www.pwc.com/miag
MIAG
Issue: 3
Media Industry
Accounting group
April 2012
Making sense of a
complex world
Broadcast television:
Acquired programming
rights
This paper explores the
critical considerations
under IFRS relating to the
recognition, presentation,
amortisation and
impairment of acquired
programming rights.
Contents
Page
Introduction to MIAG
04
Broadcast television: acquired programming rights
05
Background
07
Acquired programming rights: Recognition
09
Acquired programming rights: Classification
11
Acquired programming rights: Amortisation
12
Acquired programming rights: Impairment assessment
17
Acquired programming rights: Sports rights
19
Acquired programming rights: Foreign currency considerations
22
Conclusion
26
Publications / further reading
27
Contacts
28
Introduction to MIAG
PwC’s Media Industry Accounting Group (MIAG) brings
together our specialist media knowledge from across our
worldwide network. Our aim is to help our clients by
addressing and resolving emerging accounting issues which
affect the entertainment & media sector.
With more than 3,575 industrydedicated professionals, PwC’s global
entertainment & media practice has
depth and breadth of experience across
key industry sectors including:
television, film, advertising, publishing,
music, internet, video games, radio,
sports, business information,
amusement parks, casino gaming and
more. And just as significantly, we have
aligned our media practice around the
issues and challenges that are of utmost
importance to our clients in these
sectors. One such challenge is the
increasing complexity of accounting for
transactions and financial reporting of
results – complexity which is driven not
just by rapidly changing business models
but also by imminent changes to the
world of IFRS accounting.
Through MIAG, PwC1 aims to work
together with the entertainment &
media industry to address and resolve
emerging accounting issues affecting
this dynamic sector, through
publications such as this one, as well as
conferences and events to facilitate
discussions with your peers. I would
encourage you to contact us with your
thoughts and suggestions about future
topics of debate for the MIAG forum,
and very much look forward to our
ongoing conversations.
With best regards
Marcel Fenez
PwC Hong Kong
Global Leader,
PwC Entertainment & Media
Marcel Fenez
“PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited
(PwCIL), or, as the context requires, individual member firms of the PwC network
1
4 MIAG
Issue: 3
Broadcast television: Acquired
programming rights
Our third MIAG paper explores the critical considerations
relating to the recognition, presentation, amortisation and
impairment of acquired programming rights. Have you
addressed all the key reporting considerations for acquired
programming rights?
A key to success for many in the television
broadcast industry, along with
developing their own content, is
acquiring rights to programmes for
exploitation. Many major broadcasters
which report under IFRS, including ITV,
Channel 4, Sky, France24, TV Globo,
teleSUR, RTL, Deutsche Welle and Bell
Media, explicitly highlight acquiring
programming rights as a key driver of
future revenue growth.
As broadcasting evolves in response to
digital transformation and market
fragmentation, accounting procedures
for acquired content pose new challenges
for media companies. Companies which
are adept at navigating the intricate
accounting and reporting practices can
tell their story in a clear and compelling
manner, building public trust in their
performance with stakeholders such as
investors, analysts, employees, suppliers,
advertisers and viewers.
This paper explores the critical
considerations relating to the
recognition, presentation, amortisation
and impairment of acquired
programming rights under the applicable
IFRS standards IAS 2 Inventories and IAS
38 Intangible Assets. We have included a
particular focus on sports rights,
reflecting their ever-increasing value and
importance, which is particularly topical
in 2012 as an Olympic Games year. We
also touch on the new accounting
challenges arising from multi-platform
programming rights across television,
desktop computer, tablet and
smartphone.
We hope that you find this paper useful
and welcome your feedback.
Best wishes
Sam Tomlinson
PwC UK
Chairman, PwC Media Industry
Accounting Group
Sam Tomlinson
Issue: 3
MIAG
5
6 MIAG
Issue: 3
• Recognition of an asset for acquired
programming rights generally occurs
once it is available and licensed to air.
At this time the full asset is recognised
with a corresponding liability for
future payments. Advance payments
prior to the programme being
available and licensed to air are
recorded as prepayments.
Background
PwC’s Media Industry Accounting Group (MIAG) is a
premier forum for discussing and resolving emerging
accounting issues that affect the entertainment and media
sector – visit our dedicated website: www.pwc.com/miag
PwC’s Global E&M Outlook 2011-2015
forecasts an increase in global television
subscriptions and licence fees from €218
billion in 2011 to €285 billion in 2015
and an increase in global television
advertising from €175 billion in 2011 to
€233 billion in 2015.
Growth on this scale will require a huge
volume of content to drive it. The
increasing fragmentation of audiences
across multiple channels is greatly
increasing both the demand and need
for acquired programming. Television
broadcasters, both terrestrial (“over-theair”) and cable/satellite (“speciality”)
channels, acquire programming for
their channels from a variety of sources
including major film studios, US and
international broadcasters, independent
television producers, various sports
leagues and other rights holders.
What are acquired
programming rights?
Acquired programming rights are
purchased licences to air programming
to fill a broadcaster’s television
schedule. These licences can include
feature films, television series, sports
rights and other broadcast productions.
A commercial broadcaster typically
generates most of its revenue through
sales of advertising spots during the
programmes – the “advertising model”
– and/or through viewers paying
subscriptions or licence fees directly (to
the channel) or indirectly (as affiliate
fees via the cable/satellite operator) for
the right to watch the channel – the
“paid content model”.
rights. Increasingly, programming
rights agreements also cover other
platforms such as desktop computer,
tablet and smartphone.
How are acquired
programming rights currently
accounted for?
There is diversity in practice among
broadcasters as to which is the primary
IFRS accounting standard governing
acquired programming rights. Some
broadcasters reference IAS 2 Inventories
whereas others reference IAS 38
Intangible Assets. Our view is that
acquired programming rights generally
fall more naturally under the remit of IAS
38, but we believe that classification as
inventory is also acceptable and is
particularly common in those territories
where acquired programming rights
were classified as inventories under local
GAAP prior to transition to IFRS. (Pre
IFRS, in the absence of guidance in local
GAAP, some broadcasters had also
looked to US GAAP, which includes some
elements akin to an inventory model.) As
we shall see, in practice this selection of
the relevant accounting standard
currently makes little difference beyond
balance sheet classification since initial
recognition, subsequent amortisation
and impairment review practices are
generally applied consistently regardless
of whether programming rights are
classified as inventories or intangible
assets.
