America Online 2014 Annual Report Download - page 27

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Subscription Revenues
The Membership Group generates subscription revenues principally through our subscription services
products we offer to consumers. As of December 31, 2014, we offered price plans ranging from $33.99 to $4.99.
These plans include a variety of features such as maintenance services, online technical support, anti-virus
software and identity theft protection. We also offer consumers, among other things, enhanced online safety and
security features and technical support for a monthly subscription fee. Our subscriber base has declined and is
expected to continue to decline. This has resulted in year-over-year declines in our subscription revenues. The
number of domestic AOL subscribers was 2.2 million, 2.5 million and 2.8 million at December 31, 2014, 2013
and 2012, respectively. For the years ended December 31, 2014, 2013 and 2012, our subscription revenues were
$606.5 million, $650.1 million and $705.3 million, respectively.
Although our subscription revenues have declined and are expected to continue to decline, we believe that
our subscription revenues generated by the Membership Group will continue to remain an important source of
revenue, operating income and cash flow in the near term. The revenue and cash flow generated from our
subscription services will help us to pursue our strategic initiatives.
The revenue related to our other subscription products and services is recognized as subscription revenue in
cases where we are responsible for providing the service to the end consumer. In instances when we are
promoting a third-party product and generating revenues for those services, but the third party is responsible for
providing the service to the end consumer, we recognize the net amount retained within the Membership Group
as display advertising revenue.
Product Development
We seek to develop new and enhanced versions of our products and services for our consumers, advertisers,
publishers and subscribers. While in the past we have relied primarily on our own proprietary technology to
support our products and services, we have been steadily increasing our use of open source technologies, third-
party providers and platforms with a view to diversifying our sources of technology, as well as for cost
management. Research and development costs related to our software development efforts for 2014, 2013 and
2012 totaled $37.6 million, $40.6 million and $44.8 million, respectively. These costs consist primarily of
personnel costs that are incurred in relation to the development of software and user-facing internet offerings that
do not qualify for capitalization. Certain costs related to the development of internal-use software are capitalized
and included in property and equipment, net on the consolidated balance sheets. These costs include the costs
associated with coding, software configuration, major upgrades and enhancements. At December 31, 2014 and
2013, the net book value of capitalized internal-use software development was $77.8 million and $60.7 million,
respectively. For the years ended December 31, 2014, 2013 and 2012, we capitalized $51.1 million, $38.1 million
and $30.8 million, respectively, related to the development of internal-use software.
Intellectual Property and Other Proprietary Rights
Our intellectual property and other proprietary assets include copyrights, trademarks and trademark
applications, patents and patent applications, domain names, trade secrets, other proprietary rights and licenses of
intellectual property rights of various kinds. These assets and rights, both in the United States and in other
countries around the world, are collectively among our most valuable assets. We rely on a combination of
copyright, trademark, patent, trade secret and unfair competition laws and other laws protecting free speech, free
expression, and the press, as well as contractual provisions to protect our assets. The duration and scope of the
protection afforded to our intellectual property and other assets depends on the type of property in question and
the laws and regulations of the relevant jurisdiction. In the case of licenses, they also depend on contractual
provisions. We consider the AOL brand and our other brands to be some of our most valuable assets and these
assets are protected by numerous trademark registrations in the United States and globally. These registrations
may generally be maintained in effect for as long as the brand is in use in the respective jurisdiction.
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