Twenty-First Century Fox 2013 Annual Report Download - page 76

Revenue Recognition
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, in the case of Cable Network Programming revenues. The
Company defers the cable distribution investments and amortizes the amounts on a straight-line basis over the
contract period.
Filmed Entertainment—Revenues from distribution of feature films are recognized in accordance with
ASC 926. Revenues from the theatrical distribution of motion pictures are recognized as they are exhibited and
revenues from DVD and Blu-ray sales, net of a reserve for estimated returns, are recognized on the date that
DVD and Blu-ray units are made widely available for sale by retailers and all Company-imposed restrictions on
the sale of DVD and Blu-ray 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 broadcast 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
broadcast. 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
broadcast under the terms of the related licensing agreement.
Filmed Entertainment and Television Programming Costs
Accounting for the production and distribution of motion pictures and television programming is in
accordance with ASC 926, 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 ASC 926, 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 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 program and the past performance of similar television programs. Management regularly reviews,
and revises when necessary, its total revenue estimates on a title-by-title basis, which may result in a change in
the rate of amortization and/or a write-down of the asset to fair value.
The costs of national sports contracts at FOX and for international sports rights agreements are charged to
expense based on the ratio of each current period’s profit for each contract to the estimated total remaining profit
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