Services sales represent third-party seller fees earned (including commissions) and related
shipping fees, and non-retail activities such as AWS, advertising services, and our co-branded credit card agreements. Services sales, net of promotional discounts and return allowances, are recognized when services have been rendered. Amounts
received in advance for services, including amounts received for Amazon Prime and web services, are deferred and recognized as revenue over the term.
Return allowances, which reduce revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales and consumption taxes. Additionally, we
periodically provide incentive offers to our customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases, inducement offers, such as offers for future discounts subject to a
minimum current purchase, and other similar offers. Current discount offers, when accepted by our customers, are treated as a reduction to the purchase price of the related transaction, while inducement offers, when accepted by our customers, are
treated as a reduction to purchase price based on estimated future redemption rates. Redemption rates are estimated using our historical experience for similar inducement offers. Current discount offers and inducement offers are presented as a net
amount in Total net sales.
Cost of Sales
Cost of sales consists of the purchase price of consumer products and digital content where we are the seller of record, inbound and
outbound shipping charges, and packaging supplies. Shipping charges to receive products from our suppliers are included in our inventory, and recognized as cost of sales upon sale of products to our customers. Payment processing and related
transaction costs, including those associated with seller transactions, are classified in Fulfillment on our consolidated statements of operations.
We obtain digital video content through licensing
agreements that have a wide range of licensing provisions and are generally from one to five years with fixed payment schedules. When the license fee for a specific movie or television title is determinable or reasonably estimable and available for
streaming, we recognize an asset representing the fee per title and a corresponding liability for the amounts owed. We amortize the asset on a straight-line basis over each titles contractual window of availability, which typically ranges from
six months to five years. If we are unable to reasonably estimate the cost per title, no asset or liability is recorded and licensing costs are expensed as incurred.
We have agreements to receive cash consideration from
certain of our vendors, including rebates and cooperative marketing reimbursements. We generally consider amounts received from our vendors as a reduction of the prices we pay for their products and, therefore, record such amounts as a reduction of
the cost of inventory we buy from them. Vendor rebates are typically dependent upon reaching minimum purchase thresholds. We evaluate the likelihood of reaching purchase thresholds using past experience and current year forecasts. When volume
rebates can be reasonably estimated, we record a portion of the rebate as we make progress towards the purchase threshold.
When we receive direct reimbursements for costs incurred by us in advertising the vendors product or service, the amount we receive
is recorded as an offset to Marketing on our consolidated statements of operations.
Fulfillment costs represent those costs incurred in operating and staffing our fulfillment and customer service centers,
including costs attributable to buying, receiving, inspecting, and warehousing inventories;