Enom 2010 Annual Report Download - page 108

Table of Contents
Demand Media, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(In thousands, except per share amounts)
2. Summary of Significant Accounting Policies (Continued)
over the registration term, which customarily range from one to two years but can extend to ten years. Payments received in advance of the domain name
registration term are included in deferred revenue in the accompanying consolidated balance sheets. The registration term and related revenue recognition
commences once the Company confirms that the requested domain name has been recorded in the appropriate registry under contractual performance
standards. Associated direct and incremental costs, which principally consist of registry and ICANN fees, are also deferred and amortized to service costs on a
straight-line basis over the registration term.
The Company's wholly owned subsidiary, eNom, is an Internet Corporation for Assignment of Names and Numbers ("ICANN") accredited registrar.
Thus, the Company is the primary obligor with its reseller and retail registrant customers and is responsible for the fulfillment of its registrar services. As a
result, the Company reports revenue derived from the fees it receives from resellers and retail registrant customers for registrations on a gross basis in the
accompanying consolidated statements of operations. A minority of the Company's resellers have contracted with the Company to provide billing and credit
card processing services to the resellers' retail customer base in addition to domain name registration services. Under these circumstances, the cash collected
from these resellers' retail customer base is in excess of the fixed amount per transaction that the Company charges for domain name registration services. As
such, these amounts, which are collected for the benefit of the reseller, are not recognized as revenue and are recorded as a liability until remitted to the
reseller on a periodic basis. Revenue from these resellers is reported on a net basis because the reseller determines the price to charge retail customers and
maintains the primary customer relationship.
Value Added Services. Revenue from online value added services, which includes, but is not limited to web hosting services, email services, domain
name identification protection, charges associated with alternative payment methods, and security certificates, is recognized on a straight-line basis over the
period in which services are provided. Payments received in advance of services being provided are included in deferred revenue.
Auction Service Revenue. Domain name auction service revenue represents fees received from selling third- party owned domains through an online
bidding process primarily through NameJet, a domain name aftermarket auction company formed in October 2007 by the Company and an unrelated third
party. For names sold through the auction process that are registered on the Company's registrar platform upon sale, the Company has determined that auction
revenue and related registration revenue represent separate units of accounting given the domain name has value to the customers on a standalone basis, and
there is objective and reliable evidence of the fair value of the registration service. As a result, the Company recognizes the related registration fees on a
straight-line basis over the registration term. The Company recognizes the bidding portion of auction revenue upon sale, net of payments to third parties since
it is acting as an agent only.
Service Costs
Service costs consist primarily of fees paid to registries and ICANN associated with domain registrations, advertising revenue recognized by the
Company and shared with its customers as a result of its revenue-sharing arrangements, such as traffic acquisition costs and content revenue-sharing
arrangements, Internet connection and co-location charges and other platform operating expenses
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