• Classification is first within
prepayments and then either
inventory or intangibles once the
licence period commences. In
addition, presentation as current or
non-current is theoretically based on
usage within or beyond the
organisation’s operating cycle,
although in practice many IFRS
broadcasters present all acquired
programming rights within current
assets and include explanatory
footnotes where appropriate.
• Cost amortisation should reflect the
underlying economics, e.g. in full on
first transmission; or based on the
contracted or estimated number of
airings; or straight-lined over the
broadcast licence period; or follow the
pattern of expected revenues (“flowof-revenue”), particularly if a first
showing is considered more valuable
than reruns. This paper includes a
simple worked example to illustrate
how the selection of amortisation
method can have a significant impact
on the timing of cost recognition.
• Impairment is assessed on a
programme, series, package, daypart,
channel or multi-channel basis.
Unamortised cost exceeding estimated
recoverable amount represents the
amount required to be written off.
Accounting policies for acquired
programming rights include the
following elements:
Acquired programming rights can be for
single or multiple broadcasts and can
have licence periods spanning many
years. The agreements may also specify
format (e.g. HD, 3D) and geographical
Issue: 3
MIAG
7
What if a company also
develops its own programming
content?
How can this paper help with
accounting for acquired
programming rights?
Many large media groups have both
production divisions and broadcast
(including cable or satellite) divisions
such that the group is both a producer
and broadcaster of the same
programming content. Programming
aired by a broadcaster that was
produced by another division of the
same group should be accounted for as
original programming in the
consolidated group financial statements.
Intercompany revenues and costs
between the divisions should be
eliminated to accurately reflect the
overall economics of the programming
to the consolidated group.
For financial executives and their teams,
accounting for acquired programming
presents many challenges. Neither IAS
2 nor IAS 38 is specific to the television
industry nor do they offer relevant
interpretive guidance. The significant
increase from digital transformation in
the number of cable/satellite channels,
the variety of funding models and the
advent of multi-platform programming
rights has added complexity to key areas
of judgement such as the amortisation
method and assessment of impairment.
Furthermore, the increasingly global
nature of television broadcasting
introduces foreign exchange complexity.
The accounting considerations when
developing and producing (as opposed
to acquiring) programming content will
be the subject of a separate MIAG paper
Cost capitalisation under IFRS for media
companies. This separate MIAG paper
will also consider cost amortisation by
producers selling across multiple
territories.
The information in this paper should be
used as a framework when considering
how to recognise, classify and measure
your acquired programming rights. The
answer for complicated real life
transactions will, as always, depend on
the specific facts and circumstances in
each case.
8 MIAG
Issue: 3
Acquired programming rights
Recognition
When should an asset for
acquired programming rights
be recognised on the balance
sheet?
Regardless of whether the broadcaster
references IAS 2 or IAS 38, the asset for
acquired programming rights should be
recognised when the cost of the
acquired programming is known and it
is available for its first licensed airing by
the broadcaster. At this time the full
asset is recognised with a corresponding
liability for any future payments.
Payments in advance of the programme
being available and licensed to air
should be recorded as prepayments
rather than acquired programming
rights. In practice, many IFRS
broadcasters report both programming
prepayments and acquired rights within
one line item on the face of the balance
sheet and then distinguish between the
two in the footnote. This is particularly
common for those broadcasters which
classify acquired programming rights as
intangible assets.
For a programme which is prepaid in
full prior to the licence period
commencing, the onset of the licence
period then simply results in a
reclassification within the footnote. In
contrast, the onset of the licence period
for a television series for which
payments are staggered before and
during the licence period will have a
significant measurement impact since at
this time the contract value is
recognised in full with an associated
liability for the unpaid portion. Where
payments are staggered across multiple
years then, if the effect of the time value
of money is significant, this liability
should be discounted to present value.
The requirement that the programming
material be available for airing often
prevents “live” programming such as
sports and other event-driven
broadcasting (e.g. the Olympic Games,
X Factor, American Idol) from being
recognised as a programming rights
asset until the event date occurs. In
contrast, the acquisition of the rights to
air a completed television series or a
theatrically released film will generally
meet the “available for airing” criteria at
the commencement of the licence
period. In these cases, a programming
rights asset and liability (for the entire
contract) is typically recognised at the
commencement of the licence period.
A broadcaster has recently
acquired significant
programming rights that
become available in future
periods. When is it
appropriate to record the
corresponding asset and
liability associated with
these rights?
Until the licence term commences and
the programming has been made
available, the asset has not been
“received” by the broadcaster.
Accordingly, for completed movies,
rerun shows, and finite drama series
that are recorded in full prior to airing,
the rights under the contract would be
recorded on the later of licence period
commencement date and programme
availability. Payments made in advance
of this are classified as prepayments.
For programming delivered across its
production cycle, programming assets
and liabilities would be recorded as the
episodes become available. Examples
include e.g. sports rights, talk shows,
and ongoing drama series or soap
operas. Payments made in advance of
production are classified as
prepayments.
A secondary broadcaster has
acquired rerun programming
rights which are restricted such
that the reruns can only begin
once the primary network has
finished the first run. When
and how should an asset be
recognised by the secondary
broadcaster?
In this scenario, the rerun licence term
only commences once the primary
network first run has finished. Advance
payments would therefore represent
prepayments not acquired programming
rights. The question arises whether the
secondary broadcaster has an asset at all
given there are broadcasting restrictions
(i.e. the timing of the primary network
first run) outside its control. Clearly,
specific facts and circumstances should
be considered, but in general we believe
a prepayment asset would be
recognised, either because it is clear in a
practical sense that the primary run will
inevitably occur within a certain
timeframe, or because there is a
protection clause in the secondary
broadcaster’s contract which protects
their investment in the unlikely event
the primary broadcaster declines to
finish the primary run.
In addition to the core
programming rights, a
broadcaster must pay
incremental fees each time it
broadcasts a rerun. How
should the incremental fee
be accounted for?
In general, these incremental fees would
simply be recognised and expensed as
each additional broadcast occurs.
However, careful assessment of the
specific facts and circumstances may be
required if it can readily be seen that this
will distort results within a given reporting
period (e.g. if the level of the incremental
fee significantly increases or decreases
across a multi-year licence period).
