Electronic Arts 2015 Annual Report Download - page 101

Annual Report
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 and related content over the
period we expect to offer the unspecified updates to the consumer (“estimated offering period”).
Estimated Offering Period
Because the offering period is not an explicitly defined period, we must make an estimate of the offering period.
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. On an annual basis, 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, 2014, we evaluate all online-enabled games released between April 1, 2012 and March 31, 2013. 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 (i.e., time
in channel). Based on these two calculations we then consider the method of distribution. For example,physical
software games sold at retail would have a composite offering period equal to the online gameplay plus time in
channel as opposed to digitally distributed software games which are delivered immediately via digital download
and thus have no concept of channel. Additionally, we consider results from prior analyses, known online
gameplay trends, as well as disclosed service periods for competitors’ games in determining the estimated
offering period for future sales.
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
number of days for each game, whether to weight the days based on the units sold of each game, determining the
period of time between the date of sale to reseller and the date of sale to the consumer and assessing online
gameplay trends.
Prior to July 1, 2013, for most sales, we estimated the offering period to be six months and recognized revenue
over this period in the month after delivery. During the three months ended September 30, 2013, we completed
our fiscal 2014 annual evaluation of the estimated offering period and noted that generally, consumers were
playing our games online over a longer period of time. Based on this, we concluded that for physical software
sales made after June 30, 2013, the estimated offering period should be increased to nine months, resulting in
revenue being recognized over a longer period of time. This change in estimate resulted in an estimated decrease
to net revenue and net income of $474 million and a decrease of $1.50 of diluted earnings per share for fiscal
year 2014. During the fiscal year ended March 31, 2015, this change in estimate resulted in an estimated increase
to net revenue and net income of $474 million and an increase of $1.46 of diluted earnings per share. The
estimated offering period for digitally distributed games did not change and is six months. We completed our
fiscal 2015 annual evaluation during the second quarter and determined that the estimated offering period for
physical software sales and digital sales continues to be nine months and six months, respectively.
Other Multiple-Element Arrangements
In some of our multiple-element arrangements, we sell tangible products with software and/or software-related
offerings. These tangible products are generally either peripherals or ancillary collectors’ items, such as figurines
and comic books. Revenue for these arrangements is allocated to each separate unit of accounting for each
deliverable using the relative selling prices of each deliverable in the arrangement based on the selling price
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