Revenue Recognition - to apply the core principle: ... Topic 920-605, Broadcasters...
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Media Finance Focus 2016
Dwight Delapenha, Deladad Advisory
Dan Drobac, PwC
Sue Tuxill, Salem Media Group
Mike Ruggiero, ATV Broadcast
Overview of New Revenue Standard
Recent FASB Amendments
Media Company Examples
Public entities 2018 (annual and interim periods)
Nonpublic entities 2019 (annual periods); 2020 (interim
Earlier adoption as of original effective date (2017) permitted
Effective date is deferred for all entities by one year.
The effective dates for Topic 606 and IFRS 15 for public
entities are aligned.
Rev rec under new standard
catch-up Rev Rec
Overview of Revenue Recognition Model
(or as) a
Recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services
Unit of Account
payable to customer
identifying a contract
Over time criteria
Point in time indicators
Steps to apply the core principle:
Clarifications to Issued Standard
Input from Transition Resource Group led to projects to address
Principal versus Agent Considerations (March 2016)
Identifying Performance Obligations and Licensing (April 2016)
Narrow-Scope Improvements and Practical Expedients (May
Technical Corrections and Improvements (Exposure Draft)
Amendments aimed to clarify Boards intent and reduce cost
and complexity of implementing the new guidance
Identifying the Contract 1 2 3 54
Role of collectibility in the revenue guidance has changed:
Current GAAP Recognition constraint
Topic 606 Collection must be probable for a contract to exist
Objective of collectibility assessment is to determine whether there is
a substantive transaction
Consider ability to mitigate exposure to credit risk (e.g. ability to
cease providing goods or services upon nonpayment)
Clarify alternate revenue recognition criteria (which is applied when
unable to meet Step 1)
Introduces ability to recognize revenue prior to contract
Identifying Performance Obligations
No need to assess immaterial promised goods or services
Shipping and handling practical expedient
Reduce cost and complexity
Rearticulate separately identifiable principle
Is nature of promise to transfer each good or service or combined item?
Distinct Promises = Performance Obligations = Unit of Account
Current GAAP standalone value
Topic 606 two distinct criteria (1) capable of being distinct (2)
1 2 3 54
Example: Multiple Performance Obligations
Media entity A enters an agreement with Programmer P under which
Programmer P is provided a one-hour daypart on Saturdays from 1 pm
to 2 pm to feature their program. The program will run for 26 weeks
starting January 1, 2016.
To promote the one-hour program, Programmer P will receive 15 spots
per week for a total of 26 weeks starting December 1, 2015 and 15
banner advertisements per week on the station website beginning
December 1, 2015 for 26 weeks.
The 15 spots per week and 15 banner ads per week will air between the
hours of 6am and 8pm as determined by the station traffic manager.
The programmer may receive up to 100 bonus spots at the discretion of
the station. The programmer agrees to a cost of $1,000 per week for
Example: Multiple Performance Obligations
Estimated Stand Alone
Current market rate for 1 hour programming on Sat is $500 $ 13,000
:30 on air spots 6-8am and 4-6pm run $35
All other times $20, therefore blended rate $25 $ 9,750
Banners run $10 per :30 $ 3,900
Bonus spots MAY be provided, no obligation to do so/no
refund to programmer $ -
Programming Air-Time $ 12,683
Promotional Spots On-Air $ 9,512
Promotional Banner Ads on station website $ 3,805
Up to 100 bonus spots $ -
Current GAAP includes limited, industry-specific guidance on revenue recognition for licenses.
New guidance includes a comprehensive model to be applied to all industries.
Sales- or Usage-
Nature of License: Functional or Symbolic
Clarify that there is a
distinction between contractual
Require transfer of control
of additional goods or
services to a customer
Define attributes of a
single promised license
Clarify scope and applicability
of exception to variable
Applies when royalty
predominantly relates to
Royalties should not be
split into portions to which
exception does and does
Improve operability of right to
use vs. right to access
Based on significant
Functional: point in time
Symbolic: over time
1 2 3 54
Licensing Example 1
Media Company licenses 4 seasons of a television program to
an over the top distributor. Media Company will also add
season 5, which is currently in production, as each episode is
available. The contract price is $5 million.
How should Media Company account for this license?
What if the consideration were based on the number of
subscribers to the over the top distributors service?
Licensing Example 2
Media Entity A enters a licensing agreement with Broadcaster B under
which Broadcaster will have the right to broadcast 2 programs
produced and distributed by Media Entity A over a 12 month period.
The total amount due to Media Entity A under the agreement is
$100,000 due in quarterly installments of $25,000.
The programs include:
1. 26 weekly news programs - one hour in length delivered via
satellite as produced
2. 10 two hour special feature programs to be selected from Media
Entity As current available inventory
Principal vs. Agent Considerations 1 2 3 54
Current GAAP based on risk and rewards notion
New guidance is based on overarching principle of controlindicators no longer
weighted in guidance
Unit of account: each specified good or service
Control of a service
Do not override control assessment
Relative importance based on facts and circumstances
Reframed to indicate when an entity is a principal (vs. an agent)
Credit risk was removed as an indicator
Principal (gross revenue) provides specified good or service
Agent (net revenue) arranges for specified good or service to be provided
Copyright 2014 by Financial Accounting Foundation, Norwalk, CT. For non-commercial, educational /academic purposes only.
Media Company B owns and operates a website. Media Company B enters an exclusive
agreement under which Entity C will sell all web-based advertisements on Media
Company B's website.
Entity C guarantees minimum annual revenue of $100,000. If Entity C does not meet
minimum revenue of $100,000, it will pay Media Company B an amount equal to 70% of
the difference between the minimum gross revenue and the actual gross revenue.
Entity C is responsible for all creative services with the advertiser and is responsible for
servicing, maintenance, display and reporting to the advertiser. Entity C is responsible for
all billing, invoicing and collections. Entity C will remit all payments to Media Comp