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Product revenue.
Our product revenue includes revenue associated with the sale of software games or related
content, whether delivered via a physical disc (e.g., packaged goods) or via the Internet (e.g., full-game
downloads, micro-transactions), and licensing of game software to third-parties. Product revenue also includes
revenue from mobile full game downloads that do not require our hosting support, and sales of tangible products
such as hardware, peripherals, or collectors' items.
Service and other revenue.
Our service revenue includes revenue recognized from time-based subscriptions
and games or related content that requires our hosting support in order to utilize the game or related content (i.e.,
cannot be played without an Internet connection). This includes (1) entitlements to content that are accessed
through hosting services (e.g., micro-transactions for Internet-based, social network and mobile games),
(2) massively multi-player online ("MMO") games (both software game and subscription sales), (3) subscriptions
for our Pogo-branded online game services, and (4) allocated service revenue from sales of software games with
an online service element (i.e., "matchmaking" service). Our other revenue includes advertising and non-
software licensing revenue.
With respect to the allocated service revenue from sales of software games with a matchmaking service
mentioned above, our allocation of proceeds between product and service revenue for presentation purposes is
based on management's best estimate of the selling price of the matchmaking service with the residual value
allocated to product revenue. Our estimate of the selling price of the matchmaking service is comprised of
several factors including, but not limited to, prior selling prices for the matchmaking service, prices charged
separately by other third party vendors for similar service offerings, and a cost-plus-margin approach. We review
the estimated selling price of the online matchmaking service on a regular basis and use this methodology
consistently to allocate revenue between product and service for software game sales with a matchmaking
service.
We evaluate and recognize revenue when all four of the following criteria are met:
Evidence of an arrangement. Evidence of an agreement with the customer that reflects the terms and
conditions to deliver the related products or services must be present.
Fixed or determinable fee. If a portion of the arrangement fee is not fixed or determinable, we recognize
revenue as the amount becomes fixed or determinable.
Collection is deemed probable. Collection is deemed probable if we expect the customer to be able to pay
amounts under the arrangement as those amounts become due. If we determine that collection is not
probable as the amounts become due, we generally conclude that collection becomes probable upon cash
collection.
Delivery. Delivery is considered to occur when a product is shipped and the risk of loss and rewards of
ownership have transferred to the customer. For digital downloads, delivery is considered to occur when
the software is made available to the customer for download. For services and other, delivery is generally
considered to occur as the service is delivered, which is determined based on the underlying service
obligation.
Online-Enabled Games
The majority of our software games can be connected to the Internet whereby a consumer may be able to
download unspecified content or updates on a when-and-if-available basis ("unspecified updates") for use with
the original game software. In addition, we may also offer an online matchmaking service that permits consumers
to play against each other via the Internet without a separate fee. U.S. GAAP requires us to account for the
consumer's right to receive unspecified updates or the matchmaking service for no additional fee as a "bundled"
sale, or multiple-element arrangement.
We have an established historical pattern of providing unspecified updates to online-enabled software games
(e.g., player roster updates to Madden NFL 13) at no additional charge to the consumer. We do not have vendor
specific objective evidence of fair value ("VSOE") for these unspecified updates, and thus, as required by U.S.
GAAP, we recognize revenue from the sale of these online-enabled games over the period we expect to offer the
unspecified updates to the consumer ("estimated offering period").
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