TiVo 2011 Annual Report Download - page 49

Table of Contents
Revenue Recognition
TiVo generates service revenues from fees for providing the TiVo service to consumers and operators and through the sale of advertising and audience
research measurement services. We also generate technology revenues from licensing technology (Refer to Note 18. "DISH Network Corporation" and Note.
19 "AT&T Inc." of notes to consolidated financial statements included in Part II. Item 8. of this report) and by providing engineering professional services. In
addition, we generate hardware revenues from the sale of hardware products that enable the TiVo service. A substantial part of our revenues are derived from
multiple element arrangements.
TiVo recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, collectability
is probable, and there are no post-delivery obligations. Service revenue is generally recognized as the services are performed which generally is ratably over
the term of the service period.
Multiple Element Arrangements
TiVo's multiple deliverable revenue arrangements primarily consist of bundled sales of TiVo-enabled DVRs and TiVo service to consumers;
arrangements with multiple system operators and broadcasters (“MSOs”) which generally include delivery of software customization and set up services,
training, post contract support (“PCS”), TiVo-enabled DVRs and TiVo service; and bundled sales of advertising and audience research measurement services.
In October 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standards for revenue recognition to remove tangible
products containing software components and non-software components that function together to deliver the product's essential functionality from the scope
of industry specific software revenue recognition guidance. In October 2009, the FASB also amended the accounting standards for multiple deliverable
revenue arrangements to:
• provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the
consideration should be allocated;
• require an entity to allocate revenue in an arrangement using its best estimated selling price (“BESP”) of deliverables if a vendor does not have
vendor-specific objective evidence (“VSOE”) of selling price or third-party evidence (“TPE”) of selling price; and
• eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.
TiVo adopted this guidance at the beginning of our first quarter of fiscal year 2012 on a prospective basis for applicable transactions originating or
materially modified after January 31, 2011. We apply and will continue to apply the previous applicable accounting guidance for continuing arrangements that
originated prior to the adoption date of February 1, 2011. The adoption of the new guidance did not have a significant impact on our consolidated financial
statements. We currently do not expect changes in our products, services, bundled arrangements, or pricing practices that could have a significant impact on
the consolidated financial statements in periods post adoption; however, this may change in the future.
TiVo allocates revenue to each element in a multiple-element arrangement based upon their relative selling price. We determine the selling price for each
deliverable using VSOE of selling price or TPE of selling price, if it exists. If neither VSOE nor TPE of selling price exists for a deliverable, we use our BESP
for that deliverable. Since the use of the residual method is eliminated under the new accounting standards, any discounts offered by TiVo are allocated to
each of the deliverables. Revenue allocated to each element, limited to the amount not contingent on future performance, is then recognized when the basic
revenue recognition criteria are met for the respective element.
Consistent with our methodology under previous accounting guidance, if available, TiVo determines VSOE of fair value for each element based on
historical standalone sales to third-parties or from the stated renewal rate for the elements contained in the initial contractual arrangement. We currently
estimate selling prices for our PCS, training, TiVo-enabled DVRs for MSOs, and consumer TiVo service based on VSOE of selling price.
In some instances, we may not be able to obtain VSOE of selling price for all deliverables in an arrangement with multiple elements. This may be due to
TiVo infrequently selling each element separately or not pricing products within a narrow range. When VSOE cannot be established, we attempt to estimate
the selling price of each element based on TPE. TPE would consist of competitor prices for similar deliverables when sold separately. Generally, our offerings
contain significant differentiation such that the comparable pricing of products with similar functionality or services cannot be obtained. Furthermore, we sell
TiVo-enabled DVRs to consumers whereas our
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