Electronic Arts 2015 Annual Report Download - page 100

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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 delivered digitally via the Internet (e.g.,
full-game downloads, extra-content), 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 (e.g., premium mobile
games), 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.,
can only be played with 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 free-to-download mobile
games), (2) massively multi-player online (“MMO”) games (both software game and subscription sales),
(3) subscriptions for our Battlefield Premium, EA Access and 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. For packaged goods, 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. If there is significant uncertainty of acceptance, revenue is
recognized once acceptance is reasonably assured.
Online-Enabled Games
The majority of our software games and related content 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 (e.g., player roster updates to Madden
NFL 15) to online-enabled games and related content at no additional charge to the consumer. We do not have
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