Activision 2008 Annual Report Download - page 65

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51
We consider the World of Warcraft boxed product including expansion packs and other
ancillary revenues as a single deliverable with the total arrangement consideration combined and
recognized ratably as revenue over the estimated product life beginning upon activation of the
software and delivery of the services. Revenues attributed to the sale of World of Warcraft boxed
software and related expansion packs are classified as product sales and revenues attributable to
subscription and other ancillary services are classified as subscription, licensing and other
revenues.
With respect to online transactions, such as electronic downloads of titles or product add-
ons that do not include a more-than-inconsequential separate service deliverable, revenue is
recognized when the fee is paid by the online customer to purchase online content and we are
notified by the online retailer that the product has been downloaded. In addition, persuasive
evidence of an arrangement must exist and collection of the related receivable must be probable.
Sales incentives or other consideration given by us to our customers are accounted for in
accordance with EITF Issue 01-09, “Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor’s Products).” In accordance with EITF Issue 01-09,
sales incentives and other consideration that are considered adjustments of the selling price of our
products, such as rebates and product placement fees, are reflected as reductions to revenue. Sales
incentives and other consideration that represent costs incurred by us for assets or services
received, such as the appearance of our products in a customer’s national circular ad, are reflected
as sales and marketing expenses when the benefit from the sales incentive is separable from sales
to the same customer and we can reasonably estimate the fair value of the benefit.
Subscription Revenues
Subscription revenues are recognized in accordance with SAB No. 101, as amended by
SAB No. 104. Subscription revenues are derived from World of Warcraft, a game that is playable
through Blizzard’s servers on a subscription-only basis. After the first month of free usage that is
included with the boxed software, the World of Warcraft end user may enter into a subscription
agreement for additional access. Subscription revenues received are deferred and recognized as
subscription revenues ratably over the subscription period. Revenues associated with the sale of
subscriptions via packaged software and prepaid subscription cards, as well as prepaid
subscriptions sales, are deferred until the subscription service is activated by the consumer and
recognized ratably over the subscription period. Revenue from Internet gaming rooms in Asia is
recognized upon usage of the time packages sold. Ancillary revenues associated with subscriptions
are recognized ratably over the estimated customer life.
Licensing Revenues
We recognize revenues in accordance with Statement of Financial Position No. 97-2
“Software Revenue Recognition” (“SOP 97-2”). Third- party licensees in China and Taiwan
distribute and host Blizzard’s World of Warcraft game in their respective countries under license
agreements with Blizzard. The licensees pay certain minimum, non-refundable guaranteed
royalties when entering into the licensing agreements. Upon receipt of recoupable advances, we
defer their recognition and recognize the revenues in subsequent periods as these advances are
recouped by the licensees. Upon receipt of non-recoupable advances, we defer their recognition
and recognize the revenues ratably over the estimated customer life. As the licensees pay