Issue: 3
MIAG
9
10 MIAG
Issue: 3
In contrast, those broadcasters that
account for acquired programming
rights as intangible assets more often
(though not always) present the
intangible as a non-current asset.
Acquired programming rights
Classification
What is the appropriate
classification for acquired
programming?
There is diversity in practice among
broadcasters as to which is the primary
IFRS accounting standard governing the
accounting for acquired programming
rights. Some broadcasters reference
IAS 2 Inventories whereas others
reference IAS 38 Intangible Assets.
IAS 2 defines inventories as assets (a)
held for sale in the ordinary course of
business; (b) in the process of
production for such sale; or (c) in the
form of materials or supplies to be
consumed in the production process or
in the rendering of services. In
contrast, IAS 38 defines an intangible
asset as an identifiable non-monetary
asset without physical substance.
A broadcaster typically acquires
programming rights to fill the
broadcaster’s television schedule and
hence generate revenues either through
sales of advertising spots and/or
through viewers paying directly or
indirectly for the right to watch the
channel. The acquired programming
right is an identifiable non-monetary
asset without physical substance (i.e. an
intangible asset under IAS 38) and will
not itself be obviously sold or consumed
in the rendering of these broadcast
services (as required by the definition of
inventory under IAS 2). Furthermore,
acquired programming rights can have
licence periods spanning many years,
whereas inventories are typically
viewed as current assets.
Our view is therefore that, for
broadcasters, acquired programming
rights generally fall more naturally
under the remit of IAS 38 than IAS 2.
However, we believe that classification
as inventory is also acceptable and is
particularly common in those territories
where acquired programming rights
were classified as inventories under
local GAAP prior to transition to IFRS.
At the time of transition this familiar
classification had the pragmatic benefit
of assisting users of the accounts who
were reviewing IFRS financial
statements for the first time.
In practice this classification as either
IAS 2 Inventories or IAS 38 Intangible
Assets currently makes little substantive
difference to measurement of the asset
since initial recognition (covered above)
and subsequent amortisation and
impairment review practices (all
covered below) are usually treated the
same in practice.
Second, IFRS does not define current
and non-current by reference to a
specific time period such as 12 months.
Instead, IAS 1 Presentation of financial
statements defines an asset as current
when the entity expects to realise or
consume it within its normal operating
cycle. Many broadcasters avoid
explicitly defining their operating cycle
but would presumably use it as a
justification for presenting all acquired
programming rights within current
assets.
A number of broadcasters who present
all acquired programming assets within
current assets use either quantitative or
qualitative statements to acknowledge
that a portion will be utilised across
more than 12 months.
(Since the classification as inventory or
intangibles is often associated with
presentation as current or non-current
assets respectively, the classification will
affect the current ratio. It can also
impact commercial transactions such as
acquisitions or financing arrangements,
since inventory is generally
automatically deemed to be working
capital whereas intangible assets are
more likely to be the subject of
negotiation. Given the nature of the
underlying asset, programming rights
classified as intangible assets are also
ultimately likely to be treated as
working capital, but only after debate
rather than by automatic assumption.)
Should acquired programming
rights sometimes be presented
as non-current assets?
The licence periods for acquired
programming rights frequently extend
across many years, which leads to the
question as to whether they should be
presented by broadcasters as noncurrent assets. There is a diversity of
practice here for two reasons.
First, for those broadcasters that account
for acquired programming rights as
inventories, it is usual to present the
entire rights as current assets since it is
rare in any industry to see inventories
classified as non-current assets on the
face of the balance sheet.
Issue: 3
MIAG
11
So is classification as
inventories or intangible assets
irrelevant for amortisation?
Acquired programming rights
Amortisation
What factors help a
broadcaster determine the
appropriate amortisation
method for the various types of
acquired programming rights?
Technically, there is a difference
between the utilisation of inventories
and intangible assets: IAS 2 requires
inventories to be recognised in the
income statement in the same period as
the related revenue, whereas IAS 38
requires an intangible asset to be
amortised so as to reflect the pattern of
consumption of its economic benefit.
But in practice this difference has
historically been moot since, regardless
of whether broadcasters classify
acquired programming rights as
inventories under IAS 2 or intangibles
under IAS 38, cost recognition in the
income statement has generally
followed the methods described below.
Different types of acquired
programming can have different
underlying economics, resulting in
various amortisation methods. For
example, sporting events typically
generate higher advertising revenues
during the live airing of high profile
matches compared to highlights or
reruns; and successful theatrically
released films typically generate higher
advertising revenues during their first
airing than in subsequent airings. In
contrast, second or third reruns of
episodic television series may generate
fairly consistent levels of advertising
revenue.
12 MIAG
Issue: 3
The unique nature of each acquired
programming rights requires the
broadcaster to consider several factors
when selecting the appropriate
amortisation method, including:
• Expected pattern of revenues and the
related ability to reliability estimate
these revenues;
• Likelihood that future runs or airings
would generate different revenues or
audiences;
• Significance of the specific right and
its importance to the overall broadcast
schedule; and
• Relationship of the programming to
other significant revenue streams such
as affiliate fees.
After careful consideration, a
broadcaster determines an appropriate
amortisation method. Amortisation can
occur in full on first transmission; or be
based on the contracted or estimated
number of airings; or be straight-lined
over the broadcast licence period; or
follow the pattern of expected revenues
(“flow-of-revenue”) particularly if a first
showing is considered more valuable
than later reruns. The application of
these different methods is considered in
Figure 2 below.
In practice, regardless of whether
broadcasters classify their acquired
programming rights as inventories or
intangible assets, they select the
amortisation method which most
appropriately reflects underlying
economic reality subject to pragmatic
constraints such as simplicity of
application and the availability of
reliable data. In that sense, the
classification as inventories or intangible
assets is irrelevant.
However, although the timing and
magnitude of the related expense is
unaffected, its disclosure can vary. The
cost associated with an intangible asset
is invariably described as “amortisation”
whereas those broadcasters who classify
acquired programming rights as
inventories sometimes do refer to them
as being amortised but sometimes use
other terms (e.g. “cost of programming”)
and sometimes do not separately
disclose the related expense at all.
Comparing EBITDA between
broadcasters is a complex and hazardous
task, with some broadcasters reversing
programming amortisation out of
EBITDA while others leave it in.
(Throughout this paper, we use
“amortisation” to refer generically to the
expensing of acquired programming
rights in the income statement, even
where these rights are classified on the
balance sheet as inventories.)
