Electronic Arts 2016 Annual Report Download - page 114

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 have online connectivity 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 16) to online-enabled games and related content 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 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, 2015, we evaluate all online-enabled games released between April 1, 2013 and March 31, 2014. 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
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