Pandora 2016 Annual Report Download - page 85

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, 2014 and 2015, the deferred revenue related to the return reserve was not
significant.
Multiple-element arrangements.€We enter into arrangements with customers to sell advertising packages that include
different media placements or ad services that are delivered at the same time, or within close proximity of one another. We
recognize the relative fair value of the media placements or ad services as they are delivered assuming all other revenue
recognition criteria are met.
We allocate arrangement consideration in multiple-deliverable revenue arrangements at the inception of an arrangement
to all deliverables or those packages in which all components of the package are delivered at the same time, based on the
relative selling price method in accordance with the selling price hierarchy, which includes: (1)€vendor-specific objective
evidence ("VSOE") if available; (2)€third-party evidence ("TPE") if VSOE is not available; and (3)€best estimate of selling price
("BESP") if neither VSOE nor TPE is available.
We determine VSOE based on our historical pricing and discounting practices for the specific product or service when
sold separately. In determining VSOE, we require that a substantial majority of the selling prices for these services fall within a
reasonably narrow pricing range. We have not historically priced our advertising products within a narrow range. As a result,
we have not been able to establish VSOE for any of our advertising products.
When VSOE cannot be established for deliverables in multiple element arrangements, we apply judgment with respect to
whether it can establish a selling price based on TPE. TPE is determined based on competitor prices for similar deliverables
when sold separately. Generally, our go-to-market strategy differs from that of our peers and our offerings contain a significant
level of differentiation such that the comparable pricing of services cannot be obtained. Furthermore, we are unable to reliably
determine what similar competitor services' selling prices are on a stand-alone basis. As a result, we have not been able to
establish selling price based on TPE.
When we are unable to establish selling price using VSOE or TPE, we use BESP in our allocation of arrangement
consideration. The objective of BESP is to determine the price at which we would transact a sale if the service were sold on a
stand-alone basis. BESP is generally used to allocate the selling price to deliverables in our multiple element arrangements. We
determine BESP for deliverables by considering multiple factors including, but not limited to, prices we charge for similar
offerings, market conditions, competitive landscape and pricing practices. We limit the amount of allocable arrangement
consideration to amounts that are fixed or determinable and that are not contingent on future performance or future
deliverables. We regularly review BESP. Changes in assumptions or judgments or changes to the elements in the arrangement
may cause an increase or decrease in the amount of revenue that we report in a particular period.
Ticketing service revenue. Ticketing service revenue is generated primarily 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 fee per ticket, which generally increases as the face value of the ticket increases, 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.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash
equivalents, investments and trade accounts receivable. We maintain cash and cash equivalents with domestic financial
institutions of high credit quality. We perform periodic evaluations of the relative credit standing of such institutions.
We perform ongoing credit evaluations of customers to assess the probability of accounts receivable collection based on
a number of factors, including past transaction experience with the customer, evaluation of their credit history, and review of
the invoicing terms of the contract. We generally do not require collateral. We maintain reserves for potential credit losses on
customer accounts when deemed necessary. Actual credit losses during the eleven months ended December 31, 2013 and the
twelve months ended December 31, 2014 and 2015 were $0.4 million, $1.1 million and $1.1 million, respectively.
For the eleven months ended December 31, 2013, the twelve months ended December 31, 2014 and 2015, we had no
customers that accounted for 10% or more of total revenue. As of December€31, 2014 and 2015, there were no customers that
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