How might the accounting
guidance for amortisation
change in the future?
The International Financial Reporting
Interpretations Committee (IFRIC)
included this statement within its
November 2011 agenda paper:
“The Committee noted that the principle
in IAS 38 is that an amortisation method
should reflect the pattern of consumption
of the expected future economic benefits
and not the pattern of generation of
expected future economic benefits… In
particular, the Committee noted that
amortisation methods based on revenue
are not an appropriate reflection of the
pattern of consumption of the expected
future economic benefits embodied in an
intangible asset.”
Following its March 2012 meeting, the
IFRIC recommended a clarification of
IAS 38 to prohibit the use of
amortisation patterns which reflect the
"generation of economic benefit". This
would potentially require those
broadcasters classifying acquired
programming rights as intangibles to
discontinue use of the “flow-of-revenue”
amortisation method. Such
broadcasters would need to amend their
amortisation profiles; or reclassify
acquired programming rights as
inventories; or demonstrate that their
current revenue matching methods
(“generation of economic benefit”)
approximate to an amortisation method
explicitly permitted in IAS 38 such as
unit-of-production or diminishing
balance (“consumption of economic
benefit”). For now, we advise
broadcasters to pay close attention to
further IFRIC and IASB pronouncements
and to formally comment if they feel
strongly on this topic.
The selection of amortisation method
can have a significant impact on the
timing of cost recognition, as illustrated
in the example in Figure 3.
What amortisation methods
are commonly used?
In practice, companies select
amortisation methods depending on the
type of programming and its purpose on
the specific network or channel.
Figure 2 lists various types of
programming rights acquired from third
parties by broadcasters, the common
amortisation methods, and some
considerations in selecting the most
appropriate method.
Figure 1: Impact of classification of acquired programming rights
Balance sheet classification of
acquired programming rights:
Inventories (IAS 2)
Intangible asset (IAS 38)
Initial recognition:
Cost
Cost
Balance sheet presentation prior to
licence period:
Prepayment either on face of balance
sheet or as a sub-category within
inventory programming rights footnote
Sub-category of prepayments within
intangible assets programming rights
footnote
(analogous to “assets in the course of
construction”)
Balance sheet presentation once
licence period commences:
Usually all in current assets
(sometimes with qualitative or quantitative
footnote disclosure to acknowledge a
portion will be realised > 12 months)
Sometimes all in non-current assets
Income statement utilisation:
Various methods – refer to Figure 2
below
Various methods – refer to Figure 2
below
Expense disclosed as:
Sometimes “amortisation”
Amortisation
Sometimes all in current assets
(if the latter, sometimes with
qualitative or quantitative footnote
disclosure to acknowledge a portion will
be realised > 12 months)
Sometimes disclosed using another term
Sometimes not explicitly disclosed
Expense reversed out from EBITDA:
Sometimes reversed out from EBITDA
Sometimes reversed out from EBITDA
Sometimes included within EBITDA
Sometimes included within EBITDA
Disclosures:
Relatively few mandatory disclosure
requirements
More extensive disclosure requirements
including roll-forward from prior year
and separation of impairment vs.
amortisation
Cash flow treatment of expenditure
on programming rights:
Within operating activities
Usually within investing activities
Potential future impact of IFRIC
statement in November 2011:
n/a – no impact
Sometimes within operating activities
Matching amortisation cost to expected
revenues (“flow-of-revenue”) may not be
permitted in the future
Issue: 3
MIAG
13
Figure 2: Common amortisation methods
Type of acquired programming
rights
Plausible amortisation
methods
Considerations in selecting a method
Light entertainment:
soap operas, quiz shows, panel
shows, music programmes, chat
shows, new TV series and pilots
Expensed in full on first
transmission (of each
episode)
Limited ability to predict significant audiences or revenues
from future airings suggests the cost should be expensed
in full on first transmission.
If management does not believe that subsequent airing will
occur, then expensing the entire licence fee upon the initial
airing of each episode would be appropriate.
Examples: Eastenders; House;
Grey’s Anatomy; Who Wants To Be
A Millionaire?; Never Mind the
Buzzcocks; The Jonathan Ross
Show
The same consideration would apply if management
believes future airings will occur but will have minimal
audience or revenue value compared to first airing.
“Pay per play” programming rights are also typically
expensed as incurred.
Airing of new series of existing TV
shows...
Number of contracted or
expected airings
...with known rerun value on main
channel e.g. Lost
Where the broadcaster has the right to air a programme
several times, an allocation between airings based on
expected revenues may be appropriate.
Flow-of-revenue
Total revenues for series with irregular audiences (e.g.
those that increase for a final) may be allocated based on
flow-of-revenue.
Number of contracted or
expected airings
This type of programming is generally run on cable/satellite
channels.
or
Typically audiences and hence advertising revenues are
more consistent across each airing of each episode.
Amortisation based on either expected airings or straightline over the licence period is appropriate.
...with irregular audiences e.g.
X Factor, American Idol
Syndicated episodic series
(television episodes sold for reruns
after their initial airing on their
primary channel)
Examples: Friends; Sex and the
City; Glee; Two and a Half Men;
natural history and wildlife
documentaries
Children’s TV including cartoons
Examples: Sponge Bob Square
Pants; Dora The Explorer; Hannah
Montana
Straight-line over licence
period
Some companies adopt a conservative approach such as
“greater of cumulative impact of airings and straight-line”
to ensure amortisation is no slower than straight-line and
potentially accelerated based on airings. However, profiles
which defer amortisation compared to straight-line are also
permitted by IAS 38.
Number of contracted or
expected airings
Straight-line over licence
period
Flow-of-revenue
Children’s television shows typically have relatively high
rerun value due to both audience turnover as children age
and the propensity of children to watch reruns.
It is therefore often supportable to move away from
expensing in full on first transmission to amortisation
based on airings, straight-line or flow-of-revenue.
Expensed in full on first
transmission (of each
episode)
Theatrical-release films
Number of contracted or
Examples: Pirates of the Caribbean; expected airings
Toy Story 3
Flow-of-revenue
Sports rights
Issue: 3
The flow-of revenue method is often appropriate when a
title has significant value, such as for a "blockbuster" type
films, where initial airings generate higher advertising
revenues.
