Enom 2010 Annual Report Download - page 66

Table of Contents
maintenance of websites on which our content resides. We generally acquire content when our internal systems and processes, including an analysis of
millions of historical Internet search queries, advertising marketing terms, or keywords, and other data provide reasonable assurance that, given predicted
consumer and advertiser demand relative to our predetermined cost to acquire the content, the content unit will generate revenues over its useful life that
exceed the cost of acquisition. In determining whether content embodies probable future economic benefit required for asset capitalization, we make
judgments and estimates including the forecasted number of page views and the advertising rates that the content will generate. These estimates and
judgments take into consideration various inherent uncertainties including, but not limited to, our expected ability to renew at favorable terms or replace
certain material agreements with Google that currently provide a significant portion of our revenues; the expected ability of our direct advertising sales force
to sell branded advertisements; the fact that our content creation and distribution model is new and evolving and may be impacted by competition and
technological advancements; our ability to expand existing and enter into new distribution channels and applications for our content; and whether we will be
able to continue to create content of the same quality or generate similar economic returns from content in the future. Management has reviewed, and intends
to regularly review the operating performance of content in determining probable future economic benefits of our content.
We also capitalize initial registration and acquisition costs of our undeveloped websites and our internally developed software and website development
costs during their development phase.
In addition we have also capitalized certain identifiable intangible assets acquired in connection with business combinations and we use valuation
techniques to value these intangibles assets, with the primary technique being a discounted cash flow analysis. A discounted cash flow analysis requires us to
make various judgmental assumptions and estimates including projected revenues, operating costs, growth rates, useful lives and discount rates.
Our finite lived intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the estimated pattern
in which the underlying economic benefits are consumed. Capitalized website registration costs for undeveloped websites are amortized on a straight-line
basis over their estimated useful lives of one to seven years. Internally developed software and website development costs are depreciated on a straight-line
basis over their estimated three year useful life. We amortize our intangible assets acquired through business combinations on a straight-line basis over the
period in which the underlying economic benefits are expected to be consumed.
Capitalized content is amortized on a straight-line basis over five years, representing our estimate of the pattern that the underlying economic benefits are
expected to be realized and based on our estimates of the projected cash flows from advertising revenues expected to be generated by the deployment of our
content. These estimates are based on our current plans and projections for our content, our comparison of the economic returns generated by content of
comparable quality and an analysis of historical cash flows generated by that content to date which, particularly for more recent content cohorts, is somewhat
limited. To date, certain content that we acquired in business combinations has generated cash flows from advertisements beyond a five year useful life. The
acquisition of content, at scale, however, is a new and rapidly evolving model, and therefore we closely monitor its performance and, periodically, assess its
estimated useful life.
Advertising revenue generated from the deployment of our media content makes up a significant element of our business such that amounts we record in
our financial statements related to our content are material. Significant judgment is required in estimating the useful life of our content. Changes from the five
year useful life we currently use to amortize our capitalized content would have a significant impact on our financial statements. For example, if underlying
assumptions were to change such that our estimate of the weighted average useful life of our media content was higher by one year from
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