Enom 2015 Annual Report Download - page 75

F-11
In circumstances where we distribute our content on third-party properties and the customer acts as the primary obligor,
we recognize revenue on a net basis.
Marketplaces
Art Commissions Revenue. We generate service revenue from commissions we receive from facilitating the sale
of original art by artists to customers through Saatchi Art. We recognize service revenue arising from the sale of original
art net of amounts paid to the artist because we are not the primary obligor in the transaction, we do not have inventory
risk, and we do not establish the prices for the art sold. We also recognize this service revenue net of any sales
allowances. Revenue is recognized after the original art has been delivered and the return period has expired. Payments
received in advance of delivery and completion of the return period are included in deferred revenue in the
accompanying consolidated balance sheets. We periodically provide incentive offers to customers to encourage
purchases, including percentage discounts off current purchases, free shipping and other offers. Value-added taxes
(“VAT’), sales tax and other taxes are not included in revenue because we are a pass-through conduit for collecting and
remitting any such taxes.
Product Revenue
We recognize product revenue from sales of Society6 products upon delivery, net of estimated returns based on
historical experience. Product revenue for Society6 is recognized net of sales allowances and return allowances. We
recognize product revenue from the sale of prints through Saatchi Art when the prints are delivered and the return period
has expired. Payments received in advance of delivery and, with respect to the Saatchi Art prints, prior to completion of
the return period are included in deferred revenue in the accompanying consolidated balance sheets. Product revenue is
recorded at the gross amount due to the following factors: we are the primary obligor in a transaction, we have inventory
and credit risk, and we have latitude in establishing prices and selecting suppliers. We periodically provide incentive
offers to customers to encourage purchases, including percentage discounts off current purchases, free shipping and other
offers. VAT, sales tax and other taxes are not included in product revenue because we are a pass-through conduit for
collecting and remitting any such taxes.
Service Costs
Service costs consist of payments relating to our Internet connection and co-location charges and other platform
operating expenses, including depreciation of the systems and hardware used to build and operate our content creation
and distribution platform; expenses related to creating, rewriting, or auditing certain content units; and personnel costs
related to in-house editorial, customer service and information technology. Service costs also include payments to our
customers pursuant to revenue-sharing arrangements where we are the primary obligor.
Product Costs
Product costs consist of outsourced product manufacturing costs, artist royalties and personnel costs.
Shipping and Handling
Shipping and handling charged to customers are recorded in service revenue or product revenue. Associated costs
are recorded in service costs or product costs.
Accounts Receivable
Accounts receivable primarily consist of amounts due from:
x Third parties who provide advertising services to our owned and operated websites in exchange for a share
of the underlying advertising revenue. Accounts receivable from third parties are recorded as the amount of
the revenue share as reported to us by the advertising networks and are generally due within 30 to 60 days
from the month-end in which the invoice is generated;