XM Radio 2012 Annual Report Download - page 97

SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
accounting if the deliverables in the arrangement meet certain criteria. Consideration must be allocated at the
inception of the arrangement to all deliverables based on their relative selling price, which has been determined
using vendor specific objective evidence of selling price of self-pay customers.
Revenue Share
We share a portion of our subscription revenues earned from subscribers with certain automakers. The terms
of the revenue share agreements vary with each automaker, but are typically based upon the earned audio
revenue as reported or gross billed audio revenue. Revenue share is recorded as an expense in our consolidated
statements of comprehensive income and not as a reduction to revenue.
Programming Costs
Programming costs which are for a specified number of events are amortized on an event-by-event basis;
programming costs which are for a specified season or period are amortized over the season or period on a
straight-line basis. We allocate a portion of certain programming costs which are related to sponsorship and
marketing activities to Sales and marketing expense on a straight-line basis over the term of the agreement.
Advertising Costs
Media is expensed when aired and advertising production costs are expensed as incurred. Market
development funds consist of fixed and variable payments to reimburse retailers for the cost of advertising and
other product awareness activities. Fixed market development funds are expensed over the periods specified in
the applicable agreement; variable costs are expensed when the media is aired and production costs are expensed
as incurred. During the years ended December 31, 2012, 2011 and 2010, we recorded advertising costs of
$139,830, $116,694 and $110,050, respectively. These costs are reflected in Sales and marketing expense in our
consolidated statements of comprehensive income.
Subscriber Acquisition Costs
Subscriber acquisition costs consist of costs incurred to acquire new subscribers and include hardware
subsidies paid to radio manufacturers, distributors and automakers, including subsidies paid to automakers who
include a satellite radio and a prepaid subscription to our service in the sale or lease price of a new vehicle;
subsidies paid for chip sets and certain other components used in manufacturing radios; device royalties for
certain radios; commissions paid to automakers as incentives to purchase, install and activate radios; product
warranty obligations; freight; and provisions for inventory allowance. Subscriber acquisition costs do not include
advertising, loyalty payments to distributors and dealers of radios and revenue share payments to automakers and
retailers of radios.
Subsidies paid to radio manufacturers and automakers are expensed upon installation, shipment, receipt of
product or activation and are included in Subscriber acquisition costs because we are responsible for providing
the service to the customers. Commissions paid to retailers and automakers are expensed upon either the sale or
activation of radios. Chip sets that are shipped to radio manufacturers and held on consignment are recorded as
inventory and expensed as Subscriber acquisition costs when placed into production by radio manufacturers.
Costs for chip sets not held on consignment are expensed as Subscriber acquisition costs when the automaker
confirms receipt.
We record product warranty obligations in accordance with ASC 460, Guarantees, which requires a
guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken
by issuing the guarantee. We warrant that certain products sold through our retail and direct to consumer
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