TiVo 2013 Annual Report Download - page 76


The Company generates service revenues from fees for providing the TiVo service to consumers and television service providers (also
referred to as MSOs) and through the sale of advertising and audience research measurement services. The Company also generates
technology revenues from licensing technology (Refer to Note 16. Settlements of Notes to Consolidated Financial Statements included in
Part II, Item 8. of this report) and by providing engineering professional services. In addition, the Company generates hardware revenues
from the sale of hardware products that enable the TiVo service. A substantial portion of the Company's revenues is derived from multiple
element arrangements.
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or
determinable, collectibility is probable, and there are no post-delivery obligations. Service revenue is recognized as the services are performed
which generally is ratably over the term of the service period.
Multiple Element Arrangements
The Company's multiple deliverable revenue arrangements primarily consist of bundled sales of TiVo-enabled DVRs and TiVo service to
consumers; arrangements with MSOs which generally include delivery of software customization and set up services, training, post contract
support (PCS), TiVo-enabled DVRs, non-DVR set-top boxes (STBs), and TiVo service; and bundled sales of advertising and audience
research measurement services.
The Company allocates revenue to each element in a multiple-element arrangement based upon their relative selling price. The
Company determines 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, the Company uses its BESP for that deliverable. Since the use of the residual method is
eliminated under the new accounting standards, any discounts offered by the Company are allocated to each of the deliverables. Revenue
allocated to each element is then recognized when the basic revenue recognition criteria are met for the respective element. However,
revenue recognized for each deliverable is limited to amounts that are not contingent on future performance for other deliverables in the
arrangement.
Consistent with its methodology under previous accounting guidance, if available, the Company 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. The Company currently estimates selling prices for its PCS, training, TiVo-enabled DVRs and non-DVR STBs for
MSOs and TiVo service for consumers based on VSOE of selling price. In some instances, the Company may not be able to obtain VSOE of
selling price for all deliverables in an arrangement with multiple elements. This may be due to the Company infrequently selling each
element separately or not pricing products within a narrow range. When VSOE cannot be established, the Company attempts to estimate the
selling price of each element based on TPE. TPE would consist of competitor prices for similar deliverables when sold separately. Generally,
the Company's offerings contain significant differentiation such that the comparable pricing of products with similar functionality or services
cannot be obtained. Furthermore, the Company sells TiVo-enabled DVRs to consumers whereas its competitors usually lease them to their
customers. Therefore, the Company is typically not able to obtain TPE of selling price. When the Company is unable to establish a selling
price using VSOE or TPE, which is generally the case for sales of TiVo-enabled DVRs to consumers and advertising and audience research
measurement services, the Company uses its BESP in determining the allocation of arrangement consideration. The objective of BESP is to
determine the price at which the Company would transact a sale if the product or service were sold on a standalone basis. BESP is generally
used for offerings that are not typically sold on a standalone basis or for new or highly customized offerings. The Company establishes
pricing for its products and services by considering multiple factors including, but not limited to, geographies, market conditions, competitive
landscape, internal costs, gross margin objectives, and industry pricing practices. When determining BESP for a deliverable that is generally
not sold separately, these factors are also considered.
TiVo-enabled DVRs and TiVo service
The Company sells the DVR and service directly to end-users through bundled sales programs through the TiVo website. Under these
bundled programs, the customer receives a DVR and commits to a minimum subscription period of one year for monthly payment plans
(monthly program) or for the lifetime of the product for one upfront payment (prepaid program). In the case of the monthly program, after the
initial committed subscription term, the customers have various pricing options at which they can renew the subscription.
VSOE of selling price for the subscription services is established based on standalone sales of the service and varies by service period.
The Company is not able to obtain VSOE for the DVR element due to infrequent sales of
73