TiVo 2011 Annual Report Download - page 71

customization and set up services, limited training, PCS, TiVo-enabled DVRs, non-DVR STBs, and TiVo service.
In instances where TiVo hosts the TiVo service, the Company recognizes revenue under the general revenue recognition guidance. The Company
determines whether evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is reasonably assured. Revenue
recognition is deferred until such time as all of the criteria are met. Elements in such arrangements usually include DVRs, non-DVR STBs, TiVo service
hosting, associated maintenance, and support and training. Non-refundable payments received for customization and set up services are deferred and
recognized as revenue ratably over the longer of the contractual or customer relationship period. The related cost of such services is capitalized to the extent it
is deemed recoverable and amortized to cost of revenues over the same period as revenue. The Company has established VSOE of selling prices for training,
DVRs, non-DVR STBs, and maintenance and support based on the price charged in standalone sales of the element or stated renewal rates in the agreement.
The BESP of TiVo service is determined considering the size of the MSO and expected volume of deployment, market conditions, competitive landscape,
internal costs, and gross margin objectives. Total arrangement consideration is allocated among individual elements on a relative basis and revenue for each
element is recognized when the basic revenue recognition criteria are met for the respective element.
In arrangements where the Company does not host the TiVo service and that include engineering services that are essential to the functionality of the
licensed technology or involve significant customization or modification of the software, the Company recognizes revenue under industry specific software
revenue recognition guidance. Under this guidance, such arrangements are accounted for using the percentage-of-completion method or a completed-contract
method. The percentage-of-completion method is used if the Company believes it is able to make reasonably dependable estimates of the extent of progress
toward completion and the arrangement as a whole is reasonably expected to be profitable. The Company measures progress toward completion using an
input method based on the ratio of costs incurred, principally labor, to date to total estimated costs of the project. These estimates are assessed continually
during the term of the contract, and revisions are reflected when the changed conditions become known.
In some cases, it may not be possible to separate the various elements within the arrangement due to a lack of VSOE of selling prices for undelivered
elements in the contract or because of the lack of reasonably dependable estimates of total costs. In these situations, provided that the Company is reasonably
assured that no loss will be incurred under the arrangement, the Company recognizes revenues and costs based on a zero profit model, which results in the
recognition of equal amounts of revenues and costs, until the engineering professional services are complete. Costs incurred in excess of revenues are deferred
up to the amount deemed recoverable. Thereafter, any profit from the engineering professional services is recognized over the period of the maintenance and
support or other services that are provided, whichever is longer.
If the Company cannot be reasonably assured that no loss will be incurred under the arrangement, the Company will account for the arrangement under
the completed contract method, which results in a full deferral of the revenue and costs until the project is complete. Provisions for losses are recorded when
estimates indicate that a loss will be incurred on the contract.
Advertising and Audience Research Measurement Services
Advertising and audience research measurement service revenue is recognized as the service is provided. When advertising and audience measurement
services are sold in packages customized for each campaign, they generally last for up to three months. Because of the significant customization of offerings,
the Company historically has not been able to obtain VSOE of selling prices for each element in the package. Accordingly, the Company would combine all
elements in the package as a single unit and recognize revenue ratably over the campaign period. As a result of the updated guidance on multiple element
revenue arrangements, the Company can now estimate BESP for each element in the package and separate them into individual units of accounting.
Nonetheless, the new units of accounting have very similar revenue earning patterns and timing and the amounts of revenue recorded in each period are not
significantly impacted by the new guidance.
Hardware Revenues
Hardware revenues represent revenues from standalone hardware sales and amounts allocated to hardware elements in multiple element arrangements.
Revenues are recognized upon product shipment to the customers or receipt of the products by the customer, depending on the shipping terms, provided that
all fees are fixed or determinable, evidence of an arrangement exists, and collectibility is reasonably assured. End users have the right to return their product
within 30 days of the purchase. TiVo establishes allowances for expected product and service returns and these allowances are recorded as a direct reduction
of revenues and accounts receivable.
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