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Program Rights

9 Months Ended

Sep. 30, 2020

Effective January 1, 2020, the Company adopted FASB ASU No. 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials. The new guidance impacts the Company as follows:

•Allows for the classification of acquired/licensed program rights as long-term assets. Previously, the Company reported a portion of these rights in current assets. Advances for live programming rights made prior to the live event and acquired/licensed program rights with license terms of less than one year continue to be reported in current assets.

•Aligns the capitalization of production costs for episodic television programs with the capitalization of production costs for theatrical content. Previously, theatrical content production costs could be fully capitalized while episodic television production costs were generally limited to the amount of contracted revenues.

•Introduces the concept of “predominant monetization strategy” to classify capitalized program rights for purposes of amortization and impairment as follows:

◦Individual program rights - programming value is predominantly derived from third-party revenues that are directly attributable to the specific film or television title (e.g., theatrical revenues, significant in-show advertising on the Company’s programming networks or specific content licensing revenues).

◦Group program rights - programming value is predominantly derived from third-party revenues that are not directly attributable to a specific film or television title (e.g., library of program rights for purpose of the Company’s programming networks or subscription revenue for AMC Networks SVOD).

The determination of the predominant monetization strategy is made at commencement of production and is based on the means by which we derive third-party revenues from use of the programming. The classification of program rights as individual or group only changes if there is a significant change to the title’s monetization strategy relative to its initial assessment.

Total capitalized produced and licensed content by predominant monetization strategy is as follows:


	September 30, 2020
(In thousands)	Predominantly Monetized Individually		Predominantly Monetized as a Group		Total
Owned original program rights, net:
Completed	$	288,705	$	33,288	$	321,993
In-production and in-development	145,228		14,209		159,437
Total owned original program rights, net	$	433,933	$	47,497	$	481,430

Licensed program rights, net:
Licensed film and acquired series	$	8,080	$	581,253	$	589,333
Licensed originals	235,149		—		235,149
Advances and content versioning costs	—		48,633		48,633
Total licensed program rights, net	243,229		629,886		873,115
Program rights, net	$	677,162	$	677,383	$	1,354,545

Current portion of program rights, net					$	17,933
Program rights, net (long-term)					1,336,612
					$	1,354,545

Amortization, including write-offs, of owned and licensed program rights is as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	Predominantly Monetized Individually		Predominantly Monetized as a Group		Total		Predominantly Monetized Individually		Predominantly Monetized as a Group		Total

Owned original program rights	$	74,597	$	11,854	$	86,451	$	235,868	$	27,831	$	263,699
Licensed program rights	20,479		100,019		120,498		61,741		296,764		358,505
Program rights amortization	$	95,076	$	111,873	$	206,949	$	297,609	$	324,595	$	622,204

Rights to programming, including feature films and episodic series, acquired under license agreements are stated at the lower of unamortized cost or fair value. Such licensed rights along with the related obligations are recorded at the contract value when a license agreement is executed, unless there is uncertainty with respect to either cost, acceptability or availability. If such uncertainty exists, those rights and obligations are recorded at the earlier of when the uncertainty is resolved or the license period begins. Costs are amortized to technical and operating expense on a straight-line or accelerated basis, based on the expected exploitation strategy of the rights, over a period not to exceed the respective license periods.

Owned original programming costs, including estimated participation and residual costs, qualifying for capitalization as program rights are amortized to technical and operating expense over their estimated useful lives, commencing upon the first airing, based on attributable revenue for airings to date as a percentage of total projected attributable revenue, or ultimate revenue (individual-film-forecast-computation method). Projected attributable revenue is based on previously generated revenues for similar content in established markets, primarily consisting of distribution and advertising revenues, and projected program usage. Projected program usage is based on the Company's current expectation of future exhibitions taking into

account historical usage of similar content. Projected attributable revenue can change based upon programming market acceptance, levels of distribution and advertising revenue and decisions regarding planned program usage. These calculations require management to make assumptions and to apply judgment regarding revenue and planned usage. Accordingly, the Company periodically reviews revenue estimates and planned usage and revises its assumptions if necessary, which could impact the timing of amortization expense or result in a write-down to fair value. Any capitalized development costs for programs that the Company determines will not be produced are written off.The Company periodically reviews the programming usefulness of its licensed and owned original program rights based on several factors, including expected future revenue generation from airings on the Company's networks and other exploitation opportunities, ratings, type and quality of program material, standards and practices, and fitness for exhibition through various forms of distribution. If it is determined that film or other program rights have limited, or no, future programming usefulness, the useful life is updated, which generally results in a write-off of the unamortized cost to technical and operating expense in the consolidated statements of income. Program rights write-offs, included in technical and operating expense, were $24.8 million and $36.9 million for the three and nine months ended September 30, 2020, respectively, and $1.6 million and $15.2 million for the three and nine months ended September 30, 2019, respectively.