Overview of Certain Key Accounting Aspects in Media and Entertainment Industry

Background of the Media and Entertainment Industry

Over the last decade, the media and entertainment industry has undergone significant transformations both in India and globally, driven by technological advancements, changing consumer behaviors, and new business models.

The Indian Media and Entertainment Industry revenue was at approximately USD 16 billion in 2015, which has grown to approximately USD 31 billion in 2025.

The revenue from Over-The-Top (OTT) platforms has increased from a small base in 2015 to approximately USD 4 billion in 2025, with OTT platform users increasing to around 600 million in 2025, and Internet users increasing from approximately 300 million in 2015 to approximately 800 million in 2025.

Key Shifts in the Media and Entertainment Industry

Some of the recent key shifts in the Media and Entertainment Industry include the following:

• Digital Transformation: The rise of digital streaming platforms has shifted audiences away from traditional TV to on-demand viewing.
• Technological Advancements: Technologies such as AI, AR, and VR have reshaped content creation and distribution.
• Content Diversification: There has been a significant increase in original content production, with streaming platforms investing heavily in a wide variety of genres and formats to attract diverse audiences.
• Rise in demand for Regional Content: There is greater demand for regional content, with viewers favoring stories and characters that resonate with their own experiences.

Key Accounting Challenges in the Media and Entertainment Industry

Accounting and auditing professionals involved in the Media and Entertainment Industry face accounting challenges in many areas, such as classification of motion picture film, amortization and impairment of the cost of motion picture film, treatment of participation costs, revenue recognition, etc.

This article provides guidance in dealing with some of the key accounting issues noted in the media and entertainment industry.

1. Motion Picture Film and Other Content Assets — whether Inventory or Intangible Assets?

1.1 Motion Picture Film and Other Content Assets as Intangible Assets

• It may be recalled that Ind AS 2 may apply to items like motion picture film when the content is held for sale in the ordinary course of business, such as by distributors or aggregators.
• Further, Ind AS 38 defines an Intangible Asset as — 'an intangible asset is an identifiable non-monetary asset without physical substance.'
• Motion picture film contains the following characteristics:
• Identifiability: Each motion picture film is distinct and specific; it is separately identifiable from another motion picture film.
• Control: The producer/acquirer of a film, contractually or through registration with copyright authorities, exercises control over such film and has the right to exploit it.
• Form: A motion picture film lacks physical substance.
• Future Economic Benefit: The producer/acquirer of a motion picture film will be able to generate future economic benefits through the exploitation of rights.
• The motion picture film meets all the above criteria of intangible assets. Further, the motion picture film is generally not held by the producers for sale but to generate economic benefit through exploitation over its life. The producer generally assigns the rights to third parties like distributors, exhibitors, broadcasters, etc., for a certain period to gain economic benefits therefrom, and most of the rights devolve back to the producer after the expiry of the assignment period.
• Considering the above, it is generally more appropriate to classify motion picture films and other content assets as 'Intangible Assets' in the financial statements unless such motion picture films are held for trading and the entity does not intend to retain any intellectual property rights in respect of such motion picture films.

1.2 Motion Picture Film and Other Content Assets as Inventory

• As per 'Ind AS 2 – Inventories', Inventories are assets:
  1. held for sale in the ordinary course of business;
  2. in the process of production for such sale; or
  3. in the form of materials or supplies to be consumed in the production process or in the rendering of services.

• As mentioned above, if the motion picture film is acquired and held for sale by the entity in the ordinary course of business and, upon sale, the entity intends to retain either no or very little intellectual property rights in respect of such motion picture films, then such motion picture films will be required to be classified as 'Inventory' in the books.
• However, in practice, there exists diversity in the practice of film and media companies in presenting the film and other content costs as either intangible assets or inventories.

2. Accounting for Costs Related to the Production of a Motion Picture Film

2.1 Determining the appropriate cost to be considered as a part of the cost of production of a film poses a challenge and involves judgement and estimates.

