Zynga 2015 Annual Report Download - page 69

Table of Contents
RevenueRecognition
We derive revenue from the sale of virtual goods associated with our online games and the sale of advertising.
Online Game
We operate our games as live services that allow players to play for free. Within these games, players can purchase virtual currency to obtain virtual goods to
enhance their game-playing experience. Players can pay for our virtual currency using Facebook local currency payments when playing our games through the
Facebook platform. On platforms other than Facebook, players purchase our virtual currency and/or virtual goods through various widely accepted payment
methods offered in the games, including PayPal, Apple iTunes accounts, Google Wallet and credit cards. We also sell existing inventory of game cards that are
initially recorded as a customer deposit liability which is included in other current liabilities on the consolidated balance sheet, net of fees retained by retailers and
distributors. Upon redemption of a game card in one of our games and delivery of the purchased virtual currency to the player, these amounts are reclassified to
deferred revenue. Advance payments from customers that are non-refundable and relate to non-cancellable contracts that specify our obligations are recorded to
deferred revenue. All other advance payments that do not meet these criteria are recorded as customer deposits.
We recognize revenue when all of the following conditions are satisfied: there is persuasive evidence of an arrangement; the service has been provided to the
player; the collection of our fees is reasonably assured; and the amount of fees to be paid by the player is fixed or determinable. For purposes of determining when
the service has been provided to the player, we have determined that an implied obligation exists to the paying player to continue displaying the purchased virtual
goods within the online game over their estimated life or until they are consumed. Accordingly, we categorize our virtual goods as either consumable or durable.
The proceeds from the sale of virtual goods are initially recorded in deferred revenue. Consumable virtual goods represent goods that can be consumed by a
specific player action. Common characteristics of consumable goods may include virtual goods that are no longer displayed on the player’s game board after a short
period of time, do not provide the player any continuing benefit following consumption or often times enable a player to perform an in-game action immediately.
For the sale of consumable virtual goods, we recognize revenue as the goods are consumed, which approximates one month. Durable virtual goods represent virtual
goods that are accessible to the player over an extended period of time. We recognize revenue from the sale of durable virtual goods ratably over the estimated
average playing period of paying players for the applicable game, which represents our best estimate of the average life of durable virtual goods. If we do not have
the ability to differentiate revenue attributable to durable virtual goods from consumable virtual goods for a specific game we recognize revenue on the sale of
durable and consumable virtual goods for that game ratably over the estimated average period that paying players typically play that game.
Prior to October 1, 2009, we did not have the data to determine the consumption dates for our consumable virtual goods or to differentiate revenue
attributable to durable virtual goods from consumable virtual goods. Beginning in October 2009, we had sufficient data to separately account for consumable and
durable virtual goods in one of our games, thus allowing us to recognize revenue related to consumable goods upon consumption. Since January 2010, we have had
this data for substantially all of our web games, thus allowing us to recognize revenue related to consumable goods upon consumption for our web-based games.
However, for our standalone mobile games, we do not have the requisite data to separately account for consumable and durable virtual goods and have therefore
recorded mobile revenue ratably over the estimated average payer life. We expect that in future periods there will be changes in the mix of durable and consumable
virtual goods sold, reduced virtual good sales in some existing games, changes in estimates in average paying payer life and/or changes in our ability to make such
estimates. When such changes occur, and in particular if more of our revenue in any period is derived from goods for which revenue is recognized over the
estimated average playing period, or that period increases on average, the amount of revenue that we recognize in a future period may be reduced, perhaps
significantly.
On a quarterly basis, we determine the estimated average playing period for paying players by game beginning at the time of a payer’s first purchase in that
game and ending on a date when that paying player is no
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