Twenty-First Century Fox 2014 Annual Report Download - page 71

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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 motion pictures and television programming 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 productions 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.
The Company earns and recognizes revenues as a distributor on behalf of third parties. In such cases,
determining whether revenue should be reported on a gross or net basis is based on management’s assessment of
whether the Company acts as the principal or agent in the transaction. To the extent the Company acts as the
principal in a transaction, revenues are reported on a gross basis. Determining whether the Company acts as
principal or agent in a transaction involves judgment and is based on an evaluation of whether we have the
substantial risks and rewards of ownership under the terms of an arrangement.
Filmed Entertainment Costs and Programming Rights
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.
Original cable programming is amortized on an accelerated basis. Management regularly reviews, and revises
when necessary, its total revenue estimates on a contract 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 the national sports channels are charged to expense and
allocated to segments based on the ratio of each current period’s attributable revenue for each contract to the
estimated total remaining attributable revenue for each contract. Estimates can change and accordingly, are reviewed
periodically and amortization is adjusted as necessary. Such changes in the future could be material.
The costs of local and regional sports contracts for a specified number of events are amortized on an event-by-
event basis, while costs for local and regional sports contracts for a specified season are amortized over the season
on a straight-line basis.