2.2 The process of making a motion picture film involves various stages, like:

1. Pre-production stage involving script development, casting of actors/actresses, etc.
2. Production stage involving selection of location, shooting of the film, recording of music, etc., and
3. Post-production stage involving telecine, editing, dubbing, etc.

All these processes involve significant costs, including actor/director fees, salaries for the crew, location costs, film set creation, costumes, travel and logistics, and overhead costs, among others. The film also takes a substantial period to complete.

2.3 All the above costs incurred for a particular motion picture film are accumulated from the date when the recognition criteria as specified in 'Ind AS 38 – Intangible Assets' ('Ind AS 38') are met ('Project commencement date' — being the date on which the development phase begins). Determining the point at which the asset recognition criteria are met involves judgement and depends on factors such as prior experience, financial capabilities of the producer, entity, nature of the project, etc.

2.4 As per Ind AS 38, no intangible assets should be recognized during the research phase of the internal project; rather, costs incurred during the research phase are expensed as incurred, in line with the requirements of Ind AS 38, para 54. Accordingly, an intangible asset can be recognized only at the commencement of the development stage when the entity is able to demonstrate all the following conditions:

1. technical feasibility of completing the intangible asset so that it will be available for sale;
2. its intention to complete the asset and use or sell it;
3. its ability to use or sell the asset;
4. probable future economic benefits, i.e., the existence of a market for the intangible asset or the usefulness of intangible assets internally;
5. availability of adequate technical, financial, and other resources to complete the development and to sell the asset; and
6. reliable measurement of the cost during the development of the asset.

On fulfillment of recognition criteria of the development stage, all directly attributable internal costs and external costs of the motion picture film must be capitalized up to the date of completion of post-production work, and the point at which the film is ready for distribution, or until the date of issuance of the censor certificate, whichever is earlier.

2.5 The development of an internally generated intangible asset for movies commences once the entity has finalized the concept and met all recognition criteria under Ind AS 38, including technical feasibility, intent and ability to complete, and availability of resources, i.e., upon selection of a story, finalization of the script, identification of key cast and crew, etc., but it may vary depending on the facts and circumstances of the case.

2.6 On fulfillment of recognition criteria of the development stage, all directly attributable internal costs and external costs of the motion picture film must be capitalized up to the date of completion of post-production work, and the point at which the film is ready for distribution, or until the date of issuance of the censor certificate, whichever is earlier.

2.7 Internal costs, like staff costs and overheads, to be capitalized should be directly attributable to the production of films. For example, salaries of the key creative team, film production department, etc. However, internal costs relating to non-production/support functions like compliance, office admin, and selling and distribution costs should not be capitalized to the cost of the film.

2.8 The above guidance on capitalisation of the nature of costs to be capitalised is also applicable in cases where the entity classifies the cost of motion picture films as Inventory in its books of accounts.

3. Accounting for Participation Costs Related to the Production of a Motion Picture Film

3.1 Members of the actors, directors, artists, etc. involved in the production of a motion picture film may be compensated in part by contingent payments based on the financial results of the motion picture film, like a percentage of theatrical revenue from a specified territory, revenue from music rights, etc. Such payments are referred to as 'Participation Costs.'

3.2 Timing for recognising Participation costs: The liability for participation costs is recognised only when there is reasonable certainty of related revenue and participation costs can be reliably measured.

3.3 Presentation of Participation costs: Such costs are presented as part of the artists' costs as part of film production costs. These costs are not netted off from Revenue unless such a portion of revenue is directly paid to the artists by assignment of rights relating to such a stream of revenue.

4. Amortization of Motion Picture Film

4.1 Determining the appropriate amortization profile of motion picture film and other media rights could be challenging and requires careful consideration of facts and the nature of rights.

4.2 As per Ind AS 38 – Intangible Assets, the amortization amount of an intangible asset with a finite useful life shall be allocated on a systematic basis over its useful life.

4.3 The use of an amortization method that is based on the expected revenue to be generated upon exploitation/use of an intangible asset is generally not permitted under Ind AS 38 except in the case of the following limited situations:

1. When the entity can demonstrate that revenue and the consumption of the economic benefits of the intangible asset are highly correlated.
2. Circumstances where the predominant limiting factor is the achievement of a fixed revenue threshold from the exploitation of intangible assets.

