Time Magazine 2010 Annual Report Download - page 78

In the normal course of business, the Networks segment enters into agreements to license programming
exhibition rights from licensors. A programming inventory asset related to these rights and a corresponding liability
to the distributor are recorded (on a discounted basis if the license agreements are long-term) when (i) the cost of the
programming is reasonably determined, (ii) the programming material has been accepted in accordance with the
terms of the agreement, (iii) the programming (or any program in a package of programming) is available for its first
showing or telecast, and (iv) the license period has commenced. There are variations in the amortization methods of
these rights, depending on whether the network is advertising-supported (e.g., TNT and TBS) or not advertising-
supported (e.g., HBO).
For advertising-supported networks, the Company’s general policy is to amortize each program’s costs on a
straight-line basis (or per-play basis, if greater) over its license period. There are, however, exceptions to this
general policy. For example, for rights fees paid for sports programming arrangements (e.g., National Basketball
Association, NCAA Men’s Division I Basketball Tournament and Major League Baseball), programming costs are
amortized using a revenue-forecast model, in which the rights fees are amortized using the ratio of current period
advertising revenue to total estimated remaining advertising revenue over the term of the arrangement. The revenue-
forecast model approximates the pattern with which the network will use and benefit from providing the sports
programming. In addition, for certain types of programming, the initial airing has more value than subsequent
airings. In these circumstances, the Company will use an accelerated method of amortization. Specifically, if the
Company is licensing the right to air a movie multiple times over a certain period, the movie is being shown to the
public for the first time on a Company network (a “Network Movie Premiere”) and the Network Movie Premiere
advertising is sold at a premium rate, a larger portion of the movie’s programming inventory cost is amortized upon
the initial airing of the movie, with the remaining cost amortized on a straight-line basis (or per-play basis, if
greater) over the remaining license period. The amortization that accelerates upon the first airing versus subsequent
airings is determined based on a study of historical and estimated future advertising sales for similar programming.
For a premium pay television service that is not advertising-supported (e.g., HBO), each program’s costs are
amortized on a straight-line basis over its license period or estimated period of use, beginning with the month of
initial exhibition. When the Company has the right to exhibit feature theatrical programming in multiple windows
over a number of years, the Company uses historical audience viewership as its basis for determining the amount of
a film’s programming amortization attributable to each window.
The Company carries each of its network’s programming inventory at the lower of unamortized cost or
estimated net realizable value. For cable networks that earn both Advertising and Subscription revenues (e.g., TBS
and TNT), the Company generally evaluates the net realizable value of unamortized programming costs based on
the network’s programming taken as a whole. In assessing whether the programming inventory for a particular
advertising-supported network is impaired, the Company determines the net realizable value for all of the network’s
programming inventory based on a projection of the network’s estimated combined subscription revenues and
advertising revenues. Similarly, for a premium pay television service that is not advertising-supported (e.g., HBO),
the Company performs its evaluation of the net realizable value of unamortized programming costs based on the the
network’s programming taken as a whole. Specifically, the Company determines the net realizable value for all of its
premium pay television service programming based on projections of estimated Subscription revenues and, where
applicable, home video and other licensing revenues. In addition, changes in management’s intended usage of a
program, such as a decision to no longer air a particular program and forego the rights associated with the program
license, would result in a reassessment of that program’s net realizable value, which could result in an impairment.
Filmed Entertainment
Feature films typically are produced or acquired for initial exhibition in theaters, followed by distribution in the
home video, electronic sell-through, video-on-demand, pay cable, basic cable and broadcast network sectors.
Generally, distribution to the home video, video-on-demand, pay cable, basic cable and broadcast network sectors
each commence within three years of initial theatrical release. Theatrical revenues are recognized as the films are
exhibited. Revenues from home video sales are recognized at the later of the delivery date or the date that video units
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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)