Rosetta Stone 2012 Annual Report Download - page 56

Table of Contents
$3.7 million and $1.6 million in Japan, Germany and the UK, respectively. ROW Consumer bookings, calculated as ROW Consumer revenue plus the
change in ROW Consumer deferred revenue, decreased to $41.2 million for the year ended December 31, 2012 from $54.0 million for the year ended
December 31, 2011. Bookings decreased $5.6 million, $3.1 million, $2.4 million and $1.7 million in Japan, Germany, Korea and the UK, respectively.
During 2012 we experienced a decrease in revenue and bookings across all consumer channels in Japan. In response to the softness in the Japan
consumer sales we relocated the head of our consumer businesses to this country, strengthened our local management and sales team and entered into
new retail distribution agreements. In Germany the decrease in revenue and bookings is the result of no longer selling box product, closing all kiosk
locations, and shifting to an online, subscription-only product. The decline in revenue and bookings in the UK is also due to a decrease in units sold and
price points.
Institutional revenue decreased $0.3 million from the year ended December 31, 2011 to the year ended December 31, 2012. Despite the non-
renewal of the U.S. Army and U.S. Marine Corps contracts in 2011 which resulted in a $4.4 million decrease in revenue for the year ended
December 31, 2012, Institutional revenue remained stable year-over-year, primarily driven by a $5.0 million increase in corporate revenues.
International institutional revenues increased $2.7 million, or 49%, during the year ended December 31, 2012 compared to the prior year period, driven
by increases in the UK, Korea, and South America. Institutional bookings, calculated as institutional revenue plus the change in institutional deferred
revenue, increased to $64.4 million for the year ended December 31, 2012 from $61.8 million for the year ended December 31, 2011. The increase was
driven by growth in corporate and non-profit sales, partially offset by declines in our government and education channels. We have recently added
senior sales executives and sales representatives to this group to allow greater focus on growing this segment of the business.

We categorize and report our revenue in two categories—product revenue and subscription and service revenue. Product revenue includes
revenues allocated to the software product from sales of Rosetta Stone Version 4  and revenues from the sale of audio practice products.
Subscription and service revenue includes revenues allocated to time-based subscription licenses of our web-based  services, as well as
revenues from training and professional services.
We began bundling time-based subscription licenses of our web-based  services with product 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 . As a
result, we typically defer 10%-35% 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, 
The following table sets forth revenue for products and subscription and services for the year ended December 31, 2012 and 2011:
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     
            
       
Product revenue $ 180,919 66.2% $ 195,382 72.8% $ (14,463) -7.4%
Subscription and service
revenue 92,322 33.8% 73,067 27.2% 19,255 26.4%
Total revenue $ 273,241 100.0% $ 268,449 100.0% $ 4,792 1.8%