America Online 2010 Annual Report Download - page 78

Table of Contents
AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 and video 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 the
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.
Contemporaneous Purchases and Sales
In the normal course of business, AOL enters into transactions in which it purchases a product or service and contemporaneously negotiates a contract
for the sale of advertising to the customer. Contemporaneous transactions may also involve circumstances where the Company is purchasing or selling
products and services and settling a dispute. Such arrangements, although negotiated contemporaneously, may be documented in one or more contracts.
The Company's accounting policy for each transaction negotiated contemporaneously is to record each element of the transaction based on the
respective estimated fair values of the products or services purchased and the fair values of the products or services sold. If the Company is unable to
determine the fair value of one or more of the elements being purchased, revenue is recognized for the contemporaneous transactions on a net basis.
Subscription Revenues
The Company earns revenue from its subscription access service in the form of monthly fees paid by subscribers to its dial-up Internet access service,
and such revenues are recognized as the service is provided.
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