In the new age of streaming (and often binge-watching) video content across multiple platforms, the distinction between movies and TV shows has become blurred. The Emerging Issues Task Force, a part of the non-profit Financial Accounting Standards Board (FASB), is recommending a change that would impact the profits of today’s TV shows. Calling the difference between such shows and movies as “no longer relevant” for gauging companies’ finances, the new accounting rules would let TV producers track costs the same way movie producers do.
If the full FASB enacts this change, TV producers will no longer have to immediately expense costs, and will be able to record profits more quickly than they do now. The Wall Street Journal reports that Emerging Task Force coordinator Jason Bond said, “the impact will vary among companies.”
“In a market where TV producers are in an arms race, spending billions of dollars on original content, any additional lift to their profits could be important,” notes WSJ. Currently, movies place production costs on a balance sheet, and then filter them into earnings over time, whereas “TV show makers can only capitalize a portion of their expenses, while the rest are charged to current earnings.”
TV producers can only capitalize costs that “are matched by revenue they have contracted for, or by future revenue from other markets like syndication or DVD sales.”
The rules, which were formulated in 2000, took into account that TV shows were released one episode at a time, “often on platforms that the producing company didn’t control.” If the show were canceled, the producer found it harder to make back what was spent, so limiting the capitalization of costs made sense. Now, companies release all the episodes at once on their own platforms, and “the avenues for distributing TV shows have mushroomed.”
As a result, said Bond, accountants began to question, “whether there was any point to continue drawing a distinction between TV and movie production,” which led to the FASB task force decision.
If the full FASB accepts the changes, they still won’t take effect until “some point in the future,” and “not all TV producers will necessarily benefit.” Netflix already capitalizes production costs of its original shows, and Amazon stated it counts “some of its production costs against current earnings.” In its annual report, 21st Century Fox stated that TV production costs “incurred in excess of the amount of revenue contracted for each episode in the initial market are expensed as incurred on an episode-by-episode basis.”