NetZero 2011 Annual Report Download - page 56

Table of Contents
Member Redemption Liability
Member redemption liability for online loyalty marketing points represents the estimated costs associated with the obligation of MyPoints
to redeem outstanding points accumulated by its online loyalty marketing members as well as those points purchased by its advertisers for use in
such advertisers' promotional campaigns, less an allowance for points expected to expire prior to redemption. The estimated cost of points is
primarily presented in cost of revenues, except for the portion related to member acquisition activities, internal marketing surveys and other non-
revenue generating activities, which are presented in sales and marketing expenses. The member redemption liability is recognized when
members earn points, less an allowance for points expected to expire, and is reduced when members redeem accumulated points upon reaching
required redemption thresholds or when points expire prior to redemption.
MyPoints members may redeem points for third-party gift cards and other rewards. Members earn points when they respond to direct
marketing offers delivered by MyPoints, purchase goods or services from advertisers, engage in certain promotional campaigns of advertisers, or
engage in other specified activities.
The member redemption liability is estimated based upon the weighted-average cost and number of points that may be redeemed in the
future. On a monthly basis, the weighted-average cost of points is calculated by taking the total cost of items fulfilled divided by total points
redeemed. MyPoints purchases gift cards and other awards from merchants at a discount and sets redemption levels for its members. The
discounts and points needed to redeem awards vary by merchant and award denomination. MyPoints has the ability to adjust the number of
points required to redeem awards to reflect changes in the cost of awards.
On a monthly basis, MyPoints accounts for and reduces the gross points issued by an estimate of points that will never be redeemed by its
members. This reduction is calculated based on an analysis of historical point-earning trends, redemption activities and individual member
account activity. MyPoints' historical analysis takes into consideration the total points in members' accounts that have been inactive for six
months or longer, less an estimated reactivation rate, plus an estimate of future inactive points. Changes in, among other factors, the net number
of points issued, redemption activities and members' activity levels could materially impact the member redemption liability. A 100 basis point
increase or decrease in the estimate of points that will never be redeemed would increase or decrease our member redemption liability at
December 31, 2011 by approximately $39,000.
Points in active MyPoints accounts do not expire; however, unredeemed points expire after twelve consecutive months of inactivity. For
purposes of the member redemption liability, "inactive" means a lack of all of the following: email response; survey completion; profile update;
or any point-earning or point-redeeming transaction. The canceling or disabling of inactive MyPoints accounts would have no impact on our
consolidated financial statements, as we fully consider inactive MyPoints accounts when establishing the member redemption liability, as
discussed above.
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