NOTE 7 — GOODWILL AND INTANGIBLE ASSETS

Intangible Assets

The carrying amounts and accumulated amortization expense of the acquired intangible assets, including the impact of foreign currency exchange translation, at December 31, 2016 and December 31, 2015 were as follows:


		December 31, 2016						December 31, 2015
		Gross		Accumulated		Net		Gross		Accumulated		Net
		Carrying		Amortization		Carrying		Carrying		Amortization		Carrying
		Value		Expense		Value		Value		Expense		Value
		(Including		(Including		(Including		(Including		(Including		(Including
	Estimated	Impact of		Impact of		Impact of		Impact of		Impact of		Impact of
	Useful	Foreign		Foreign		Foreign		Foreign		Foreign		Foreign
	Life	Exchange)		Exchange)		Exchange)		Exchange)		Exchange)		Exchange)
Intangible assets amortized to cost of revenue:
Titles, content and technology	3 - 5 yrs	$	40,942	$	(19,255)	$	21,687	$	34,750	$	(22,954)	$	11,796
Catalogs	1 yr		—		—		—		1,152		(1,152)		—
ProvisionX Technology	6 yrs		—		—		—		190		(190)		—
Carrier contract and related relationships	5 yrs		14,029		(11,427)		2,602		24,200		(20,597)		3,603
Licensed content	2.5 - 5 yrs		2,334		(2,334)		—		7,866		(2,866)		5,000
Service provider license	9 yrs		212		(212)		—		454		(406)		48
Trademarks	7 yrs		5,117		(3,510)		1,607		5,217		(2,897)		2,320
			62,634		(36,738)		25,896		73,829		(51,062)		22,767
Other intangible assets amortized to operating expenses:
Emux Technology	6 yrs		—		—		—		1,228		(1,228)		—
Non-compete agreements	4 yrs		—		—		—		5,391		(5,391)		—
			—		—		—		6,619		(6,619)		—
Total intangibles assets		$	62,634	$	(36,738)	$	25,896	$	80,448	$	(57,681)	$	22,767

Acquisition-related intangibles included in the above table are finite-lived and are being amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are realized. The Company has included amortization of acquired intangible assets directly attributable to revenue-generating activities in cost of revenue. The Company has included amortization of acquired intangible assets not directly attributable to revenue-generating activities in operating expenses.

During the year ended December 31, 2016, the Company wrote-off fully amortized intangible assets with an aggregate gross book value and accumulated amortization value of $29,109 as these intangible assets were considered obsolete after the recent liquidation of a foreign subsidiary and the restructuring of the Company’s Washington studio.

During the year ended December 31, 2016, the Company recorded an impairment of an intangible asset of $4,597 related to the license fee paid to an affiliate of one of the Company’s principal stockholders for the Company’s Rival Fire game, which launched during the third quarter of 2016, due to underperformance of the title and the Company’s determination that the title would generate negligible cash flows during the remaining contractual life of the license. No impairment of intangible assets was recorded during the year ended December 31, 2015.

During the years ended December 31, 2016, 2015 and 2014, the Company recorded amortization and impairment expense in the amounts of $14,792, $9,553 and $4,767, respectively, in cost of revenue. During the years ended December 31, 2016, 2015 and 2014, the Company recorded amortization expense in the amounts of $0, $201 and $508, respectively, in operating expenses. The Company recorded no impairment charges during the years ended December 31, 2015 and 2014.

As of December 31, 2016, the total expected future amortization related to intangible assets was as follows:


	Amortization
	to Be Included in
	Cost of
Year Ending December 31,	Revenue
2017	$	10,267
2018		5,905
2019		4,960
2020		3,258
2021 and thereafter		1,506
	$	25,896

Goodwill

In the valuation of the goodwill balance for Griptonite, Blammo, MIG, GameSpy, PlayFirst, Cie Games and Crowdstar, the Company gave consideration to the future economic benefits of other assets that were not individually identified or separately recognized. The acquired studio workforce for each of these acquisitions was estimated to have value, and since the acquired workforce is not individually identified or separately recognized, it was subsumed within the goodwill recognized as part of each business combination. The Company further planned to leverage its preexisting contractual relationships with Digital Storefronts to distribute new titles developed by the Griptonite, Blammo, PlayFirst, Cie Games and Crowdstar studios and the expected synergies are reflected in the value of the goodwill recognized. The Company also used the GameSpy acquired workforce and expertise to help in its development efforts for its games-as-a-service technology platform, and these synergies are reflected in the value of goodwill recognized.

Goodwill for the periods indicated was as follows:


	December 31, 2016		December 31, 2015
Goodwill	$	161,001	$	161,075
Accumulated impairment losses		(73,111)		(73,111)
Balance as of January 1		87,890		87,964
Goodwill acquired during the year		29,029		—
Effects of foreign currency exchange		(87)		(74)
Balance as of period ended:		116,832		87,890
Goodwill		189,943		161,001
Accumulated impairment losses		(73,111)		(73,111)
Balance as of period ended	$	116,832	$	87,890

In accordance with ASC 350, the Company’s goodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Under ASC 350, the Company performs the annual impairment review of its goodwill balance as of September 30 or more frequently if triggering events occur.

The Company evaluates qualitative factors and overall financial performance to determine whether it is necessary to perform the first step of the multiple-step goodwill test. This step is referred to as “Step 0.” Step 0 involves, among other qualitative factors, weighing the relative impact of factors that are specific to the reporting unit as well as industry and macroeconomic factors. After assessing those various factors, if it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the entity will need to proceed to the first step of the goodwill impairment test. ASC 350 requires a multiple-step approach to testing goodwill for impairment for each reporting unit annually, or whenever events or changes in circumstances indicate the fair value of a reporting unit is below its carrying amount. The first step measures for impairment by applying the fair value-based tests at the reporting unit level. The second step (if necessary) measures the amount of impairment by applying the fair value-based tests to individual assets and liabilities within each reporting unit. The fair value of the reporting units is estimated using a combination of the market approach, which utilizes comparable companies’ data, and/or the income approach, which uses discounted cash flows.

The Company performed its annual impairment assessment as of September 30, 2016 and determined a Step 1 analysis was necessary due to a significant decline in its market capitalization and the significant impairment of prepaid royalties recorded during the three months ended September 30, 2016. Based on the results of the Step 1 analysis, the Company concluded that the fair value of the reporting unit was greater than the carrying value of the reporting unit based on a methodology that utilized both an income approach and a market approach. The Company considered valuation factors including its market capitalization, future discounted cash flows and an estimated control premium based upon a review of comparable market transactions. Accordingly, the Company did not recognize an impairment of goodwill during the year ended December 31, 2016.

During the third quarter of fiscal 2015 and 2014, the Company performed a “Step 0” qualitative assessment for its reporting unit. Based on the assessment, the Company concluded that it was more likely than not that the fair value of the reporting unit was greater than its carrying amount, and as a result, did not proceed to further impairment testing. Accordingly, the Company did not recognize an impairment of goodwill during the years ended December 31, 2015 and December 31, 2014. As of December 31, 2016, there had been no triggering events or indicators of impairment that would require an updated impairment review.

Any material impairment of prepaid royalty and license fee assets in the future periods may require the Company to perform a goodwill impairment assessment. Such assessment could result in impairments to the Company’s goodwill, which could adversely impact the Company’s results of operations.