Electronic Arts 2013 Annual Report Download - page 114

•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”).
Estimated Offering Period
The offering period is not an explicitly defined period and thus, we recognize revenue over an estimated offering
period, which is generally estimated to be six months beginning in the month after delivery.
Determining the estimated offering period is inherently subjective and is subject to regular revision based on
historical online usage. For example, in determining the estimated offering period for unspecified updates
associated with our online-enabled games, we consider the period of time consumers are online as online
connectivity is required. During the first quarter of each fiscal year, we review consumers’ online gameplay of all
online-enabled games that have been released 12 to 24 months prior to the evaluation date. For example, if our
evaluation date is April 1, 2013, we evaluate all online-enabled games released between April 1, 2011 and
March 31, 2012. Based on this population of games, for all players that register the game online within the first
six months of release of the game to the general public, we compute the weighted-average number of days for
each online-enabled game, based on when a player initially registers the game online to when that player last
plays the game online. We then compute the weighted-average number of days for all online-enabled games by
multiplying the weighted-average number of days for each online-enabled game by its relative percentage of total
units sold from these online-enabled games (i.e., a game with more units sold will have a higher weighting to the
overall computation than a game with fewer units sold). Under a similar computation, we also consider the
estimated period of time between the date a game unit is sold to a reseller and the date the reseller sells the game
unit to an end consumer. Based on the sum of these two calculations, we then consider the results from prior
years, known online gameplay trends, as well as disclosed service periods for competitors’ games to determine
the estimated offering period for future sales. Similar computations are also made for the estimated service
period related to our MMO games, which is generally estimated to be eighteen months. We are currently
evaluating our estimated offering period for fiscal 2014.
While we consistently apply this methodology, inherent assumptions used in this methodology include which
online-enabled games to sample, whether to use only units that have registered online, whether to weight the
30