Question

Video Streaming Services obtain content distribution rights in order to stream TV shows and movies on subscribers' TVs, computers and mobile devices.

Streaming content is generally licensed for a fixed fee for the term of the license agreement.

How should these firms recognize the amounts they pay upfront for these licenses? And how would this change when video Streaming Services enter into multi-year licenses over the term of the license agreements, rather than all upfront?

Answer 1

These firms consider the upfront payment as an advance given for content distribution right .

when they receive the actual bill at the year end or as per your agreement they treat the upfront (previously recorded as advanve) as expense

when video streaming services enter into multi year licences over the term of licence agreement apportion the upfront amount as per straight line method or based on the estimated sales revenue as expense and balance amount is in the advance till the last of agreement. In the last year of agreement consider the balance advance amount as expense and close that ledger.