Electronic Arts 2016 Annual Report Download - page 141

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Annual Report
only be played with an Internet connection). This includes (1) entitlements to content that are accessed through
hosting services (e.g., micro-transactions for Internet-based, social network and free-to-download mobile games),
(2) massively multi-player online (“MMO”) games (both software game and subscription sales), (3) subscriptions
for our Battlefield Premium, EA Access, and Pogo-branded online game services, and (4) allocated service
revenue from sales of software games with an online service element (i.e., “matchmaking” service). Our other
revenue includes advertising and non-software licensing revenue.
With respect to the allocated service revenue from sales of software games with a matchmaking service
mentioned above, our allocation of proceeds between product and service revenue for presentation purposes is
based on management’s best estimate of the selling price of the matchmaking service with the residual value
allocated to product revenue. Our estimate of the selling price of the matchmaking service is comprised of
several factors including, but not limited to, prior selling prices for the matchmaking service, prices charged
separately by other third-party vendors for similar service offerings, and a cost-plus-margin approach. We review
the estimated selling price of the online matchmaking service on a regular basis and use this methodology
consistently to allocate revenue between product and service for software game sales with a matchmaking
service.
We evaluate and recognize revenue when all four of the following criteria are met:
•Evidence of an arrangement. Evidence of an agreement with the customer that reflects the terms and
conditions to deliver the related products or services must be present.
•Fixed or determinable fee. If a portion of the arrangement fee is not fixed or determinable, we
recognize revenue as the amount becomes fixed or determinable.
•Collection is deemed probable. Collection is deemed probable if we expect the customer to be able to
pay amounts under the arrangement as those amounts become due. If we determine that collection is
not probable as the amounts become due, we generally conclude that collection becomes probable upon
cash collection.
•Delivery. For packaged goods, delivery is considered to occur when a product is shipped and the risk of
loss and rewards of ownership have transferred to the customer. For digital downloads, delivery is
considered to occur when the software is made available to the customer for download. For services
and other, delivery is generally considered to occur as the service is delivered, which is determined
based on the underlying service obligation. If there is significant uncertainty of acceptance, revenue is
recognized once acceptance is reasonably assured.
Online-Enabled Games
The majority of our software games and related content have online connectivity whereby a consumer may be
able to download unspecified content or updates on a when-and-if-available basis (“unspecified updates”) for use
with the original game software. In addition, we may also offer an online matchmaking service that permits
consumers to play against each other via the Internet without a separate fee. U.S. GAAP requires us to account
for the consumer’s right to receive unspecified updates or the matchmaking service for no additional fee as a
“bundled” sale, or multiple-element arrangement.
We have an established historical pattern of providing unspecified updates (e.g., player roster updates to Madden
NFL 16) to online-enabled games and related content at no additional charge to the consumer. We do not have
vendor-specific objective evidence of fair value (“VSOE”) for these unspecified updates, and thus, as required by
U.S. GAAP, we recognize revenue from the sale of these online-enabled games and related content over the
period we expect to offer the unspecified updates to the consumer (“estimated offering period”).
Other Multiple-Element Arrangements
In some of our multiple-element arrangements, we sell tangible products with software and/or software-related
offerings. These tangible products are generally either peripherals or ancillary collectors’ items, such as figurines
and comic books. Revenue for these arrangements is allocated to each separate unit of accounting for each
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