XM Radio 2014 Annual Report Download - page 117

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Revenue from subscribers consists primarily of subscription fees, and to a lesser extent, daily
rental fleet revenue and non-refundable activation and other fees. Revenue is recognized as it is
realized or realizable and earned. We recognize subscription fees as our services are provided. At
the time of sale, vehicle owners purchasing or leasing a vehicle with a subscription to our service
typically receive between a three and twelve month prepaid subscription. Prepaid subscription fees
received from certain automakers are recorded as deferred revenue and amortized to revenue
ratably over the service period which commences upon retail sale and activation.
We recognize revenue from the sale of advertising as the advertising is broadcast. Agency fees
are calculated based on a stated percentage applied to gross billing revenue for our advertising
inventory and are reported as a reduction of advertising revenue. We pay certain third parties a
percentage of advertising revenue. Advertising revenue is recorded gross of such revenue share
payments as we are the primary obligor in the transaction. Advertising revenue share payments are
recorded to Revenue share and royalties during the period in which the advertising is broadcast.
Equipment revenue and royalties from the sale of satellite radios, components and accessories
are recognized upon shipment, net of discounts and rebates. Shipping and handling costs billed to
customers are recorded as revenue. Shipping and handling costs associated with shipping goods to
customers are reported as a component of Cost of equipment.
Other revenue primarily includes U.S. Music Royalty Fees which are recorded as revenue and
as a component of Revenue share and royalties expense. Fees received from subscribers for the
U.S. Music Royalty Fee are recorded as deferred revenue and amortized to revenue ratably over
the service period which coincides with the recognition of the subscriber’s subscription revenue.
We report revenues net of any tax assessed by a governmental authority that is both imposed
on, and concurrent with, a specific revenue-producing transaction between a seller and a customer
in our consolidated statements of comprehensive income.
ASC 605, Revenue Recognition, provides guidance on how and when to recognize revenues
for arrangements that may involve the delivery or performance of multiple products, services and/or
rights to use assets, such as in our bundled subscription plans. Revenue arrangements with
multiple deliverables are required to be divided into separate units of 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 the selling price to 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.
F-11
SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar amounts in thousands, unless otherwise stated)