FASB proposes standard for TV episode production costs

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The Financial Accounting Standards Board unveiled a proposed accounting standards update Wednesday aimed at improving and harmonizing the accounting for films and episodic content for both TV and streaming video services like Netflix and Hulu.

The existing accounting standards offer various capitalization requirements for entertainment industry content production depending on the type of content that’s being produced. For films, production costs are capitalized, but for episodic content (such as a TV series that airs a new episode every week), the production costs are capitalized subject to a constraint based on contracted revenues in the initial and secondary markets for screening the shows.

In recent years, though, the entertainment industry has undergone a major change in production and distribution models with the advent of video services like Netflix, Hulu, Epix, Amazon Prime TV and HBO Go. For example, online streaming services and new participants in the entertainment industry have introduced different business models, such as subscription-based revenue models. That led to some stakeholders questioning FASB about whether the constraint in the capitalization guidance for episodic content still offers relevant information to investors considering these changes.

The proposed standards update aims to address that issue by aligning the capitalization guidance for both films and episodic video content. The proposed guidance would also cover when a company or organization should assess films and license agreements for program material for impairment at the film-group level, while amending the presentation and disclosure requirements for content that’s either produced or licensed.

The accounting standards update is based on an Emerging Issues Task Force consensus exposure draft. FASB is asking for comments on it by Dec. 7, 2018.

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