Enom 2012 Annual Report Download - page 93

F-10
objective and reliable evidence, then (2) third-party evidence, then (3) best estimate of selling price. The Company allocates
any arrangement fee to each of the elements based on their relative selling prices.
The Company’s revenue is principally derived from the following services:
Content & Media
Advertising Revenue. Advertising revenue is generated by performance-based Internet advertising, such as cost-per-
click, or CPC, in which an advertiser pays only when a user clicks on its advertisement that is displayed on the Company’s
owned and operated websites and customer websites; fees generated by users viewing third-party website banners and text-link
advertisements; fees generated by enabling customer leads or registrations for partners; and fees from referring users to, or
from users making purchases on, sponsors’ websites. In determining whether an arrangement exists, the Company ensures that
a binding arrangement is in place, such as a standard insertion order or a fully executed customer-specific agreement.
Obligations pursuant to the Company’s advertising revenue arrangements typically include a minimum number of impressions
or the satisfaction of the other performance criteria. Revenue from performance-based arrangements, including referral
revenue, is recognized as the related performance criteria are met. The Company assesses whether performance criteria have
been met and whether the fees are fixed or determinable based on a reconciliation of the performance criteria and an analysis of
the payment terms associated with the transaction. The reconciliation of the performance criteria generally includes a
comparison of third-party performance data to the contractual performance obligation and to internal or customer performance
data in circumstances where that data is available.
When the Company enters into advertising revenue sharing arrangements where it acts as the primary obligor, the
Company recognizes the underlying revenue on a gross basis. In determining whether to report revenue gross for the amount of
fees received from the advertising networks, the Company assesses whether it maintains the principal relationship with the
advertising network, whether it bears the credit risk and whether it has latitude in establishing prices. In circumstances where
the customer acts as the primary obligor, the Company recognizes the underlying revenue on a net basis.
In certain cases, the Company records revenue based on available and preliminary information from third parties.
Amounts collected on the related receivables may vary from reported information based upon third-party refinement of
estimated and reported amounts owing that occurs typically within 30 days of the period end. For the years ended
December 31, 2010, 2011 and 2012, the difference between the amounts recognized based on preliminary information and cash
collected was not material.
Content Revenue. Content revenue is generated through the sale or license of media content. Revenue from the sale
or perpetual license of content is recognized when the content has been delivered and the contractual performance obligations
has been fulfilled. Revenue from the license of content is recognized over the period of the license as content is delivered or
when other related performance criteria are fulfilled.
Subscription Services and Social Media Services. Subscription services revenue is generated through the sale of
membership fees paid to access content available on certain owned and operated websites. The majority of the memberships
range from 6 to 12 month terms. Subscription services revenue is recognized on a straight-line basis over the membership term.
The Company configures, hosts, and maintains its platform social media services under private-labeled versions of
software for commercial customers. The Company earns revenue from its social media services through initial set-up fees,
recurring management support fees, overage fees in excess of standard usage terms, and outside consulting fees. Due to the fact
that social media services customers have no contractual right to take possession of the Company’s private labeled software, the
Company accounts for its social media services revenue as service arrangements, whereby social media services revenue is
recognized when persuasive evidence of an arrangement exists, delivery of the service has occurred and no significant
obligations remain, the selling price is fixed or determinable, and collectability is reasonably assured.
Social media service arrangements may contain multiple deliverables, including, but not limited to, single
arrangements containing set-up fees, monthly support fees and overage billings, consulting services and advertising services.
To the extent that consulting services have value on a standalone basis, the Company allocates revenue to each element in the
multiple deliverable arrangement based upon their relative fair values. Fair value is determined based upon the best estimate of
the selling price. To date, substantially all consulting services entered into concurrent with the original social media service
arrangements are not treated as separate deliverables as such services do not have value to the customer on a standalone basis.
In such cases, the arrangement is treated as a single unit of accounting with the arrangement fee recognized over the term of the
arrangement on a straight-line basis. Set-up fees are recognized as revenue on a straight-line basis over the greater of the
contractual or estimated customer life once monthly recurring services have commenced. The Company determines the