Blizzard 2009 Annual Report Download - page 57
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bytheenduserwhenwehavecontinuingserviceobligations.Werecognizeanyupfrontlicensingfee
receivedoverthetermofthecontracts.
Withrespecttolicenseagreementsthatprovidecustomerstherighttomakemultiplecopiesin
exchangeforguaranteedamounts,revenueisgenerallyrecognizedupondeliveryofamastercopy.Per
copyroyaltiesonsalesthatexceedtheguaranteearerecognizedasearned.Inaddition,persuasiveevidence
ofanarrangementmustexistandcollectionoftherelatedreceivablemustbeprobable.
BreakageRevenues
WorldofWarcraftboxedproductsalesandsubscriptionrevenuesarerecognizeduponactivation
ofthegame.Forcertainproducts,activationhasnotoccurred,whichledustoanalyzehistoricalactivation
patternsoveranextendedperiodoftime,todeterminewhenthelikelihoodofactivationeveroccurring
becomesremote.Werecognizerevenuesfromsubscriptionsthathavenotyetbeenactivated,prepaid
subscriptioncards,aswellasprepaidsubscriptionsales,whenthelikelihoodoffutureactivationoccurring
isremote(definedas“breakagerevenues”).In2008,werecognizedbreakagerevenuesforthefirsttime
sincetheinitiallaunchofWorldofWarcraft.FortheyearsendedDecember31,2009and2008,we
recorded$5millionand$6million,respectivelyofbreakagerevenuesfromthesaleofpackagedsoftware
inproductsales,and$8millionand$16million,respectivelyofprepaidandsubscriptionbreakage
revenuesinsubscription,licensingandotherrevenuesintheconsolidatedstatementsofoperations.
OtherRevenues
Otherrevenuesprimarilyincludevalueaddedservicesalesofnonsoftwarerelatedproducts.It
includeslicensingactivityofintellectualpropertyotherthansoftwaretothirdparties.Revenueisrecorded
uponreceiptoflicenseestatements,oruponthereceiptofcash,providedthelicenseperiodhasbegun.
AllowancesforReturns,PriceProtection,DoubtfulAccounts,andInventoryObsolescence
Wecloselymonitorandanalyzethehistoricalperformanceofourvarioustitles,theperformance
ofproductsreleasedbyotherpublishers,andtheanticipatedtimingofotherreleasestoassessfuture
demandofcurrentandupcomingtitles.Initialvolumesshippedupontitlelaunchandsubsequentreorders
areevaluatedwiththegoalofensuringthatquantitiesaresufficienttomeetthedemandfromtheretail
markets,butatthesametimearecontrolledtopreventexcessinventoryinthechannel.Webenchmark
unitstobeshippedtoourcustomersusinghistoricalandindustrydata.
Wemaypermitproductreturnsfrom,orgrantpriceprotectionto,ourcustomersundercertain
conditions.Ingeneral,priceprotectionreferstothecircumstancesinwhichweelecttodecreasethe
wholesalepriceofaproductbyacertainamountand,whengrantedandapplicable,allowscustomersa
creditagainstamountsowedbysuchcustomerstouswithrespecttoopenand/orfutureinvoices.The
conditionsourcustomersmustmeettobegrantedtherighttoreturnproductsorpriceprotectioninclude,
amongotherthings,compliancewithapplicabletradingandpaymentterms,andconsistentreturnof
inventoryanddeliveryofsellthroughreportstous.Wemayalsoconsiderotherfactors,includingthe
facilitationofslowmovinginventoryandothermarketfactors.Managementmustmakeestimatesof
potentialfutureproductreturnsandpriceprotectionrelatedtocurrentperiodproductrevenue.Weestimate
theamountoffuturereturnsandpriceprotectionforcurrentperiodproductrevenueutilizinghistorical
experienceandinformationregardinginventorylevelsandthedemandandacceptanceofourproductsby
theendconsumer.Thefollowingfactorsareusedtoestimatetheamountoffuturereturnsandprice
protectionforaparticulartitle:historicalperformanceoftitlesinsimilargenres;historicalperformanceof
thehardwareplatform;historicalperformanceofthefranchise;consolehardwarelifecycle;salesforceand
retailcustomerfeedback;industrypricing;weeksofonhandretailchannelinventory;absolutequantityof
onhandretailchannelinventory;ourwarehouseonhandinventorylevels;thetitle’srecentsellthrough
history(ifavailable);marketingtradeprograms;andcompetingtitles.Therelativeimportanceofthese
factorsvariesamongtitlesdependingupon,amongotheritems,genre,platform,seasonality,andsales
strategy.Significantmanagementjudgmentsandestimatesmustbemadeandusedinconnectionwith
establishingtheallowanceforreturnsandpriceprotectioninanyaccountingperiod.Baseduponhistorical
experience,webelievethatourestimatesarereasonable.However,actualreturnsandpriceprotection
couldvarymateriallyfromourallowanceestimatesduetoanumberofreasonsincluding,amongothers,a
lackofconsumeracceptanceofatitle,thereleaseinthesameperiodofasimilarlythemedtitlebya