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Time Warner Inc. (TWX)
Analysis of Revenues
High level of difficulty
Revenue Recognition Accounting Policy
Time Warner generates revenue primarily from content production and distribution (i.e., Content Revenue), providing programming to cable system operators, satellite service distributors, telephone companies and virtual multichannel video programming distributors (collectively, "affiliates") and digital distributors that have contracted to receive and distribute this programming to their subscribers (i.e., Subscription Revenue) and the sale of advertising on Time Warner’s television networks and digital properties and the digital properties it manages and/or operates for others (i.e., Advertising Revenue).
Feature films typically are produced or acquired for initial exhibition in theaters, followed by distribution, generally commencing within three years of such initial exhibition, through sales of feature films in physical format, electronic sell-through, video-on-demand, OTT services, premium cable, basic cable and broadcast networks. Revenues from film rentals by theaters are recognized as the films are exhibited. Revenues from sales of feature films in physical format are recognized at the later of the delivery date or the date that the DVDs or Blu-ray Discs are made widely available for sale or rental by retailers based on gross sales less a provision for estimated returns, rebates and pricing allowances. Revenues from the licensing of feature films for electronic sell-through or video-on-demandare recognized when the product has been purchased by and made available to the consumer to either download or stream. Revenues from the distribution of feature films through OTT services, premium cable, basic cable and broadcast networks are recognized when the films are available to the licensee.
Television programs and series are initially produced for broadcast networks, cable networks, first-run television syndication or OTT services and may be subsequently licensed for international or domestic cable, syndicated television and OTT services, as well as sold in physical format and via electronic delivery. Revenues from the distribution of television programming through broadcast networks, cable networks, first-run syndication and OTT services are recognized when the programs or series are available to the licensee, except for consideration to be received from the exhibition of advertising, where the revenue is valued and recognized when the related advertisements are exhibited. In certain circumstances, pursuant to the terms of the applicable contractual arrangements, the availability dates granted to customers may precede the date Time Warner may bill the customers for these sales. Unbilled accounts receivable, which primarily relate to the distribution of television programming at Warner Bros., totaled $5.136 billion and $4.573 billion at December 31, 2017 and December 31, 2016, respectively. Included in the unbilled accounts receivable at December 31, 2017 was $2.856 billion that is to be billed in the next twelve months. Revenues from sales of television programming in physical format are recognized at the later of the delivery date or the date that the DVDs or Blu-ray Discs are made widely available for sale or rental by retailers based on gross sales less a provision for estimated returns, rebates and pricing allowances. Revenues from the licensing of television programs and series for electronic sell-through or video-on-demand are recognized when the product has been purchased by and made available to the consumer to either download or stream. Revenues from the distribution of television programming through OTT services are recognized when the television programs or series are available to the licensee.
Upfront or guaranteed payments for the licensing of intellectual property are recognized as revenue when (i) an arrangement has been signed with a customer, (ii) the customer’s right to use or otherwise exploit the intellectual property has commenced and there is no requirement for significant continued performance by Time Warner, (iii) licensing fees are either fixed or determinable and (iv) collectability of the fees is reasonably assured. In the event any significant continued performance is required in these arrangements, revenue is allocated to each applicable element and recognized when the related services are performed.
Revenues from the sales of console games are recognized at the later of the delivery date or the date that the product is made widely available for sale or rental by retailers based on gross sales less a provision for estimated returns, rebates and pricing allowances.
Subscription revenues from Time Warner’s cable networks and premium pay and basic tier television services are recognized over the license period as programming is provided to affiliates or digital distributors based on negotiated contractual programming rates. When a distribution contract with an affiliate has expired and a new distribution contract has not been executed, revenues are based on estimated rates, giving consideration to factors including the previous contractual rates, inflation, current payments by the affiliate and the status of the negotiations on a new contract. When the new distribution contract terms are finalized, an adjustment to Subscription revenues is recorded, if necessary, to reflect the new terms. Such adjustments historically have not been significant.
Subscription revenues from OTT services (e.g., HBO NOW) are recognized as programming services are provided to customers.
Advertising revenues are recognized, net of agency commissions, in the period that the advertisements are aired. If there is a targeted audience guarantee, revenues are recognized for the actual audience delivery and revenues are deferred for any shortfall until the guaranteed audience delivery is met, typically by providing additional advertisements. Advertising revenues from digital properties are recognized as impressions are delivered or the services are performed.
Source: 10-K (filing date: 2018-02-22).
Revenues as Reported
Time Warner Inc., Income Statement, Revenues
US$ in millions
|12 months ended||Dec 31, 2017||Dec 31, 2016||Dec 31, 2015||Dec 31, 2014||Dec 31, 2013|
|Revenues||Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).||Time Warner Inc.’s revenues increased from 2015 to 2016 and from 2016 to 2017.|