Equity Method Investments

6 Months Ended

Jun. 30, 2020

Equity Method Investments

Equity Method Investments

Note 5. Equity Method Investments

The Company makes investments that support its underlying business strategy and enable it to enter new markets. The Company holds equity investments in Pantaya, Canal 1 and Snap JV (in each case, as defined and discussed below), which are variable interest entities (“VIEs”), for which the Company is not the primary beneficiary. The primary beneficiary is the party involved with the VIE that (i) has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and (ii) has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The activities of each VIE that most significantly impact the VIE’s economic performance are controlled by the VIE’s board of directors and the Company’s representation on the board of directors of each VIE is commensurate with its voting equity interest. As the Company does not hold a majority voting interest or disproportionate voting or other rights, it does not have the power to direct the activities that most significantly impact the economic performance of any of these VIEs.

On November 3, 2016, we acquired a 25% interest in Pantaya, a newly formed joint venture with Lionsgate, to launch a Spanish-language OTT movie service. The service launched on August 1, 2017. The investment is deemed a variable interest entity that is accounted for under the equity method. During the three months ended March 31, 2020, we funded $1.5 million into Pantaya, bringing our total capital contributions to $10 million, equal to our funding obligation. We record the income or loss on investment on a one quarter lag. As of March 31, 2019, our applicable pro rata share of the inception-to-date losses exceeded our contractual funding commitment of $10 million. As such, our cumulative share of the losses is limited to $10 million and no additional losses were recorded following the three months ended March 31, 2019. For each of the three months ended June 30, 2020 and 2019, we recorded $0 million in loss on equity method investments in the accompanying Condensed Consolidated Statements of Operations. For the six months ended June 30, 2020 and 2019, we recorded $0 and $0.3 million in loss on equity method investments in the accompanying Condensed Consolidated Statements of Operations, respectively. As of December 31, 2019, we were committed to provide future capital contributions to Pantaya. Accordingly, we presented the net balance recorded for our share of Pantaya’s losses in excess of the amount funded into Pantaya as a liability in the amount of $1.5 million in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2019. During the three month period ended March 31, 2020, we satisfied our capital contribution obligation to Pantaya, and as a result, the balance recorded for our share of Pantaya’s losses in excess of the amount funded was $0, and accordingly, there was no liability presented in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2020. As of June 30, 2020 and December 31, 2019, we had a receivable balance from Pantaya of $3.4 million and $3.9 million, respectively, and is included in accounts receivable and other assets in the accompanying Condensed Consolidated Balance Sheets.

On November 30, 2016, we, in partnership with Colombian content producers, Radio Television Interamericana S.A., Compania de Medios de Informacion S.A.S. and NTC Nacional de Television y Comunicaciones S.A., were awarded a ten year renewable television broadcast concession license for Canal 1 in Colombia. The partnership began operating Canal 1 on May 1, 2017. On February 7, 2018, Colombian regulatory authorities approved an increase in our ownership in the joint venture from 20% to 40%. In July 2019, the Colombian government enacted legislation resulting in the extension of the concession license for Canal 1 for an additional ten years for no additional consideration. The concession is now due to expire on April 30, 2037 and is renewable for an additional 20-year period. The joint venture is deemed a VIE that is accounted for under the equity method. As of June 30, 2020, we have funded $116.6 million in capital contributions to Canal 1. The Canal 1 joint venture losses-to-date have exceeded the capital contributions of the common equity partners and in accordance with equity method accounting, losses in excess of the common equity have been recorded against the next layer of the capital structure, in this case, preferred equity. The Company is currently the sole preferred equity holder in Canal 1 and therefore, the Company records 100% of the losses of the joint venture. We record the income or loss on investment on a one quarter lag. For the three months ended June 30, 2020 and 2019, we recorded $10.2 million and $9.9 million in loss on equity method investment in the accompanying Condensed Consolidated Statements of Operations, respectively. For the six months ended June 30, 2020 and 2019, we recorded $17.0 million and $16.9 million in loss on equity method investment in the accompanying Condensed Consolidated Statements of Operations, respectively. The net balance recorded in equity method investments related to the Canal 1 joint venture was $32.0 million and $44.2 million as of June 30, 2020 and December 31, 2019, respectively, and is included in the accompanying Condensed Consolidated Balance Sheets. As of June 30, 2020 and December 31, 2019, we had a receivable balance from Canal 1 of $2.4 million and $2.0 million, respectively, and is included in other assets in the accompanying Condensed Consolidated Balance Sheets.

On April 28, 2017, we acquired a 25.5% interest in REMEZCLA, a digital media company targeting English speaking and bilingual U.S. Hispanic millennials through innovative content, for $5.0 million. At March 31, 2020, given the negative impacts caused by the COVID-19 pandemic and the associated liquidity and going-concern uncertainties related to REMEZCLA, the Company determined that the investment in REMEZCLA was other-than-temporarily impaired. As a result, we recorded a non-cash impairment charge of $5.5 million reflecting the write-off of the full carrying amount of our investment. This write-off was recorded in impairment of equity method investment in the Condensed Consolidated Statements of Operations. Due to the above mentioned write-off of the investment carrying value, we did not record any share of the loss from the investment for the three and six months ended June 30, 2020. For the three and six months ended June 30, 2019, we recorded $0.2 million in gain on equity method investments in the Condensed Consolidated Statements of Operations. The net balance recorded in equity method investments related to REMEZCLA was $0 million and $5.5 million as of June 30, 2020 and December 31, 2019, respectively, and is included in the accompanying Condensed Consolidated Balance Sheets. For more information, see Note 9, "Fair Value Measurements".

On November 26, 2018, Snap Media acquired a 50% interest in Snap JV, LLC (“Snap JV”) (we own 75% of Snap Media), a newly formed joint venture with Mar Vista Entertainment, LLC (“MarVista”), to co-produce original movies and series. The investment is deemed a VIE that is accounted for under the equity method. As of June 30, 2020, we have funded $0.4 million into Snap JV. We record the income or loss on investment on a one quarter lag. For the three months ended June 30, 2020 and 2019, we

recorded $0 million and $0.0 million, respectively, in loss on equity method investments in the accompanying Condensed Consolidated Statements of Operations. For the six months ended June 30, 2020 and 2019, we recorded $0.2 million and $0.1 million, respectively, in loss on equity method investments in the accompanying Condensed Consolidated Statements of Operations. The net balance recorded in equity method investments related to Snap JV was $0.1 million and $0.0 million as of June 30, 2020 and December 31, 2019, respectively, and is included in the accompanying Condensed Consolidated Balance Sheets.

The Company records the income or loss on investments on a one quarter lag. Summary unaudited financial data for our equity investments in the aggregate as of and for the six months ended March 31, 2020 are included below (amounts in thousands):

	Total Equity Investees
Current assets	$	51,440
Non-current assets	$	23,920
Current liabilities	$	104,825
Non-current liabilities	$	23,158
Net revenue	$	23,785
Operating loss	$	(20,438)
Net loss	$	(34,119)