Revenues

6 Months Ended

Dec. 31, 2018

Revenue from Contract with Customer [Abstract]

Revenues

NOTE 2. REVENUES

On July 1, 2018, the Company adopted ASC 606 on a modified retrospective basis for all contracts which were not completed as of the adoption date. Results for reporting periods beginning after July 1, 2018 are presented under ASC 606 while prior periods have not been restated. Under ASC 606, revenue is recognized when or as the Company satisfies its respective performance obligations under each contract. The Company recorded a $20 million decrease to Accumulated deficit as of July 1, 2018 to reflect the cumulative impact of its adoption of ASC 606.

When implementing ASC 606, the Company applied the practical expedient to reflect the aggregate effect of all contract modifications occurring before the beginning of the earliest period presented when identifying satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.

The adoption of ASC 606 primarily resulted in the following changes related to the Company’s revenue recognition policies:

• Reclassification of certain payments to customers

For certain revenue streams within the Subscription Video Services, Book Publishing and News and Information Services segments, the Company previously recorded certain marketing and sales incentive payments to customers within Operating expenses and Selling, general and administrative expenses. In accordance with ASC 606, such payments are now recorded as a reduction of revenue. For the three and six months ended December 31, 2018, revenues were $34 million and $62 million lower, respectively, as a result of this reclassification, with no impact on the Company’s net income.

• Deferred installation revenues in the Subscription Video Services segment

Under ASC 606, each customer subscription sold is accounted for as a distinct performance obligation. Installation services are not accounted for as a distinct performance obligation and are instead included within the overall services being provided. Therefore, installation revenues are deferred and recognized over the respective customer contract term. Historically, installation revenues were deferred and recognized over the estimated customer life. For the three and six months ended December 31, 2018, revenues were $7 million and $13 million higher, respectively, as a result of the adoption of ASC 606.

• Acceleration of revenue associated with REA Group’s financial services business

The Company has historically delayed the recognition of trailing commission revenue associated with REA Group’s financial services business until such amounts became fixed or determinable. Under ASC 606, trailing commission revenue is recognized when the related mortgage loan is established. As a result, the Company established a commission receivable of $121 million and a broker commission payable of $94 million as of July 1, 2018. The current portion of the commission receivable and broker commission payable are classified in Receivables, net and Other current liabilities, respectively, with the non-current portion of each classified within Other non-current assets and liabilities, respectively, in the Balance Sheets. The change in accounting for trailing commission revenue did not have a material impact on the Statement of Operations.

The Company’s revenues and expenses for the three and six months ended December 31, 2018 and the opening balance sheet as of July 1, 2018 under both ASC 606 and the prior standard, ASC 605 are as follows:

	For the three months ended December 31, 2018
	ASC 605			Effects of Adoption			ASC 606
	(in millions)
Revenue:
Circulation and subscription	$	1,025		$	4		$	1,029
Advertising		718			—			718
Consumer		496			(18	)		478
Real estate		248			—			248
Other		160			(6	)		154
Total Revenues	$	2,647		$	(20	)	$	2,627
Operating expenses and Selling, general and administrative	$	(2,288	)	$	31		$	(2,257	)
Net income	$	111		$	8		$	119
	For the six months ended December 31, 2018
	ASC 605			Effects of Adoption			ASC 606
	(in millions)
Revenue:
Circulation and subscription	$	2,057		$	6		$	2,063
Advertising		1,382			—			1,382
Consumer		908			(30	)		878
Real estate		475			—			475
Other		366			(13	)		353
Total Revenues	$	5,188		$	(37	)	$	5,151
Operating expenses and Selling, general and administrative	$	(4,478	)	$	55		$	(4,423	)
Net income	$	234		$	13		$	247
	As of July 1, 2018
	ASC 605			Effects of Adoption			ASC 606
	(in millions)
Assets:
Receivables, net	$	1,612		$	200		$	1,812
Other current assets		372			(4	)		368
Deferred income tax assets		279			2			281
Other non-current assets		831			92			923
Liabilities and Equity:
Deferred revenue	$	516		$	(6	)	$	510
Other current liabilities		372			194			566
Deferred income tax liabilities		389			11			400
Other non-current liabilities		430			71			501
Accumulated deficit		(2,163	)		20			(2,143	)

