Blizzard 2011 Annual Report Download - page 56

element arrangements where more-than-incidental software deliverables are included, revenue is allocated to each separate unit
of accounting for each of the non-software deliverables and to the software deliverables as a group using the relative selling
prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy. If the arrangement
contains more than one software deliverable, the arrangement consideration allocated to the software deliverables as a group is
then allocated to each software deliverable using the guidance for recognizing software revenue.
As noted above, when neither VSOE nor TPE is available for a deliverable, we use BESP. We do not have significant
revenue arrangements that require BESP for the year ended December 31, 2011. The inputs we use to determine the selling price
of our significant deliverables include the actual price charged by the Company for a deliverable that the Company sells
separately, which represents the VSOE, and the wholesale prices of the same or similar products, which represents TPE. The
pattern and timing of revenue recognition for deliverables and allocation of the arrangement consideration did not change upon
the adoption of the new accounting principles. Also, the adoption of the new accounting standard has not had a material impact
on our financial statements in the current period.
Product Sales
We recognize revenue from the sale of our products once title and risk of loss have been transferred to our customers
and any performance obligation(s) have been completed. Certain products are sold to customers with a “street date” (which is the
earliest date these products may be sold by retailers). For these products, we recognize revenue on the later of the street date and
the date the product is sold to the customer. Revenue from product sales is recognized after deducting the estimated allowance
for returns and price protection.
For our software products with online functionality, we evaluate whether those features or functionality are more than
an inconsequential separate deliverable in addition to the software product. This evaluation is performed for each software
product and any online transaction, such as a digital download of a title or product add-ons, when it is released.
When we determine that a software title contains online functionality that constitutes a more-than-inconsequential
separate deliverable in addition to the product, principally because of its importance to gameplay, we consider our performance
obligations for this title to extend beyond the sale of the game. VSOE of fair value does not exist for the online functionality of
some products, as we do not separately charge for this component of every title. As a result, we recognize all of the
software-related revenue from the sale of any such title ratably over the estimated service period of such title. In addition, we
initially defer the costs of sales for the title (excluding intangible asset amortization), and recognize the costs of sales as the
related revenues are recognized. Cost of sales includes manufacturing costs, software royalties and amortization, and intellectual
property licenses costs.
We recognize revenues from World of Warcraft boxed product, expansion packs and value-added services, in each
case with the related subscription service revenue, ratably over the estimated service period beginning upon activation of the
software and delivery of the related services. Revenues attributed to the sale of World of Warcraft boxed software and related
expansion packs are classified as “Product sales”, whereas revenues attributable to subscriptions and other value-added services
are classified as “Subscription, licensing and other revenues”.
Revenues for software products with more-than-inconsequential separate service deliverables and World of Warcraft
products are recognized over the estimated service periods, which range from a minimum of five months to a maximum of less
than a year.
For our software products with features we consider to be incidental to the overall product offering and an
inconsequential deliverable, such as products which provide limited online features at no additional cost to the consumer, we
recognize the related revenue from them upon the transfer of title and risk of loss of the product to our customer.
With respect to online transactions, such as online downloads of titles or product add-ons that do not include a more-
than-inconsequential separate service deliverable, revenue is recognized when the fee is paid by the online customer to purchase
online content, the product is available for download and is activated for gameplay. In addition, persuasive evidence of an
arrangement must exist and collection of the related receivable must be probable.
Sales incentives and other consideration given by us to our customers, such as rebates and product replacement fees,
are considered adjustments of the selling price of our products and are reflected as reductions to revenue. Sales incentives and
other consideration that represent costs incurred by us for assets or services received, such as the appearance of our products in a
customer’s national circular ad, are reflected as sales and marketing expenses when the benefit from the sales incentive is
separable from sales to the same customer and we can reasonably estimate the fair value of the benefit.
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