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number of days for each game, whether to weight the days based on the units sold of each game, determining the
period of time between the date of sale to reseller and the date of sale to the consumer and assessing online
gameplay trends.
Other Multiple-Element Arrangements
In some of our multiple element arrangements, we sell tangible products with software and/or software-related
offerings. These tangible products are generally either peripherals or ancillary collectors' items, such as figurines
and comic books. Revenue for these arrangements is allocated to each separate unit of accounting for each
deliverable using the relative selling prices of each deliverable in the arrangement based on the selling price
hierarchy described below. If the arrangement contains more than one software deliverable, the arrangement
consideration is allocated to the software deliverables as a group and then allocated to each software deliverable
in accordance with ASC 985-605.
We determine the selling price for a tangible product deliverable based on the following selling price hierarchy:
VSOE (i.e., the price we charge when the tangible product is sold separately) if available, third-party evidence
("TPE") of fair value (i.e., the price charged by others for similar tangible products) if VSOE is not available, or
our best estimate of selling price ("BESP") if neither VSOE nor TPE is available. Determining the BESP is a
subjective process that is based on multiple factors including, but not limited to, recent selling prices and related
discounts, market conditions, customer classes, sales channels and other factors. In accordance with ASC 605,
provided the other three revenue recognition criteria other than delivery have been met, we recognize revenue
upon delivery to the customer as we have no further obligations.
We must make assumptions and judgments in order to (1) determine whether and when each element is
delivered, (2) determine whether VSOE exists for each undelivered element, and (3) allocate the total price
among the various elements, as applicable. Changes to any of these assumptions and judgments, or changes to
the elements in the arrangement, could cause a material increase or decrease in the amount of revenue that we
report in a particular period.
Sales Returns and Allowances and Bad Debt Reserves
We reduce revenue primarily for estimated future returns and price protection which may occur with our
distributors and retailers ("channel partners"). Price protection represents our practice to provide our channel
partners with a credit allowance to lower their wholesale price on a particular product in the channel. The amount
of the price protection is generally the difference between the old wholesale price and the new reduced wholesale
price. In certain countries for our PC and console packaged goods software products, we also have a practice of
allowing channel partners to return older software products in the channel in exchange for a credit allowance. As
a general practice, we do not give cash refunds.
When evaluating the adequacy of sales returns and price protection allowances, we analyze the following:
historical credit allowances, current sell-through of our channel partner's inventory of our software products,
current trends in retail and the video game industry, changes in customer demand, acceptance of our software
products, and other related factors. In addition, we monitor the volume of sales to our channel partners and their
inventories, as substantial overstocking in the distribution channel could result in high returns or higher price
protection in subsequent periods.
In the future, actual returns and price protections may materially exceed our estimates as unsold software
products in the distribution channels are exposed to rapid changes in consumer preferences, market conditions or
technological obsolescence due to new platforms, product updates or competing software products. While we
believe we can make reliable estimates regarding these matters, these estimates are inherently subjective.
Accordingly, if our estimates change, our returns and price protection allowances would change and would
impact the total net revenue, accounts receivable and deferred net revenue that we report.
We determine our allowance for doubtful accounts by evaluating the following: customer creditworthiness,
current economic trends, historical experience, age of current accounts receivable balances, changes in financial