Twenty-First Century Fox 2007 Annual Report Download - page 60

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
the expected outcome of all pending tax matters and does not currently anticipate that the ultimate resolution of pending tax
matters will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.
Related Party Transactions
Immediately prior to and as part of the Reorganization, the Company acquired from certain trusts, the beneficiaries of which include
Mr. K.R. Murdoch, members of his family and certain charities (“the Murdoch Trusts”), the 58% shareholding in QPL which was not
already owned by the Company’s predecessor through the acquisition of the Cruden Group of companies (“the Cruden/QPL
Transaction”). The principal assets of the Cruden Group were shares of News Corporation and a 58% interest in QPL. QPL owns a
publishing business which includes two metropolitan and eight regional newspapers in Queensland, Australia, as well as shares in
News Corporation. Following this transaction, Mr. K.R. Murdoch and the Murdoch Trusts owned approximately 29.5% of the
Company’s Class B Common Stock.
Critical Accounting Policies
An accounting policy is considered to be critical if it is important to the Company’s financial condition and results, and if it requires
significant judgment and estimates on the part of management in its application. The development and selection of these critical
accounting policies have been determined by management of the Company and the related disclosures have been reviewed with
the Audit Committee of the Board. For a summary of all of the Company’s significant accounting policies, see Note 2 to the accom-
panying Consolidated Financial Statements of News Corporation.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make esti-
mates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying dis-
closures. Although these estimates are based on management’s best knowledge of current events and actions that the Company
may undertake in the future, actual results may differ from the estimates.
Revenue Recognition
Filmed Entertainment–Revenues from distribution of feature films are recognized in accordance with SOP 00-2. Revenues from the
theatrical distribution of motion pictures are recognized as they are exhibited and revenues from home video and DVD sales, net of
a reserve for estimated returns, together with related costs, are recognized on the date that video and DVD units are made widely
available for sale by retailers and all Company-imposed restrictions on the sale of video and DVD units have expired. Revenues from
television distribution are recognized when the motion picture or television program is made available to the licensee for broadcast.
Management bases its estimates of ultimate revenue for each film on the historical performance of similar films, incorporating
factors such as the past box office record of the lead actors and actresses, the genre of the film, pre-release market research
(including test market screenings) and the expected number of theaters in which the film will be released. Management updates
such estimates based on information available on the actual results of each film through its life cycle.
License agreements for the telecast of theatrical and television product in the broadcast network, syndicated television and
cable television markets are routinely entered into in advance of their available date for telecast. Cash received and amounts billed in
connection with such contractual rights for which revenue is not yet recognizable is classified as deferred revenue. Because deferred
revenue generally relates to contracts for the licensing of theatrical and television product which have already been produced, the
recognition of revenue for such completed product is principally only dependent upon the commencement of the availability period
for telecast under the terms of the related licensing agreement.
Television, Cable Network Programming and Direct Broadcast Satellite–Advertising revenue is recognized as the commercials are
aired, net of agency commissions. Subscriber fees received from subscribers, cable systems and DBS operators are recognized as
revenue in the period that services are provided, net of amortization of cable distribution investments. The Company defers the
cable distribution investments and amortizes the amounts on a straight-line basis over the contract period.
Filmed Entertainment and Television Programming Costs
Accounting for the production and distribution of motion pictures and television programming is in accordance with SOP 00-2,
which requires management’s judgment as it relates to total revenues to be received and costs to be incurred throughout the life of
each program or its license period. These judgments are used to determine the amortization of capitalized filmed entertainment and
television programming costs, the expensing of participation and residual costs associated with revenues earned and any fair value
adjustments.
In accordance with SOP 00-2, the Company amortizes filmed entertainment and television programming costs using the
individual-film-forecast method. Under the individual-film-forecast method, such programming costs are amortized for each film or
television program in the ratio that current period actual revenue for such title bears to management’s estimated remaining
unrecognized ultimate revenue as of the beginning of the current fiscal year to be recognized over approximately a six year period
or operating profits to be realized from all media and markets for such title. Management bases its estimates of ultimate revenue for
each film on factors such as historical performance of similar films, the star power of the lead actors and actresses and once released
actual results of each film. For each television program, management bases its estimates of ultimate revenue on the performance of
the television programming in the initial markets, the existence of future firm commitments to sell additional episodes of the pro-
gram and the past performance of similar television programs. Management regularly reviews, and revises when necessary, its total
NEWS CORPORATION 2007 Annual Report 59