BIM56245 - Film and audio products: methods applying to all master versions: television films

The rules on the allocation of expenditure to television production companies do not present any problems where the income from exploitation of the master version of a film can be readily identified. However, there may be difficulties in identifying current income and estimating future income where the film is primarily for showing to an audience in the local area covered by the television broadcasting company’s franchise.

The problem arises because the income generated cannot be directly linked to the film concerned. The value of the film is in the advertising revenue that it generates.

For estimating the remaining value of the film when applying the income matching method ( BIM56215) consideration should be given to the likelihood of the film being repeated or generating income from other sources, such as overseas sales, after its first showing.

If there is no likelihood of further showings or sales the whole of the film’s value will have been realised on first showing and all the associated costs can be written off at that time. But where further income in some form is likely to be generated it should be contended that a proportion of the expenditure on production or acquisition should be carried forward. The possibilities of further exploitation of a film after first showing have increased in recent years as the availability of satellite and cable TV channels has grown.

Claims under the cost recovery rules ( BIM56230) should only be admitted where it can be shown that the revenues claimed as income for that purpose are specifically identified as being referable to the particular film.

Example

An independent television company commissions the production of a six-part film for £800,000. The film is primarily of local interest so it plans to show the film in its local area on completion and to repeat the showing in two years time. The company receives £100,000 from the independent television franchise in an adjoining region for the rights to show the film. In addition, the company expects to be able to sell rights in the film to a local cable network at some point in the future. The company earns most of its income from advertising revenue.

The company must place a value on the future repeat showing of the film and the expected sale of rights to the cable company in arriving at the amount of expenditure to be deducted in the period when the film is first shown. If it is estimated that 25% of the value of the film arises from its future exploitation then the amount written off in the first relevant period will be £600,000. The balance will be written off over future years as the value in the film is used up.

The provisions governing the allocation of expenditure should be applied to each production separately. However, in the case of the independent television companies, and other similar organisations responsible for a large number of productions, a standard basis of write off may be agreed either for all productions or for particular identifiable ranges of production.