Straight-line over licence
period
If a title or, in some cases, a bundle of titles, does not
generate significant incremental revenues from its initial
airing compared to subsequent airings, amortisation on a
straight-line basis or on a fixed amount per airing would
usually be appropriate. The straight-line method is often
appropriate for “library” titles or a bundle of titles where the
airing of individual titles does not generate significantly
different value and the titles are airing on a regular basis.
Flow-of-revenue
Flow-of-revenues method is often used for live sporting
events, particularly for longer events such as a football
season, as advertising revenues and affiliates fees usually
see an increase during event periods.
Expensed in full on first
transmission
Short-term one-off sporting events such as Wimbledon
may be effectively expensed on first transmission if they do
not cross a reporting period date.
Examples: FIFA World Cup;
Olympic Games; Premiership
football; Wimbledon
14 MIAG
Theatrically-released film contracts usually specify a
limited number of airings over a finite period of time.
The following example illustrates the
impact of the various amortisation
methods on the timing of cost
recognition:
Cost of rights – €12m
Expected revenues – €20m
Expected number of airings – 2
First airing – €15 million (Year 1 H1)
Licence period – 2 years
Second airing – €5 million (Year 2 H2)
Timing of cost recognition in income statement
Method
Year 1
Year 1 H2
Year 2 H1
Year2 H2
Cumulative
Initial transmission
€12m
–
–
–
€12m
Flow-of-revenue1
€9m
–
–
€3m
€12m
€3m
€3m
€3m
€3m
€12m
€6m
–
–
€6m
€12m
Straight-line2
Number of airings
1.
2.
3.
3
(Expected revenues for each airing ÷ Total expected revenues) x Total cost of rights)
(Total cost of rights ÷ Licence period)
(Total cost of rights ÷ Number of expected airings)
Figure 3: Impact of amortisation methods
Initial transmission
12
Straight-line
Flow of revenue
9
Number of airings
6
6
3
3
0 0
Year 1 H1
3
0
Year 1 H2
0 0
3 3
0
Year 2 H1
The selection of the most appropriate
method will vary depending on specific
facts and circumstances. A rational
amortisation method supported by the
underlying economics of the
transactions, consistently applied across
similar types of programmes and
between reporting periods, is usually
effective in determining an appropriate
amortisation method.
The amortisation method selected
should be periodically reviewed to
confirm its ongoing appropriateness.
For example, with increases in time-
0
Year 2 H2
shifted viewing (through e.g. Video on
Demand, BBC iPlayer, etc.) and
micropayments to view programmes
online it is possible that amortising in
full on first transmission might become
less appropriate in the future.
Furthermore, it is increasingly common
for programming rights agreements to
also cover other platforms such as
desktop computer, tablet and
smartphone. These can be treated as
separate elements for accounting
purposes, in which case the acquired
programming rights must be allocated
between each platform (e.g. based on
relative fair value); or they can be
treated as one element, with
amortisation being either straight-line
across one combined licence period or
following an aggregated flow-of-revenue
method. Today, treatment as one
accounting element is often sufficient to
reflect the underlying economics of the
transaction, although this may change
with the rapid growth of digital delivery
platforms. The accounting for
multi-platform rights is an emerging
area which will be addressed in more
detail in a future MIAG paper.
Issue: 3
MIAG
15
16 MIAG
Issue: 3
Acquired programming rights
Impairment assessment
What are the key
considerations when assessing
acquired programming rights
for impairment?
When considering potential impairment
of programming, various models are
used by different broadcasters,
reflecting the economics of their specific
circumstances. Typical practices are:
• Cable/satellite channels often assess
programming for impairment on an
individual channel basis, since their
programming is typically
interchangeable throughout each day.
Broadcasters that have classified
programming rights as intangible
assets under IAS 38 can directly
justify this practice by stating that the
channel is the cash generating unit
(CGU) i.e. it is the lowest level at
which cash flows can be
independently assessed. For
broadcasters that have classified
programming rights as inventory
under IAS 2 there is no direct
equivalent to a CGU, but in practice
these broadcasters often still assess at
the channel level on the pragmatic
grounds that information is not
available at a sufficiently granular
level to assess recoverability at the
individual programme level.
obvious that the use of an individual
programme will change significantly
e.g. it will now be used only in a much
inferior slot to that originally
intended. Others may avoid such a
write-down if they perform
impairment assessments only at the
channel or multi-channel level, since
the loss on an individual programme
may be sheltered by other more
profitable ones.
Overall, it is important that the basis for
a broadcaster’s impairment assessment
be consistent with the underlying
economics of its business, including the
nature and the expected usage of its
programming. The impairment
assessment model(s) adopted should be
applied consistently across similar
channels and programme types and
between reporting periods.
What is a “daypart” and how is
it used in impairment
assessment in the US?
A “daypart” is defined as an aggregation
of programs broadcast during a
particular time of day (e.g. daytime,
primetime, late night) or programs of a
similar type (e.g. sports, news, children's
shows). Broadcasters generally sell
advertising access by reference to these
types of classifications.
• Some cable/satellite networks assess
impairment by reviewing a selection
of channels as a whole, including
channels that are currently loss
making, but for which future
operating costs can be adjusted or
which form an integral part of
generating audiences and revenues for
other profitable channels. This
approach effectively combines
multiple channels into a single CGU.
For both single and multi-channel
CGUs, any impairment recognised is
allocated across all long-lived assets
not just programme rights.
US terrestrial broadcasters and other
large scale networks which report under
US GAAP often assess programming for
impairment based on a daypart model
as programming is typically
interchangeable within each daypart.
To the extent that the estimated net
realisable value (NRV) of acquired
programming rights exceeds
unamortised cost, an impairment
charge may be recorded. This NRV
analysis is prepared on a program-byprogram, series, package, or daypart
basis as considered appropriate.
• Broadcasters of all types will write off
(“abandon”) programming on an
individual programme basis when it is
no longer expected to air for the
remainder of the licence period.
Outside the US the use of “dayparts”
within impairment assessment is
relatively uncommon. Most terrestrial
broadcasters which report under IFRS
follow the cable/satellite channel
practices described above.
• Some broadcasters may record a
similar write down when it becomes
When is it appropriate to
record a provision for an
unfavourable programming
contract?
