalizedsoftwaredevelopmentcostsandintellectual
propertylicensesonaquarterlybasis.Forproductsthathavebeenreleasedinpriorperiods,theprimary
evaluationcriterionisactualtitleperformance.Forproductsthatarescheduledtobereleasedinfuture
periods,recoverabilityisevaluatedbasedontheexpectedperformanceofthespecificproductstowhichthe
costsrelateorinwhichthelicensedtrademarkorcopyrightistobeused.Criteriausedtoevaluateexpected
productperformanceinclude:historicalperformanceofcomparableproductsdevelopedwithcomparable
technology;ordersfortheproductpriortoitsrelease;and,foranysequelproduct,estimatedperformance
basedontheperformanceoftheproductonwhichthesequelisbased.Further,asmanyofourcapitalized
intellectualpropertylicensesextendformultipleproductsovermultipleyears,wealsoassessthe
recoverabilityofcapitalizedintellectualpropertylicensecostsbasedoncertainqualitativefactors,suchas
thesuccessofotherproductsand/orentertainmentvehiclesutilizingtheintellectualproperty,whetherthere
areanyfutureplannedtheatricalreleasesortelevisionseriesbasedontheintellectualproperty,andthe
rightsholder’scontinuedpromotionandexploitationoftheintellectualproperty.
Significantmanagementjudgmentsandestimatesareutilizedintheassessmentofthe
recoverabilityofcapitalizedcosts.Inevaluatingtherecoverabilityofcapitalizedcosts,theassessmentof
expectedproductperformanceutilizesforecastedsalesamountsandestimatesofadditionalcoststobe
incurred.Ifrevisedforecastedoractualproductsalesarelessthantheoriginalforecastedamountsutilized
intheinitialrecoverabilityanalysis,thenetrealizablevaluemaybelowerthanoriginallyestimatedinany
givenquarter,whichcouldresultinanimpairmentcharge.Materialdifferencesmayresultintheamount