Time Magazine 2013 Annual Report Download - page 86

TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Revenues from home video sales are recognized at the later of the delivery date or the date that the DVDs or
Blu-ray Discs are made widely available for sale or rental by retailers based on gross sales less a provision for
estimated returns.
In the normal course of business, the Company’s networks enter into agreements to license programming
exhibition rights from licensors. A programming inventory asset related to these rights and a corresponding
liability to the licensor 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 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 and Turner Classic Movies).
For the Company’s 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. However, 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. For example, if the Company is licensing the right to
air a movie multiple times over a certain period, the movie is being shown 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 accelerated amortization upon the first airing versus subsequent airings is determined based on a
study of historical and estimated future advertising sales for similar programming. For rights fees paid for sports
programming arrangements (e.g., National Basketball Association, The National Collegiate Athletic Association
(“NCAA”) Men’s Division I Basketball championship events (the “NCAA Tournament”) and Major League
Baseball), such rights fees 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 expects to
use and benefit from providing the sports programming.
For premium pay television services that are not advertising-supported, each licensed 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 programming amortization attributable to each window.
The Company carries its licensed programming inventory at the lower of unamortized cost or estimated net
realizable value. For 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 less certain direct costs of delivering the programming. Similarly, for premium pay
television services that are not advertising-supported, the Company performs its evaluation of the net realizable
value of unamortized programming costs based on the premium pay television services’ licensed programming
taken as a whole. Specifically, the Company determines the net realizable value for all of its premium pay
television service licensed programming based on projections of estimated Subscription revenues less certain
costs of delivering and distributing the licensed programming. However, changes in management’s intended
usage of a specific program, such as a decision to no longer exhibit that program and forego the use of 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.
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