Example — As per the contract, the right to mine gold from a gold mine will expire/come to an end upon achievement of a fixed amount of total revenue to be generated (say, Rs. 100 crores). In this scenario, the intangible assets in the form of mining rights will be amortized based on a ratio of actual revenue divided by a fixed amount of Revenue threshold, i.e., Rs. 100 crores.

In the above example, the predominant limiting factor is the achievement of the total revenue of Rs. 100 crores from the gold.

4.4 A common industry practice is to use an accelerated amortization profile for film costs based on the observable decline in value of the film asset. This approach is based on an analysis of the remaining useful economic life and the recoverable amount of the underlying film cost assets.

The producer will model expected revenue to be earned over the useful economic life of the film, for the purposes of determining the accelerated amortization profile. This method will not contravene the prohibition under Ind AS 38 as the amortization is not based on the direct matching of amortization amount and actual revenue.

5. Impairment of Media Assets

As per Ind AS 36 – 'Impairment of Assets', an entity should assess at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the enterprise should estimate the recoverable amount of the asset in accordance with the provisions of the Standard.

5.1 As per Ind AS 36 – 'Impairment of Assets', an entity should assess at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the enterprise should estimate the recoverable amount of the asset in accordance with the provisions of the Standard. The recoverable amount is the higher of the estimated fair value less costs to sell, or value in use.

If the carrying amount of a media asset exceeds the recoverable amount as computed above, impairment loss should be recognised on such media assets.

5.2 Examples of internal and external indicators that may indicate that an asset may be impaired include restrictions imposed on the release of the motion picture film generally or in certain territories, substantial delays in release schedules, poor box office performance compared to expectations, actual costs substantially more than budgeted costs, etc.

5.3 The expected future cash flows for value in use calculations include all sources of reasonably estimable revenues, like revenue from theatrical releases, digital platforms, licensing sales to broadcast, merchandising revenues, etc.

6. Principles of Revenue Recognition

6.1 In the case of a promise to grant licenses to customers of Intellectual property relating to motion pictures, music, or other forms of media and entertainment, the entity needs to determine the nature of the license granted to the customer and, on that basis, determine the timing of revenue recognition.

6.2 The nature of the license to intellectual property could be to provide the customer with either of the above.

6.3 Revenue recognition for sale of rights prior to exploitation

Revenue recognition in the case of sale of rights prior to exploitation depends on the nature of restrictions imposed by the licensor, as summarised below:

6.4 Recognition of Revenue — Certain Scenarios

a) Theatrical Release of Movie

• Minimum guarantee deals: Recognize the non-refundable minimum guarantee amount as revenue on the date of release of the movie.
• Commission/revenue share: Revenue is recognised as the exhibition of the movie occurs.

b) Music Rights

• Fixed fee for perpetual rights: Recognize revenue on the commencement date when the music company / the assignor of the music rights obtains an unrestricted right to market the music. For this purpose, the commencement date will typically be the date when the licensee obtains control and is legally permitted to exploit the rights, not merely the contract signing date.

c) Royalty Income over sales exceeding certain sales thresholds

• Recognize royalty income when the sales exceed the threshold amount.

d) Satellite and home video

• Recognize revenue when the right of the broadcaster/DTH/home video partner to telecast the movie commences (after the no-broadcast period).

Conclusion

Accounting for motion picture films under Ind AS is far more than an academic application of standards — it is about interpreting complex business models in an industry where creativity meets commerce. Every decision, whether on classification, capitalization, amortization, or revenue recognition, has the power to significantly alter how financial statements are prepared and presented, and consequently shape stakeholders' perception of a media enterprise's financial health.

As streaming platforms, digital rights, and new monetization models continue to disrupt traditional practices, the profession must constantly balance technical guidance with dynamic business realities by asking the right questions, exercising sound judgment, and anticipating how today's accounting decisions will influence tomorrow's industry landscape.