eBay 2001 Annual Report Download - page 90

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eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (CONTINUED)
Advertising
In March 1999 and again in July 2001, we expanded the scope of our strategic relationship with AOL
Time Warner, Inc. (""AOL''). Under the amended agreement, we were granted a prominent presence
featuring eBay as the preferred provider of online trading services on AOL's domestic and international
websites. In addition, we have developed a co-branded version of our online service for major AOL
properties, which prominently features each party's brand. In addition to the co-branded sites, we are
obligated to pay AOL $93.8 million over the Ñve-year term of the contract, as amended, in exchange for
online advertising services. We are recognizing these fees as sales and marketing expense as such services
are provided. From time to time, we have also entered into incremental, discretionary purchases of
advertising from AOL. There were no such discretionary purchases during the year ended December 31,
1999, and such amounts totaled $1.4 million during 2000 and $8.5 million during 2001.
In February 2000, we entered a four-year marketing agreement with the Walt Disney Company
(""Disney'') to provide us with online and oÉine advertising and promotions and develop a co-branded
version of our online service. Subject to certain Disney performance obligations, we were obligated to pay
a minimum of $30 million to Disney over the four-year term of the agreement. In August 2001, we
amended the terms of the initial agreement and agreed to purchase a minimum of $23.0 million in online
and oÉine promotions through September 2004. We also committed to provide Disney with online
advertising on the eBay.com website valued at $3.5 million. Through December 31, 2001, we have
recognized $5.1 million in sales and marketing expense associated with the amended agreement.
In March 2000, we entered into a marketing and services agreement (as amended) with and
purchased a less than 5% equity interest in Autotrader.com LLC (""Autotrader''). Under the terms of the
marketing and services agreement, we developed the co-branded eBay Motors site and Autotrader refers
customers desiring an auction pricing format to the co-branded site in exchange for a referral fee. Through
December 31, 2001, we have paid Autotrader $7.4 million in referral fees that are included in sales and
marketing expense. We also committed to incur $32.0 million in marketing and promotion of our service
and additional related services oÅered by Autotrader over the 3.5-year term of the agreement. Through
December 31, 2001, we have incurred $15.4 million of this marketing expenditure commitment.
During 2001, we entered into a series of marketing and services agreements with Microsoft that
obligate us to purchase online advertising promotions, software and related services through September
2003, totaling $8 million. In addition, Microsoft has agreed to purchase online advertising and other
services from eBay totaling $7 million over a three-year period ending June 2004. Through December 31,
2001, we have recognized $2.1 million in sales and marketing expenses for advertising services received,
incurred $1.4 million for Microsoft software products used to support our operations and recognized
$4.1 million in revenues for advertising services delivered to Microsoft.
Minimum auction guarantees
From time to time we guarantee minimum net proceeds with respect to the sale of properties at
future auctions through our ButterÑelds subsidiary. Such guaranteed proceeds are often advanced to the
consignor prior to the completion of the auction. We are responsible for the shortfall, if any, between the
guaranteed minimum proceeds and the actual net proceeds upon the completion of the auction. Losses, if
any, are recognized at the conclusion of the auction. In 2001, ButterÑelds entered into one such agreement
with guaranteed net proceeds of $2.1 million. In June 2001, the two auctions related to the single
minimum guarantee took place, and at the conclusion of the auctions, the minimum net proceed amounts
were obtained.
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