America Online 2009 Annual Report Download - page 73

Table of Contents
Summary of Significant Accounting Policies
Revenues
The Company generates revenue primarily from advertising and from its subscription access service. Revenue is recognized when persuasive evidence
of an arrangement exists, performance under the contract has begun, the contract price is fixed or determinable and collectability of the related fee is
reasonably assured.
Advertising Revenues
Advertising revenues are generated on AOL Properties through display advertising and search and contextual advertising. Display advertising revenue
is generated by the display of graphical advertisements and other performance-based advertising. Search and contextual advertising revenue is generated when
a user clicks on or views a text-based advertisement on the user's screen. These text-based advertisements are either generated from a user-initiated search
query or generated based on the content of the webpage the user is viewing. Advertising revenues derived from impression-based contracts, in which AOL
provides impressions in exchange for a fixed fee (generally stated as cost-per-thousand impressions), are generally recognized as the impressions are
delivered. An "impression" is delivered when an advertisement appears in pages viewed by users. Revenues derived from time-based contracts, in which AOL
provides a minimum number of impressions over a specified time period for a fixed fee, are recognized on a straight-line basis over the term of the contract,
provided that AOL is meeting and will continue to meet its obligations under the contract (e.g., delivery of impressions over the term of the contract).
Advertising revenues derived from contracts where AOL is compensated based on certain performance criteria are recognized as AOL completes the
contractually specified performance. Performance can be measured in terms of "click-throughs" when a user clicks on a company's advertisement or other
user actions such as product/customer registrations, survey participation, sales leads or product purchases.
In addition to advertising revenues generated on AOL Properties, the Company also generates revenue from its advertising offerings on its Third Party
Network, which consist primarily of sales of display advertising on behalf of third parties on a cost-per-impression basis, a fixed-fee basis or on a pay-for-
performance basis.
Gross versus Net Revenue Recognition
In the normal course of business, the Company sometimes acts as or uses an intermediary or agent in executing transactions with third parties. The
determination of whether revenue should be reported gross or net is based on an assessment of whether the Company is acting as the principal or an agent in
the transaction. If the Company is acting as a principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in
a transaction, the Company reports revenue on a net basis. In determining whether the Company acts as the principal or an agent, the Company follows
accounting guidance for principal agent considerations.
Multiple-Element Transactions
Management analyzes contracts with multiple elements under the accounting guidance for revenue recognition in multiple-element arrangements.
Specifically, if the Company enters into sales contracts for the sale of multiple products or services, then the Company evaluates whether the delivered
elements have value to the customer on a standalone basis, and whether it has objective and reliable evidence of fair value for each undelivered element in the
transaction. If these criteria are met, then the Company accounts for each deliverable in the transaction separately. The Company generally recognizes revenue
for undelivered contractual elements on a straight-line basis over the contractual performance period for time-based elements or once specified deliverables
have been provided to the customer. If the Company is unable to determine the fair value of one or more undelivered elements in the transaction, the
Company recognizes the aggregate contract value as revenue on a straight-line basis over the period in which the last deliverable in the transaction is provided
to the customer.
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