Programming and Production Costs

Note 4: Programming and Production Costs

Video Distribution Programming Expenses

Programming expenses related to video services in Cable Communications and Sky are the fees we pay to license the programming we distribute to our video customers. Programming is generally acquired under multiyear distribution agreements, with rates typically based on the number of customers that receive the programming, channel positioning and the extent of distribution. From time to time, these contracts expire and programming continues to be provided under interim arrangements while the parties negotiate new contract terms, sometimes with effective dates that affect prior periods. While payments are typically made under the prior contract’s terms, the amount of programming expenses recorded during the interim arrangement is based on our estimate of the ultimate contract terms expected to be negotiated. Differences between actual amounts determined upon resolution of negotiations and amounts recorded during these interim arrangements are recorded in the period of resolution.

When we receive incentives from a cable network for the licensing of its programming, we defer a portion of these incentives, which are included in other current and noncurrent liabilities, and recognize them over the term of the contract as a reduction to programming expenses.

Film and Television Costs

Our Cable Networks, Broadcast Television, Filmed Entertainment and Sky segments produce owned content or acquire the rights to programming from third parties, which are described as film and television costs and programming rights, respectively.



December 31 (in millions)	2018		2017
Film Costs:
Released, less amortization	$	1,600	$	1,734
Completed, not released	144		50
In production and in development	1,063		1,149
	2,807		2,933
Television Costs:
Released, less amortization	2,289		2,260
In production and in development	953		818
	3,242		3,078
Programming rights, less amortization	5,534		2,689
	11,583		8,700
Less: Current portion of programming rights	3,746		1,613
Film and television costs	$	7,837	$	7,087

Based on our current estimates of the total remaining revenue from all sources (“ultimate revenue”), in 2019 we expect to amortize approximately $1.6 billion of film and television costs associated with our original film and television productions that have been released, or are completed and have not been released. Through 2021, we expect to amortize approximately 83% of unamortized film and television costs for our released productions, excluding amounts allocated to acquired libraries.

As of December 31, 2018, acquired film and television libraries, which are included within the “released, less amortization” captions in the table above, had remaining unamortized costs of $396 million. These costs are generally amortized over a period not to exceed 20 years, and approximately 48% of these costs are expected to be amortized through 2021.

Capitalization of Film and Television Costs

We capitalize film and television production costs, including direct costs, production overhead, print costs, development costs and interest. We amortize capitalized film and television production costs, including acquired libraries, and accrue costs associated with participation and residual payments to programming and production expenses. We generally record the amortization and the accrued costs using the individual film forecast computation method, which amortizes the costs in the same ratio as the associated ultimate revenue. Estimates of ultimate revenue and total costs are based on anticipated release patterns, public acceptance and historical results for similar productions. Unamortized film and television production costs, including acquired libraries, are stated at the lower of unamortized cost or fair value. We do not capitalize costs related to the distribution of a film in movie theaters or the licensing or sale of a film or television production, which primarily include costs associated with marketing and distribution.

In determining the method of amortization and estimated life of an acquired film or television library, we generally use the method and the life that most closely follow the undiscounted cash flows over the estimated life of the asset.

When an event or a change in circumstance occurs that was known or knowable as of the balance sheet date and that indicates the fair value of a film is less than its unamortized costs, we determine the fair value of the film and record an impairment charge for the amount by which the unamortized capitalized costs exceed the film’s fair value. The estimated fair value of a production is based on Level 3 inputs that primarily use an analysis of future expected cash flows. Adjustments to capitalized film production costs were not material in any of the periods presented.

We may enter into cofinancing arrangements with third parties to jointly finance or distribute certain of our film productions. Cofinancing arrangements can take various forms, but in most cases involve the grant of an economic interest in a film to an investor. The number of investors and the terms of these arrangements can vary, although investors generally assume the full risks and rewards for the portion of the film acquired in these arrangements. We account for the proceeds received from a third-party investor under these arrangements as a reduction to our capitalized film costs. Under these arrangements, the investor owns an undivided copyright interest in the film, and therefore in each period we record either a charge or a benefit to programming and production expenses to reflect the estimate of the third-party investor’s interest in the profit or loss of the film. The estimate of the third-party investor’s interest in the profit or loss of a film is determined using the ratio of actual revenue earned to date to the ultimate revenue expected to be recognized over the film’s useful life.

We capitalize the costs of programming content that we license but do not own, including rights to multiyear, live-event sports programming, at the earlier of when payments are made for the programming or when the license period begins and the content is made available for use. We amortize capitalized programming costs as the associated programs are broadcast. We generally amortize multiyear, live-event sports programming rights using the ratio of the current period revenue to the estimated ultimate revenue or under the terms of the contract.

Programming costs are recorded at the lower of unamortized cost or net realizable value on a program by program, package, channel or daypart basis. A daypart is an aggregation of programs broadcast during a particular time of day or programs of a similar type. Programming acquired by our Cable Networks segment is primarily tested on a channel basis for impairment, whereas programming acquired by our Broadcast Television segment is tested on a daypart basis. If we determine that the estimates of future cash flows are insufficient or if there is no plan to broadcast certain programming, we recognize an impairment charge to programming and production expenses.

Note 4: Film and Television Costs



December 31 (in millions)	2018		2017
Film Costs:
Released, less amortization	$	1,600	$	1,734
Completed, not released	144		50
In production and in development	1,063		1,149
	2,807		2,933
Television Costs:
Released, less amortization	2,161		2,260
In production and in development	953		818
	3,114		3,078
Programming rights, less amortization	2,694		2,677
	8,615		8,688
Less: Current portion of programming rights	1,323		1,606
Film and television costs	$	7,292	$	7,082

Capitalization of Film and Television Costs