FASB task force reaches consensus on how to account for TV episodes

The Financial Accounting Standards Board’s Emerging Issues Task Force has reached a consensus on changes in how to account for television series episodes.

Last November, FASB issued a proposed accounting standards update to improve and harmonize the accounting for films and episodic content for broadcast and cable TV, along with streaming video services like Netflix and Hulu (see FASB proposes standard for TV episode production costs).

The existing accounting standards offer various capitalization requirements for entertainment industry 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.

FASB meeting
Financial Accounting Standards Board meeting at FASB headquarters in Norwalk, Connecticut

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 accounting standards update that FASB proposed last November aimed to address the 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 proposed accounting standards update was based on an Emerging Issues Task Force consensus exposure draft, Issue No. 18-B, “Improvements to Accounting for Episodic Television Series.” FASB asked for comments on the proposed update to be submitted by Dec. 7 of last year.

During a meeting last week, the EITF reached a consensus to align the accounting for production costs of episodic television series with the accounting for production costs of films by removing the content distinction. The EITF also reached a consensus to allow an entity to assess a film group for impairment and to amend the presentation and disclosure requirements for films and episodic content. In addition, the task force agreed to make some amendments to Subtopic 920-350, "Entertainment — Broadcasters — Intangibles — Goodwill and Other," to align its impairment and presentation and disclosure guidance with the Task Force’s decisions. The EITF also made some decisions about several other items, including amortization, cash flow presentation of payments for license agreements, transition and transition disclosures, private company considerations, and effective date.

FASB plans to consider the EITF consensus for ratification at a meeting on Jan. 30, 2019.

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