Pandora 2016 Annual Report Download - page 72

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determined that collection is not reasonably assured, revenue is not recognized until collection becomes reasonably assured,
which is generally upon receipt of cash. We record cash received in advance of revenue recognition as deferred revenue.
Advertising revenue
We generate advertising revenue primarily from audio, display and video advertising. We generate the majority of our
advertising revenue through the delivery of advertising impressions sold on a cost per thousand, or CPM, basis. In determining
whether an arrangement exists, we ensure that a binding arrangement, such as an insertion order or a fully executed customer-
specific agreement, is in place. We generally recognize revenue based on delivery information from our campaign trafficking
systems.
We also generate advertising revenue pursuant to arrangements with advertising agencies and brokers. Under these
arrangements, we provide the agencies and brokers the ability to sell advertising inventory on our service directly to
advertisers. We report this revenue net of amounts due to agencies and brokers because we are not the primary obligor under
these arrangements, we do not set the pricing and do not establish or maintain the relationship with the advertisers.
Subscription and other revenue
Subscription and other revenue is generated primarily through the sale of a premium version of the Pandora service
which currently includes advertisement-free access and higher audio quality on supported devices. Subscription revenue
derived from direct sales to listeners is recognized on a straight-line basis over the duration of the subscription period.
Subscription revenue derived from sales through some mobile operating systems may be subject to refund or cancellation terms
which may affect the timing or amount of the subscription revenue recognition. When refund rights exist, we recognize revenue
when services have been provided and the rights lapse or when we have developed sufficient transaction history to estimate a
reserve.
€
We were required to defer revenue for certain subscriptions purchased through mobile app stores that contained refund
rights until the refund rights lapsed or until we developed sufficient operating history to estimate a return reserve. As of
December€31, 2013, we had deferred all revenue related to these mobile subscriptions subject to refund rights totaling
approximately $14.2 million, as we did not have sufficient history to estimate a return reserve. Beginning in January€2014, we
had sufficient historic transactional information which enabled us to estimate future returns. Accordingly, in January€2014, we
began recording revenue related to these mobile subscriptions net of estimated returns. This change resulted in a one-time
increase in subscription revenue in the three months ended March€31, 2014 of approximately€$14.2 million, as the previously
deferred revenue was recognized. As of December€31, 2015, the deferred revenue related to the return reserve was not
significant.
Ticketing service revenue
Ticketing service revenue is generated from service and merchant processing fees generated on ticket sales through the
Ticketfly platform. Ticketfly sells tickets to fans for events on behalf of clients and charges a fixed fee or a percentage of the
total convenience charge and order processing fee for its services at the time the ticket for an event is sold. Ticketing service
revenue is recorded net of the face value of the ticket at the time of the sale, as Ticketfly generally acts as the agent in these
transactions.
Business Combinations, Goodwill and Intangible Assets, net
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible
assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values
of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant
estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets
include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a
market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may
differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments
to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the
measurement period, any subsequent adjustments are recorded to earnings.
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