Disaggregated revenue

The following table presents revenue by type and segment for the three and six months ended December 31, 2018:

	For the three months ended December 31, 2018
	News and Information Services		Subscription Video Services		Book Publishing		Digital Real Estate Services		Other		Total Revenues
	(in millions)
Revenues:
Circulation and subscription	$	526	$	490	$	—	$	13	$	—	$	1,029
Advertising		632		55		—		31		—		718
Consumer		—		—		478		—		—		478
Real estate		—		—		—		248		—		248
Other		99		17		18		19		1		154
Total Revenues	$	1,257	$	562	$	496	$	311	$	1	$	2,627

	For the six months ended December 31, 2018
	News and Information Services		Subscription Video Services		Book Publishing		Digital Real Estate Services		Other		Total Revenues
	(in millions)
Revenues:
Circulation and subscription	$	1,055	$	981	$	—	$	27	$	—	$	2,063
Advertising		1,208		112		—		62		—		1,382
Consumer		—		—		878		—		—		878
Real estate		—		—		—		475		—		475
Other		242		34		36		40		1		353
Total Revenues	$	2,505	$	1,127	$	914	$	604	$	1	$	5,151

Disclosures regarding the nature, timing and uncertainty of the Company’s revenue streams across its segments are as follows:

Circulation and subscription revenues

Circulation and subscription revenues include single-copy newspaper, newspaper subscription and information services subscription revenues. Circulation revenues are based on the number of copies of the printed newspaper (through home-delivery subscriptions and single-copy sales) and/or digital subscriptions sold, and the associated rates charged to the customers. Single-copy revenue is recognized at a point in time on the date the newspapers are sold to distribution outlets, net of provisions for related returns.

Revenues from home delivery and digital subscriptions are recognized over the subscription term as the newspapers and/or digital subscriptions are delivered. Information services subscription revenues are recognized over time as the subscriptions are delivered. Payments from subscribers are generally due at the beginning of the month and are recorded as deferred revenue. Such amounts are recognized as revenue as the associated subscription is delivered.

Revenue generated from subscriptions to receive pay television broadcast services, broadband and home phone services for residential and commercial subscribers is recognized over time on a monthly basis as the services are provided. Payment is generally received monthly in advance of providing services, and is deferred upon receipt. Such amounts are recognized as revenue as the related services are provided.

Advertising revenues

Revenue from print advertising is recognized at the point in time the print advertisement is circulated. Broadcast advertising revenue is recognized over the time that the broadcast advertisement is aired. For impressions-based digital advertising, revenues are recognized as impressions are delivered over the term of the arrangement, while revenue from non-impressions-based digital advertising is recognized over the period that the advertisements are displayed. Such amounts are recognized net of agency commissions and provisions for estimated sales incentives, including rebates, rate adjustments or discounts.

Advertising revenues earned from integrated marketing services are recognized at the point in time when free-standing inserts are published. Revenues earned from in-store marketing services are partially recognized upon installation, with the remaining revenue recognized over the in-store campaign.

Billings to clients and payments received in advance of performance of services or delivery of products are recorded as deferred revenue until the services are performed or the product is delivered. Payment for advertising services is typically due shortly after the Company has satisfied its performance obligation to print, broadcast or place the advertising specified in the contract. For advertising campaigns that extend beyond one month, the Company generally invoices the advertiser in arrears based on the number of advertisements that were printed, broadcast or placed, or impressions delivered during the month.

Consumer revenues

Revenue from the sale of physical books and electronic books (“e-books”) is recognized at the point in time of physical receipt by the customer or electronic delivery. Such amounts are recorded net of provisions for returns and payments to customers when a distinct good or service is not received. If the Company prohibits its customer from selling a physical book until a future date, it recognizes revenue when that restriction lapses.

Revenue is recognized net of any amounts billed to customers for taxes remitted to government authorities. Payments for the sale of physical books and e-books are generally collected within one to three months of sale or delivery and are based on the number of physical books or e-books sold.

