Rosetta Stone 2011 Annual Report Download - page 59

Table of Contents
increase in consumer units sold from 553,800 to 621,500, or 12% during the year ended December 31, 2011, compared to the prior year period, resulting in a
$26.5 million increase in revenue. The decrease in average revenue per unit was the result of our ongoing price testing across all channels in the U.S. market.
There was a $3.4 million increase in consumer deferred revenue during the year ended December 31, 2011 compared to the prior year period, which was
primarily related to the continued launch of Rosetta Stone Version 4 TOTALe in our international markets.
Product revenue represented 87% of total consumer revenue for the year ended December 31, 2011, with the balance attributable to subscription and
service revenue. We began bundling time-based subscription licenses of our web-based TOTALe services with perpetual licenses of our Rosetta Stone Version
3 language-learning solutions in the U.S. consumer market during the third quarter of 2010, in Japan during the first quarter of 2011, in the United Kingdom
during the second quarter of 2011, and in Korea during the third quarter of 2011, with the launch of Rosetta Stone Version 4 TOTALe. As a result, we defer
approximately 10% - 25% of the revenue of each of these bundled sales. We will recognize the deferred revenue over the term of the subscription license in
accordance with Accounting Standards Codification subtopic 985-605, Software: Revenue Recognition.
We are currently testing different price points for our online products. If we fully implement an offering based on our tests, it could result in lower
revenues over the next twelve months as customer payments and revenues would be spread over the subscription period.
Direct-to-Consumer
Direct-to-consumer revenue was $136.4 million for the year ended December 31, 2011, an increase of $18.2 million, or 15%, from the year ended
December 31, 2010. The increase in direct-to-consumer revenue was primarily driven by $7.2 million in growth in our international direct-to-consumer
markets and an $11.0 million increase in our U.S. direct-to-consumer business. The worldwide average selling price per unit decreased 1% during the year
ended December 31, 2011 compared to the prior year period, resulting in a $1.4 million decrease in revenue. The number of units sold increased 15% during
the year ended December 31, 2011 compared to the prior year period, resulting in a $17.9 million increase in revenue. There was a $3.1 million increase in
direct-to-consumer deferred revenue during the year ended December 31, 2011 compared to the prior year period, which was primarily related to the
continued launch of Rosetta Stone Version 4 TOTALe in our international markets.
During the third and fourth quarter of 2011, we experienced softness in the direct-to-consumer channel in Japan and we are working to improve our
messaging and performance.
Kiosk
Kiosk revenue was $30.2 million for the year ended December 31, 2011, a decrease of $4.8 million, or 14%, from the year ended December 31, 2010.
The number of worldwide kiosks decreased 33% from 259 as of December 31, 2010 to 174 as of December 31, 2011. The number of units sold decreased 3%
during the year ended December 31, 2011 compared to the prior year period, resulting in a $1.2 million decrease in revenue, primarily related to the decrease
in kiosks. The worldwide average selling price per unit decreased 17% as a result of changes to the pricing of our products in the U.S. market during 2011,
compared to the prior year period, resulting in a $6.3 million decrease in revenue. There was a $0.4 million decrease in kiosk deferred revenue during the year
ended December 31, 2011 compared to the prior year period, primarily related to revenue recognized for Version 4 TOTALe online services. During 2012,
based on our evaluation of historical and forecasted kiosk sales performance, we plan to significantly reduce the size of our worldwide kiosk program, in
addition to continually reviewing the performance of remaining kiosk locations.
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