An executory contract is one that
remains unperformed or incomplete so
requires the attention of either or both
parties to the contract. For example, if a
broadcaster has a contract to air four
seasons of football matches for a fixed
price per season, this is an executory
contract in that the licensee
(broadcaster) must air the matches and
the licensor (football governing body)
must deliver the matches. For some
executory contracts, such as sports
rights, a broadcaster may engage in an
executory contract for which expected
contractual costs exceed expected
revenues. Alternatively, a broadcaster
may be party to a contract under which
it is committed to paying for
programming it no longer intends to air.
In these types of situations questions
arise as to whether it would be
appropriate to record an onerous
contract provision under IAS 37
Provisions, contingent liabilities and
contingent assets.
Where a broadcaster is committed to
paying for programming which will not
be aired, such a contract is clearly
onerous. In this situation an onerous
contract provision would normally be
recognised (after first writing off any
related assets from the balance sheet).
This is analogous to the impairment
practice set out in the third bullet above.
On the other hand, where a broadcaster
is committed to paying for a programme
which will be individually loss-making,
but the channel is profitable overall (or
is part of a network of profitable
channels) then it is relatively uncommon
to see an onerous contract provision
being recorded.
However, if the expected loss on an
individual programme rises over time to
a point where it is clearly well in excess
of the loss as originally budgeted when
the contract was initiated, some
broadcasters will use this as a trigger to
record an onerous contract provision.
The assessment of onerous
programming contracts, like the
application of impairment models, is
complex and judgemental. As usual, a
key consideration is consistency of
application across similar situations and
between reporting periods.
Issue: 3
MIAG
17
18 MIAG
Issue 2
Prior to applying such a method,
companies should consider other factors
which may indicate that allocating
relative value based on affiliate fees
could be appropriate e.g.:
Acquired programming rights
Sports rights
PwC’s Changing the game: Outlook for the
global sports market to 2015 forecasts
global sports media rights to increase
from $27 billion in 2011 to $35 billion in
2015. In fact, the value is even higher in
2014 at $38 billion, since sports rights
peak in “even” years due to the cyclical
nature of the Olympic Games and FIFA
World Cup.
Acquired sports rights have
unique economic characteristics
compared to other types of
acquired broadcast rights.
How do these considerations
impact the accounting for
acquired sports rights?
For acquired sports rights, the
programming is unique because it is
normally aired only once, when the
match is played. Key economic
characteristics to be considered for
accounting sports rights are listed
below:
• Advance payments on sports right
contracts are typically recorded as a
prepaid asset rather than an acquired
broadcast right.
• Sports rights typically have significant
contractual licence fees that are paid
throughout a multi-year term. The
timing of these payments compared to
relative economic value may not be
fully aligned and may impact the
amortisation method.
• A programme liability position may
result if cost recognition based on
relative economic value received
exceeds the contractual payments
made to date (i.e. where payments are
end-loaded).
• Whether the broadcaster has one
revenue stream or multiple revenues
streams (e.g. affiliate fees) may impact
the amount of licence fee paid and the
underlying economic substance of a
sports rights arrangement.
All of these factors should be considered
when selecting the proper amortisation
method. In practice, there are three
common methods when accounting for
acquired sports rights: flow-of-revenue,
straight-line, and contractual-terms
methods. In addition, short-term
one-off sporting events such as tennis
grand slam tournaments may be
effectively expensed on first
transmission if they do not cross a
reporting period date.
In applying a flow-of-revenue
method for sports rights
amortisation, what revenue
streams are considered
appropriate for inclusion?
Under a flow-of-revenue method,
amortisation is based on the ratio of
current period direct revenues divided
by estimated total direct revenues over
the sports rights licence period. In this
method, consideration should be given
to what comprises direct revenues,
typically advertising revenues.
As sports governing bodies continue to
migrate their sports contracts to cable/
satellite networks (e.g. club football/
soccer in most countries; test match
cricket; club rugby) the underlying
economics for sports rights paid by the
channel is often driven not only by
incremental advertising revenues but
also by potential increases in
subscription/licence fees paid directly
by viewers or indirectly as affiliate fees.
For a cable/satellite channel that
generates a significant portion of its
total revenues from affiliate fees,
consideration should be given to
whether these affiliate revenues can be
used as a basis of flow-of-revenue
amortisation, particularly if advertising
revenues for major sports rights are a
minor proportion of their total costs (e.g.
less than 50%).
• Whether the term of affiliate
arrangement is consistent with the
term of contractual sports rights
(e.g. both long-term in duration); or
• Whether the affiliate arrangement
includes sport-related programming
covenants.
Both factors provide linkage between
the affiliate arrangement and significant
sports rights, and reflect that these
sports rights are a key factor in the
negotiation of long-term affiliate
contracts. Applying an affiliate revenue
flow-of-revenue method is an area of
judgement, for which various
approaches may be acceptable based on
the underlying economics.
What are the challenges in
applying a flow-of-revenue
method?
One of the main challenges is dealing
with significant changes in estimate
which can occur due to:
• Difficulties in attributing key sources
of revenue to specific underlying
sports rights contracts, as well as
changes in the composition of
programming and sports rights;
• Estimating advertising rates several
years into the future; and
• Unpredictability of the advertising
value of key matches due to volatility of
audience sizes e.g. viewing figures for
the UEFA Champions League final will
rise significantly for those countries
with teams playing in that match.
As a result of these complexities and the
high degree of judgement involved,
flow-of-revenue modelling is a
challenging area, in which significant
shifts in cost recognition can result
based on actual performance, as per the
following example of rights acquired for
€135m.
Issue: 3
MIAG
19
Figure 4: Flow-of-revenue method for sports rights
€ millions
Year 1
Year 2
Year 3
Total
1
50
55
61
166
Projected flow-of-revenue amortisation %
30%
33%
37%
100%
Projected flow-of-revenue cost recognition
41
45
50
135
Actual revenues
50
80
55
185
41
(=135 *(50/166))
56
(=135 *(80/191))
38
(remaining)
135
Projected flow of revenue gross margin %3
19%
19%
19%
19%
Actual flow-of-revenue gross margin %
19%
30%
31%
27%
Difference
0%
-11%
-11%
-8%
Projected revenues
2
Actual flow-of-revenue cost recognition
1.
2.
3.
Assumes a 10% compound annual growth rate
Only change is that in Year 2, that country’s teams performed strongly in the competition,
generating larger audiences
The projected 19% gross margin, based on total projected revenues and contract
payments, is consistent for all periods
In Figure 4 above, this flow-of-revenue
method results in large shifts in revenue
and cost recognition from year to year,
driven by the nature of teams and
matches played.
