Enom 2011 Annual Report Download - page 56

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
January 1, 2011, our net loss would decrease by approximately $4 million for the year ended December 31, 2011, and our net loss would increase by
approximately $5 million should the weighted average useful life be reduced by one year. We periodically assess the useful life of our content, and when
adjustments in our estimate of the useful life of content are required, any changes from prior estimates are accounted for prospectively.
Recoverability of Long-lived Assets
We evaluate the recoverability of our intangible assets, and other long-lived assets with finite useful lives for impairment when events or changes in
circumstances indicate that the carrying amount of an asset group may not be recoverable. These trigger events or changes in circumstances include, but are
not limited to a significant decrease in the market price of a long-lived asset, a significant adverse change in the extent or manner in which a long-lived asset
is being used, significant adverse change in legal factors, including changes that could result from our inability to renew or replace material agreements with
certain of our partners such as Google on favorable terms, significant adverse changes in the business climate including changes which may result from
adverse shifts in technology in our industry and the impact of competition, a significant adverse deterioration in the amount of revenue or cash flows we
expect to generate from an asset group, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development
of a long-lived asset, current or future operating or cash flow losses that demonstrates continuing losses associated with the use of our long-lived asset, or a
current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated
useful life. We perform impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of
the cash flows of other assets and liabilities. In making this determination, we consider the specific operating characteristics of the relevant long-lived assets,
including (i) the nature of the direct and any indirect revenues generated by the assets; (ii) the interdependency of the revenues generated by the assets; and
(iii) the nature and extent of any shared costs necessary to operate the assets in their intended use. An impairment test would be performed when the estimated
undiscounted future cash flows expected to result from the use of the asset group is less than its carrying amount. Impairment is measured by assessing the
usefulness of an asset by comparing its carrying value to its fair
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