Content library amortisation

What does IAS 38 require for content amortisation?

An intangible asset with a finite useful life is amortised on a systematic basis over that life, using a method that reflects the pattern in which its future economic benefits are expected to be consumed; straight-line is used only if that pattern cannot be determined reliably. Content's useful life is limited by its licence term or by how long it remains attractive to audiences. For most films and series, viewing and earnings are concentrated in the first one or two years, so a method that charges more in the early years reflects consumption better. See IAS 38 intangibles.

Content amortisation: an original series on a streaming service

A streaming service's original series cost US$ 9,000 thousand. From its experience with similar titles, it expects 50% of the series' lifetime viewing hours in the first year after release, 25% in the second, 15% in the third and 10% in the fourth, after which the series will be removed from the service.

The viewing-based method charges 4,500 thousand in the first year, twice the straight-line amount, matching the cost to the period when the series does most to attract and keep subscribers. Viewing hours measure consumption of the content, not revenue, so the method is consistent with IAS 38's restriction on revenue-based methods.

Can content be amortised based on revenue?

Since 2016, IAS 38 has presumed that a method based on the revenue an asset generates is inappropriate, because revenue reflects factors such as prices and inflation, not just consumption of the asset. The presumption can be overcome only if the asset is expressed as a measure of revenue, such as a right that ends once a set amount of revenue has been earned, or if revenue and the consumption of the asset's benefits are highly correlated. For a film licensed title by title, some companies argue that licence revenue closely tracks consumption, but the argument needs strong evidence. Usage measures such as viewing hours, plays or showings avoid the question.

What happens when viewing differs from expectations?

Expected viewing patterns are estimates, reviewed at least at each year end. A change is a change in accounting estimate under IAS 8, applied prospectively from the date of the change. If the series in the example attracts 60% of its expected lifetime viewing in its first year, the service amortises 5,400 thousand in that year, leaving 3,600 thousand to be spread over the remaining years in proportion to the revised expected viewing, 1,800 thousand in year 2. Past amounts are not restated.

How is content tested for impairment?

Under IAS 36, an asset is tested on its own if it generates cash inflows largely independent of other assets. A film licensed title by title to cinemas, broadcasters and platforms does, so it is tested individually when there are indications such as disappointing box office. Content on a subscription streaming service does not: subscribers pay for the whole library, so titles are tested together as part of the cash-generating unit that includes the service. An individual title is written off when the service decides to remove it, because it will generate no further benefits. See cash-generating units.

How are acquired content libraries treated?

A library of older films or series bought in a business combination is recognised at fair value and amortised over its remaining useful life, often longer than for new content because library titles earn steadier revenue over many years, but still in a pattern that reflects expected use. Libraries are tested for impairment in the same way as produced content. See purchase price allocation.

How does US GAAP differ?

Under ASC 926, a film monetised on its own is amortised using the individual-film-forecast method: the cost is multiplied by the ratio of the period's revenue to the estimated remaining total revenue, with expected revenue generally limited to ten years from first release, or twenty years for previously released films bought as part of a library. Since ASU 2019-02, content monetised as a group, such as a streaming library, is amortised based on a reasonable estimate of its use, such as viewing, and tested for impairment as a film group. US streaming services typically amortise content on an accelerated basis over a few years. See media accounting and film and TV production costs.

This guide is general information. It is not tax or legal advice for your situation.