When is it considered
appropriate to apply a
straight-line method to sports
rights amortisation?
The straight-line method can be applied
at two levels. First, if each season has
equal economic value, then it is
appropriate to allocate total costs on a
straight-line basis to each season.
Second, within each season, costs can
be expensed either straight-line over the
matches aired or on a single season
flow-of-revenue method. The use of
straight-line within a season is
appropriate if each match within the
season has consistent economic value.
If significant payments are
made throughout the sports
rights licence period, when is it
appropriate to recognise costs
in accordance with this
payment schedule?
Under a “contractual payments” model,
costs are recognised in accordance with
the payment schedule over the sports
rights licence period. To support use of
this method, a strong correlation should
be demonstrated between the payment
schedule and flow-of-revenues derived
from the sports rights. Without this direct
linkage between the flow-of-revenues and
payment schedule, we do not believe that
this method, which is effectively akin to
cash accounting, is supportable.
Overall, the accounting for the
amortisation of sports rights is an area
of significant estimation and judgement
for which various methods may be
supported. As usual, a rational
amortisation method supported by the
underlying economics of the
transactions, consistently applied across
similar types of programmes and
between reporting periods, should be
effective in determining an appropriate
amortisation method.
20 MIAG
Issue: 3
Issue 3
MIAG
21
Considering each criteria in turn for
our example:
• Neither the EBU nor the International
Olympic Committee (which is based in
Lausanne, Switzerland) will have a
functional currency of US dollar; and
Acquired programming rights
Foreign currency considerations
What considerations arise
for acquired programming
rights denominated in a
foreign currency?
The example in Figure 5 opposite clearly
illustrates that the income statement
impact of retranslating a programme
creditor denominated in a foreign
currency can be significant.
As explained earlier, programming
assets are generally recognised in full
once the licence period has commenced.
The payment terms for acquired
programming rights may be spread
forward over part or all of the licence
period. Acquired programming rights
are a non-monetary asset so if acquired
in a foreign currency are fixed at the
spot rate at date of asset recognition and
not subsequently retranslated at future
reporting dates. In contrast, any
associated creditor for future payments
is a monetary liability so will be
retranslated via the income statement at
each period end until payment is made.
Can embedded derivatives
arise on acquired
programming rights
denominated in a
foreign currency?
The licence fee for acquired
programming can be significant,
particularly for major sports rights. At
times of foreign exchange volatility the
translation effect can be significant and
may be subject to tax.
(Refer to Figure 5 opposite: Retranslation
of programming rights creditor.)
Suppose the (hypothetical) European
Broadcasting Union (EBU) agrees in
2005 to pay $76m for the rights to air
the historical recordings of all previous
modern Olympic Games during the
period from January 2010 to December
2012. The payment schedule is 50% on
availability of the recordings in January
2010 and 50% at the start of January
2013 following the end of the Olympic
Games year of 2012. (Assume straightline amortisation method is adopted.)
22 MIAG
Issue: 3
An embedded derivative is a derivative
instrument which is contained within a
non-derivative host contract. Unless the
derivative is “closely related” to the host
contract it must be separated and
measured at fair value, usually via the
income statement.
Suppose the hypothetical EBU, which is
headquartered in Luxembourg,
successfully bids $500m in 2012 for the
European rights to air the 2016 Olympics
Games in Rio de Janeiro, Brazil.
Payment will be in 2016 when the games
take place. This transaction in USD
would constitute an embedded derivative
in the Euro books of the EBU unless one
of these criteria is met:
• The contract is denominated in the
functional currency of one of the main
counterparties; or
• The contract is denominated in a
“common currency” routinely used for
normal transactions in the country of
one of the main counterparties (as e.g.
the US dollar is in the Caribbean); or
• The contracts for sports rights around
the world can be shown to be routinely
denominated in US dollars (as e.g. is
crude oil).
• The US dollar does not act as a common
currency in either Luxembourg or
Switzerland; and
• Sports rights are not routinely
denominated around the world in US
dollars since many are denominated in
Euros, Sterling or local currencies.
(This is a very high hurdle generally
reserved for crude oil and some metals.)
Since none of the criteria are met, the
EBU may have an embedded derivative
which should be separated from the host
contract and measured at fair value. If
the forward rate value of the USD
against the Euro should fluctuate, this
volatility will be reflected today in the
EBU income statement. Note that the
embedded derivative is recognised at
fair value even though in this example
the underlying asset (acquired
programming rights) and liability
($500m) will not be recorded until the
games actually take place in 2016.
In contrast, a broadcaster based in a
country where the US dollar is used as a
common currency could enter into a
similar contract to the EBU example
without triggering the need to separate
out an embedded derivative. For
example, the US dollar is deemed a
common currency in parts of the
Caribbean, the Middle East, south-east
Asia, South Africa and Brazil. So
broadcasters in these countries can enter
into broadcasting contracts in US dollars
knowing that any embedded derivative
would be deemed closely related and
hence not separated.
It is worth highlighting here that this is a
hypothetical example. Clearly, the
specific facts and circumstances in any
real life situation would need to be
examined with care.
Overall, the increasingly global nature of
television broadcasting introduces foreign
exchange complexity. Sports rights are
frequently denominated in US dollars or
Euros, but this frequency does not
constitute “routinely” in an accounting
sense. Such contracts therefore run the
real risk of separable embedded
derivatives if the contracts are not
denominated in the functional or
common currencies of the counterparties.
Figure 5: Retranslation of programming rights creditor
Year ending
2005
At availability in Jan 2010
Accounting entry
Asset NBV $000 Asset NBV €000 Liability $000
s/line 25% p.a.
