XM Radio 2011 Annual Report Download - page 99

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SIRIUS XM RADIO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At the time of sale, vehicle owners purchasing or leasing a vehicle with a subscription to our service
typically receive between a three and twelve month prepaid subscription. Prepaid subscription fees received from
certain automakers are recorded as deferred revenue and amortized to revenue ratably over the service period
which commences upon retail sale and activation.
Activation fees are recognized ratably over the estimated term of a subscriber relationship, estimated to be
approximately 3.5 years during 2011, 2010 and 2009. The estimated term of a subscriber relationship is based on
historical experience.
We recognize revenue from the sale of advertising as the advertising is broadcast. Agency fees are
calculated based on a stated percentage applied to gross billing revenue for our advertising inventory and are
reported as a reduction of Advertising revenue. We pay certain third parties a percentage of Advertising revenue.
Advertising revenue is recorded gross of such revenue share payments as we are the primary obligor in the
transaction. Advertising revenue share payments are recorded to Revenue share and royalties during the period in
which the advertising is broadcast.
Equipment revenue and royalties from the sale of satellite radios, components and accessories are
recognized upon shipment, net of discounts and rebates. Shipping and handling costs billed to customers are
recorded as revenue. Shipping and handling costs associated with shipping goods to customers are reported as a
component of Cost of equipment.
ASC 605, Revenue Recognition, provides guidance on how and when to recognize revenues for
arrangements that may involve the delivery or performance of multiple products, services and/or rights to use
assets. Revenue arrangements with multiple deliverables are required to be divided into separate units of
accounting if the deliverables in the arrangement meet certain criteria. Arrangement consideration must be
allocated at the inception of the arrangement to all deliverables based on their relative selling price, which has
been determined using vendor specific objective evidence of selling price of self-pay customers.
Revenue Share
We share a portion of the subscription revenues earned from subscribers with certain automakers. The terms
of the revenue share agreements vary with each automaker, but are typically based upon the earned audio
revenue as reported or gross billed audio revenue. Revenue share is recorded as an expense in our consolidated
statement of operations and not as a reduction to revenue.
Programming Costs
Programming costs which are for a specified number of events are amortized on an event-by-event basis;
programming costs which are for a specified season or period are amortized over the season or period on a
straight-line basis. We allocate a portion of certain programming costs which are related to sponsorship and
marketing activities to Sales and marketing expenses on a straight-line basis over the term of the agreement.
Advertising Costs
Media is expensed when aired and advertising production costs are expensed as incurred. Market
development funds consist of fixed and variable payments to reimburse retailers for the cost of advertising and
other product awareness activities. Fixed market development funds are expensed over the periods specified in
the applicable agreement; variable costs are expensed when aired and production costs are expensed as incurred.
During the years ended December 31, 2011, 2010 and 2009, we recorded advertising costs of $116,694, $110,050
and $128,784, respectively. These costs are reflected in Sales and marketing expense in our consolidated
statements of operations.
F-11