Blizzard 2009 Annual Report Download - page 56
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Someofoursoftwareproductsprovidelimitedonlinefeaturesatnoadditionalcosttothe
consumer.Generally,weconsidersuchfeaturestobeincidentaltotheoverallproductofferingandan
inconsequentialdeliverable.Accordingly,werecognizerevenuerelatedtoproductscontainingthese
limitedonlinefeaturesuponthetransferoftitleandriskoflosstoourcustomer.Ininstanceswhereonline
featuresoradditionalfunctionalityisconsideredmorethananinconsequentialseparatedeliverablein
additiontothesoftwareproduct,wetakethisintoaccountwhenapplyingourrevenuerecognitionpolicy.
Thisevaluationisperformedforeachsoftwareproductandanyonlinetransactions,suchaselectronic
downloadsoftitlesorproductaddonswhenitisreleased.Whenwedeterminethatasoftwaretitlecontains
onlinefunctionalitythatconstitutesamorethaninconsequentialseparateservicedeliverableinadditionto
theproduct,principallybecauseofitsimportancetogameplay,weconsiderthatourperformance
obligationsforthistitleextendbeyondthesaleofthegame.Vendorspecificobjectiveevidence(“VSOE”)
offairvaluedoesnotexistfortheonlinefunctionality,aswedonotseparatelychargeforthiscomponent
ofthetitle.Asaresult,werecognizealloftherevenuefromthesaleofthetitleratablyovertheestimated
serviceperiod,whichisestimatedtobeginthemonthaftereitherthesaledateorthestreetdateofthetitle,
whicheverislater.Inaddition,wedeferthecostsofsalesforthetitle(excludingintangibleasset
amortization)tomatchrevenues.Costofsalesincludesmanufacturingcosts,softwareroyaltiesand
amortization,andintellectualpropertylicenses.
WerecognizeWorldofWarcraftboxedproduct,expansionpacksandothervalueaddedservice
revenueseachwiththerelatedsubscriptionservicerevenueratablyovertheestimatedserviceperiods
beginninguponactivationofthesoftwareanddeliveryoftheservices.Revenuesattributedtothesaleof
WorldofWarcraftboxedsoftwareandrelatedexpansionpacksareclassifiedasproductsalesandrevenues
attributabletosubscriptionandothervalueaddedservicesareclassifiedassubscription,licensingandother
revenues.
Wecurrentlyestimatetheserviceperiodsoverwhichrevenuesarerecognizedrangefroma
minimumoffivemonthstoamaximumoflessthanayear.
Withrespecttoonlinetransactions,suchaselectronicdownloadsoftitlesorproductaddonsthat
donotincludeamorethaninconsequentialseparateservicedeliverable,revenueisrecognizedwhenthe
feeispaidbytheonlinecustomertopurchaseonlinecontentandtheproductisavailablefordownload.In
addition,persuasiveevidenceofanarrangementmustexistandcollectionoftherelatedreceivablemustbe
probable.
Salesincentivesandotherconsiderationgivenbyustoourcustomersareconsideredadjustments
ofthesellingpriceofourproducts,suchasrebatesandproductplacementfees,andarereflectedas
reductionstorevenue.Salesincentivesandotherconsiderationthatrepresentcostsincurredbyusforassets
orservicesreceived,suchastheappearanceofourproductsinacustomer’snationalcircularad,are
reflectedassalesandmarketingexpenseswhenthebenefitfromthesalesincentiveisseparablefromsales
tothesamecustomerandwecanreasonablyestimatethefairvalueofthebenefit.
SubscriptionRevenues
SubscriptionrevenuesarederivedfromWorldofWarcraft,agamethatisplayablethrough
Blizzard’sserversonasubscriptiononlybasis.Afterthefirstmonthoffreeusagethatisincludedwiththe
WorldofWarcraftboxedsoftware,theWorldofWarcraftendusermayenterintoasubscriptionagreement
foradditionalfutureaccess.Revenuesassociatedwiththesaleofsubscriptionsviapackagedsoftwareand
prepaidsubscriptioncards,aswellasprepaidsubscriptionssales,aredeferreduntilthesubscriptionservice
isactivatedbytheconsumerandrecognizedratablyoverthesubscriptionperiod.RevenuefromInternet
gamingroomsinAsiaisrecognizeduponusageofthetimepackagessold.Valueaddedservicerevenues
associatedwithsubscriptionsarerecognizedratablyovertheestimatedcustomerlife.
LicensingRevenues
ThirdpartylicenseesinRussia,ChinaandTaiwandistributeandhostBlizzard’sWorldof
WarcraftgameintheirrespectivecountriesunderlicenseagreementswithBlizzard.Wereceiveroyalties
fromthelicenseesasaresult.Werecognizetheseroyaltiesasrevenuesbasedontheendusers’activation
oftheunderlyingprepaidtime,ifallotherperformanceobligationshavebeencompletedorbasedonusage