Liability €000
Rate
(hypothetical)
FX €000 gain/(loss)
No transaction recorded
Full asset + liability recorded
76,000
54,286
76,000
54,286
1.4
Dec-10
Retranslation of liability
57,000
40,714
38,000
31,667
1.2
(4,524) loss
Dec-11
Retranslation of liability
38,000
27,143
38,000
34,545
1.1
(2,879) loss
Dec-12
Retranslation of liability
19,000
3,571
38,000
29,231
1.3
5,315 gain
Dec-13
Retranslation of liability
–
–
–
–
1.2
–
Journal Entries €000
At availability in Jan 2010
Dr. B/S Programme Asset
Cr. B/S Liability
54,286
y/e Dec 2011
(54,286)
To record asset once available
y/e Dec 2010
2,879
Cr. B/S Liability
(2,879)
To record retranslation of liability
Dr. P&L FX Loss
4,524
Cr. B/S Liability
(4,524)
To record retranslation of liability
Dr. P&L FX Loss
y/e Dec 2012
Dr. P&L FX Loss
5,315
Cr. B/S Liability
(5,315)
To record retranslation of liability
Issue 3
MIAG
23
Conclusion
Exploitation of acquired programming
rights is a key driver of revenue growth
for the majority of broadcasters. As
broadcasting evolves in response to
digital transformation and market
fragmentation, accounting procedures
for acquired content pose new challenges
for media companies.
This paper has explored the critical
considerations relating to the
recognition, presentation, amortisation
and impairment of acquired
programming rights under the applicable
IFRS standards IAS 2 Inventories and IAS
38 Intangible Assets. For financial
executives and their teams, accounting
for acquired programming presents
many challenges. Neither IAS 2 nor IAS
38 is specific to the television industry
nor do they offer relevant interpretive
guidance. The significant increase from
digital transformation in both the
number of cable/satellite channels and
the variety of funding models has added
complexity, as has the increasingly global
nature of television broadcasting.
Companies which are adept at navigating
the intricate accounting and reporting
practices can tell their story in a clear and
compelling manner, building public trust
in their performance with stakeholders
such as investors, analysts, employees,
suppliers, advertisers and viewers.
The information in this paper should be
used as a framework when considering
how to recognise, classify and measure
your acquired programming rights. The
answer for complicated real life
transactions will depend on the specific
facts and circumstances in each case. As
always, planning ahead can prevent
painful surprises.
To comment on any of the issues
highlighted in this paper please visit our
dedicated website www.pwc.com/miag
or contact your local PwC entertainment
and media specialist.
24 MIAG
Issue: 3
“As always, planning ahead can
prevent painful surprises”
Publications / further reading
www.pwc.com/ceosurvey
www.pwc.com/miag
MIAG
Issue: 1
Media Industry
Accounting group
November 2011
Delivering results
Key findings in the
Entertainment and Media sector
Making sense of a
complex world
Accounting for joint
ventures – issues for
media companies
15th Annual Global
CEO Survey
Sector summary
This paper explores
some of the accounting
complexities related to
joint ventures which can
arise for media companies
both under existing IFRS
and in the future.
MIAG Issue: 1
Global entertainment & media outlook
15th Annual Global CEO Survey
Accounting for joint ventures – issues
for media companies
2011—2015
Entertainment & Media industry
summary
More CEOs in Entertainment & Media
(E&M) than in any other sector expect
to form a new strategic alliance or joint
venture in the coming year. And 57% –
compared to 39% across all industries
– expect the majority of their
innovations to be co-developed with
partners outside their organisations.
This forecast increase in the scale and
scope of joint ventures will expose more
media companies to accounting
complexities such as distinguishing
between supplier arrangements, jointly
controlled operations and jointly
controlled entities; the treatment of net
liabilities in a joint venture;
retranslation of foreign joint ventures;
and the contribution of assets and
knowledge into a joint venture.
PwC’s Global entertainment & media
outlook contains detailed industry
analysis and forecasts trends in the
global entertainment & media industry
over the next 5 years across 13 industry
segments in 48 countries.
This year our findings show that E&M
CEOs think their businesses’ future growth
depends—crucially—on responding to
consumer change through innovation.
Collaboration within and across the digital
ecosystem will be vital for achieving this.
The key element currently lacking is the
right skills – a shortcoming they’re
determined to address.
This year’s outlook focuses on the
emergence of a golden age for
empowered consumers, driven by the
profound move to digital, which has
created a “new normal” for the
entertainment & media industry.
This paper explains the treatment of
these and other items under the current
standard IAS 31 Interests in joint
ventures and also considers how the
treatment might change under IFRS 11
Joint arrangements which is applicable
for periods beginning on or after
1 January 2013.
Issue: 3
MIAG
25
Contacts
Hong Kong
Australia
Marcel Fenez
marcel.fenez@hk.pwc.com
+852 2289 2628
Rosalie Wilkie
rosalie.wilkie@au.pwc.com
+61 2 8266 8381
Cecilia Yau
cecilia.yau@hk.pwc.com
+852 2289 1385
Brazil
United Kingdom
Estela Vieira
estela.vieria@br.pwc.com
+55 11 3674 3802
Phil Stokes
phil.stokes@uk.pwc.com
+44 20 7804 4072
Canada
Sam Tomlinson
sam.tomlinson@uk.pwc.com
+44 20 7804 0726
United States
Dave Johnson
Los Angeles
dave.v.johnson@us.pwc.com
+1 213 217 3845
Bob Barrett
New York
bob.barrett@us.pwc.com
+1 703 283 7040
John Simcoe
john.b.simcoe@ca.pwc.com
+1 416 815 5231
China
Grace Tang
grace.tang@cn.pwc.com
+86 10 6533 2999
France
Richard Bejot
richard.bejot@fr.pwc.com
+33 1 5657 6039
Germany
Christoph Gruss
christoph.gruss@de.pwc.com
+49 69 9585 3415
India
Anuj Puri
anuj.puri@in.pwc.com
+91 99 3000 5283
Italy
Andrea Samaja
andrea.samaja@it.pwc.com
+39 2 6672 0555
Japan
Hideaki Zenba
hideaki.zenba@jp.pwc.com
+81 80 3158 6368
Mexico
Miguel Arrieta
jose.miguel.arrieta@mx.pwc.com
+55 5263 6000 Ext 5857
Netherlands
Sander Kranenburg
Sander.kranenburg@nl.pwc.com
+31 8879 25309
Russia
Evgeny Klimenko
evgeny.klimenko@ru.pwc.com
+7 495 223 5027
Singapore
Charlotte Hsu
charlotte.hsu@sg.pwc.com
+65 6236 7668
South Africa
Vicky Myburgh
vicky.myburgh@za.pwc.com
+27 11 797 4305
Spain
Inmaculada Izarra
Inmaculada.izarra@es.pwc.com
+34 915 685 176
Switzerland
Patrick Balkanyi
patrick.balkanyi@ch.pwc.com
+41 587 922 676
www.pwc.com/miag
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