Real Estate revenues

Real estate revenues are derived from the sale of online real estate listing products and advanced client management and reporting products, as well as services to agents, brokers and developers. Revenue is typically recognized over the contractual period during which the services are provided. Payments are generally due monthly over the subscription term.

Other revenues

Other revenues are recognized when the related services are performed or the product has been delivered.

Areas of judgment

Contracts with multiple performance obligations

The Company has certain revenue contracts which contain multiple performance obligations such as print and digital advertising bundles and bundled video service subscriptions. Revenues derived from sales contracts that contain multiple products and services are allocated based on the relative standalone selling price of each performance obligation to be delivered. Standalone selling price is typically determined based on prices charged to customers for the same or similar goods or services on a standalone basis. If observable standalone prices are not available, the Company estimates standalone selling price by maximizing the use of observable inputs to most accurately reflect the price of each individual performance obligation. Revenue is recognized as each performance obligation included in the contract is satisfied.

Identification of a customer and gross versus net revenue recognition

In the normal course of business, the Company acts as or uses an intermediary or agent in executing transactions with third parties. When the intermediary or agent is determined to be the Company’s customer, the Company records revenue based on the amount it expects to receive from the agent or intermediary.

In other circumstances, the determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company is acting as the principal or an agent in the transaction. If the Company is acting as a principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in a transaction, the Company reports revenue on a net basis. The determination of whether the Company is acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of the arrangement. The Company serves as the principal in transactions in which it controls the goods or services prior to being transferred to the ultimate customer.

Sales returns

Certain of the Company’s products, such as books and newspapers, are sold with the right of return. The Company records the estimated impact of such returns as a reduction of revenue. To estimate product sales that will be returned and the related products that are expected to be placed back into inventory, the Company analyzes historical returns, current economic trends, changes in customer demand and acceptance of the Company’s products. Based on this information, the Company reserves a percentage of each dollar of product sales that provide the customer with the right of return. As a result of the adoption of ASC 606, the Company reclassified its sales returns reserve from Receivables, net to Other current liabilities.

Contract liabilities and assets

The Company’s deferred revenue balance primarily relates to amounts received from customers for subscriptions paid in advance of the services being provided. The following table presents changes in the deferred revenue balance for the three and six months ended December 31, 2018:

	For the three months ended December 31, 2018			For the six months ended December 31, 2018
	(in millions)			(in millions)
Balance, beginning of period	$	436		$	510
Deferral of revenue		742			1,337
Recognition of deferred revenue(a)		(747	)		(1,417	)
Other		(1	)		—
Balance, end of period	$	430		$	430

(a) For the three and six months ended December 31, 2018, the Company recognized approximately $267 million and $421 million, respectively, of revenue which was included in the opening deferred revenue balance for each of the respective periods.

Contract assets were immaterial for disclosure as of December 31, 2018.

Practical expedients and other revenue disclosures

The Company typically expenses sales commissions incurred to obtain a customer contract as those amounts are incurred as the amortization period is twelve months or less. These costs are recorded within Selling, general and administrative in the Statements of Operations. The Company also applies the practical expedient for significant financing components when the transfer of the good or service is paid within twelve months or less, or the receipt of consideration is received within twelve months or less of the transfer of the good or service.

During the three and six months ended December 31, 2018, the Company recognized approximately $72 million and $152 million, respectively, in revenues related to performance obligations that were satisfied or partially satisfied in a prior reporting period. The remaining transaction price related to unsatisfied performance obligations as of December 31, 2018 was approximately $310 million, of which approximately $79 million is expected to be recognized over the remainder of fiscal 2019, approximately $119 million is expected to be recognized in fiscal 2020, $89 million is expected to be recognized in fiscal 2021, with the remainder to be recognized thereafter. These amounts do not include (i) contracts with an expected duration of one year or less, (ii) contracts for which variable consideration is determined based on the customer’s subsequent sale or usage and (iii) variable consideration allocated to performance obligations accounted for under the series guidance that meets the allocation objective under ASC 606.