Twenty-First Century Fox 2014 Annual Report Download - page 47

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from independently-owned television stations that are affiliated with FOX and receive retransmission consent fees
from MVPDs for their signals.
The most significant operating expenses of the Cable Network Programming segment and the Television
segment are the acquisition and production expenses related to programming and the expenses related to operating
the technical facilities of the cable network or broadcaster. Other expenses include promotional expenses related to
improving the market visibility and awareness of the cable network or broadcaster and its programming. Additional
expenses include sales commissions paid to the in-house advertising sales force, as well as salaries, employee
benefits, rent and other routine overhead expenses.
The profitability of U.S. national sports contracts and international sports rights agreements is based on the
Company’s best estimates at June 30, 2014 of attributable revenues and costs; such estimates may change in the
future and such changes may be significant. Should revenues decline from estimates applied at June 30, 2014,
additional amortization of rights may be recorded. Should revenues improve as compared to estimated revenues, the
Company may have improved results related to the contract, which may be recognized over the remaining contract
term.
Filmed Entertainment
The Filmed Entertainment segment derives revenue from the production and distribution of live-action and
animated motion pictures and television series. In general, motion pictures produced or acquired for distribution by
the Company are exhibited in U.S. and foreign theaters, followed by home entertainment, including sale and rental
of DVDs and Blu-rays, licensing through digital distribution platforms, premium subscription television, network
television and basic cable and syndicated television exploitation. Television series initially produced for the
networks and first-run syndication are generally licensed to domestic and international markets concurrently and
subsequently released in seasonal DVD and Blu-ray box sets and made available via digital distribution platforms.
More successful series are later syndicated in domestic markets. The length of the revenue cycle for television series
will vary depending on the number of seasons a series remains in active production and, therefore, may cause
fluctuations in operating results. License fees received for television exhibition (including international and U.S.
premium television and basic cable television) are recorded as revenue in the period that licensed films or programs
are available for such exhibition, which may cause substantial fluctuations in operating results.
The revenues and operating results of the Filmed Entertainment segment are significantly affected by the
timing of the Company’s theatrical and home entertainment releases, the number of its original and returning
television series that are aired by television networks and cable channels and the number of its television series in
off-network syndication. Theatrical and home entertainment release dates are determined by several factors,
including timing of vacation and holiday periods and competition in the marketplace. The distribution windows for
the release of motion pictures theatrically and in various home entertainment products and services (including
subscription rentals, rental kiosks and digital distribution platforms), have been compressing and may continue to
change in the future. A further reduction in timing between theatrical and home entertainment releases could
adversely affect the revenues and operating results of this segment.
The Company enters into arrangements with third parties to co-produce many of its theatrical productions.
These arrangements, which are referred to as co-financing arrangements, take various forms. The parties to these
arrangements include studio and non-studio entities, both domestic and foreign. In several of these agreements, other
parties control certain distribution rights. The Filmed Entertainment segment records the amounts received for the
sale of an economic interest as a reduction of the cost of the film, as the investor assumes full risk for that portion of
the film asset acquired in these transactions. The substance of these arrangements is that the third-party investors
own an interest in the film and, therefore, receive a participation based on the respective third-party investor’s
interest in the profits or losses incurred on the film. Consistent with the requirements of FASB ASC 926,
“Entertainment—Films” (“ASC 926”), the estimate of a third-party investor’s interest in profits or losses on the film
is based on total estimated ultimate revenues.
Operating costs incurred by the Filmed Entertainment segment include: exploitation costs, primarily theatrical
prints and advertising and home entertainment marketing and manufacturing costs; amortization of capitalized