Accounting

Key challenges of accounting in the streaming era

Accountants on the FASB’s accounting standards update for films and license agreements.
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· 3 min read

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Hey, no one said being an accountant was easy. Just ask anyone crunching the numbers for streaming companies and other entertainment behemoths, all of which have gone through seismic business shifts in recent years.

That’s only made accounting more complicated, and the industry has tried to keep up: In 2019, the Financial Accounting Standards Board issued an Accounting Standards Update (ASU) concerning the costs of films and license agreements.

The updated guidance contained a number of key revisions, notably proposing a new concept of “film groups” as “the unit of account used for impairment testing for films or license agreements.”

The new standard became effective for the majority of media and entertainment companies in fiscal 2020, as KPMG noted in a recent report about the ASU. Since the standards were largely a conceptual framework, the application of its key provisions hasn’t always been entirely clear, the report’s authors note.

In response, KPMG conducted a “confidential informal survey” that polled media and entertainment accounting professionals to see how they felt about the ASU and to determine which challenges have persisted as they applied the requirements.

One of the stickiest issues concerned film groups. Per the ASU, film groups represent “the lowest level for which identifiable cash flows are largely independent of the cash flows of other films and/or license agreements.”

Sometimes, the KPMG report notes, a film group decision can be logical and instinctive, like when content is produced exclusively for a studio’s streaming platform. In other cases, it might take more judgment, and some orgs “should reassess [their] film group decisions to determine if there is a significant change to [their] predominant monetization strategy,” per the report.

More broadly, media and entertainment accounting professionals continue to face challenges prescribing film group determination. But making a film group decision is “critical” for media and entertainment companies, the report points out, “because the pivot away from legacy prescriptive accounting guidance to the ASU’s more conceptual requirements starts with the film group decision.”

“Today’s era of streaming and ‘bingeable’ content has accelerated digital disruption in the media and entertainment industry,” Frank Albarella, US sector leader for media and telecommunications at KPMG and the report’s coauthor, said in an emailed statement. “With this shift away from the industry’s long-standing linear distribution model, there are significant implications for accounting professionals. Conceptual frameworks provide a starting point, but lingering challenges remain around application.”

News built for finance pros

CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.