166 ITV plc Annual Report and Accounts 2023 ITV plc Annual Report and Accounts 2023 167 F I NOTES TO THE FINANCIAL STATEMENTS NAN SECTION 2: RESULTS FOR THE YEAR C I AL In this This section focuses on the results and performance of the Group. On the following The transaction price, being the amount to which the Group expects to be entitled and has rights to under the S T section pages, you will find disclosures explaining the Group’s results for the year, contract is allocated to the identified performance obligations. The transaction price will also include an estimate of A T segmental information, exceptional items, taxation and earnings per share. any variable consideration where the Group’s performance may result in additional revenues. Variable consideration E M is estimated based on the achievement of agreed targets, such as audience targets. Variable consideration is E N recognised only to the extent that it is highly probable that a significant reversal of revenue recognised will not occur T 2.1 Profit Keeping This section analyses the Group’s profit before tax by reference to the activities when the uncertainty associated with the variable consideration is subsequently resolved. S before tax it simple performed by the Group and an analysis of key operating costs. Total revenue and adjusted earnings before interest, tax and amortisation (adjusted Revenue is stated exclusive of VAT and equivalent sales taxes. EBITA) (both as defined in the APMs section of the Annual Report) are the Group’s Complexity in advertising revenue measurement and recognition is driven by a combination of automated and key performance and profit indicators. They reflect the way the business is managed manual processes involved in measuring the value delivered to the customer and therefore the value of variable and how the Directors assess the performance of the Group. This section therefore consideration due. also shows each division’s contribution to total revenue and adjusted EBITA. In assessing the transaction price, any non-cash consideration received from a customer is included. Non-cash The Group is a vertically integrated producer broadcaster and streamer, consisting of ITV Studios and Media & consideration is measured at fair value. It takes into account the value of what the Group is receiving rather than the Entertainment (M&E). value of what the Group is giving up. ITV Studios Complex one-off contracts in all classes of revenue are assessed individually and judgement is exercised in ITV Studios is a scaled and global creator, owner and distributor of high-quality TV content. ITV Studios is the largest identifying performance obligations and allocating price to them. Timing of revenue recognition is another area of producer in the UK, one of the largest unscripted producers in the US and one of the top three producers in the judgement particularly in respect of contracts in the ITV Studios division to assess whether revenue should be majority of the international markets in which it operates. ITV Studios has established relationships with key content recognised at a point in time or over time. buyers and leading creative talent in those markets; and with a combined content library of over 90,000 hours, it is Revenue recognition criteria for the key classes of revenue are as follows: also one of the pre-eminent global distributors. Segment Major classes of revenue and revenue recognition policy Payment terms ITV Studios UK, the largest producer in the UK, produces programming for the Group’s own channels, accounting ITV Studios for 70% of ITV main channel spend on commissioned programming (2022: 65%). Programming is also sold to other UK broadcasters, networks and streaming platforms. Programme • Revenue generated from the programmes produced for broadcasters • Payment term is production and streaming platforms in the UK, US and internationally is over the term of ITV Studios US is one of the largest unscripted producers in the US and continues to grow its scripted presence by recognised at the point of delivery of an episode and acceptance by the contract investing in high-profile dramas. the customer. Revenue from producer for hire contracts, where in an event of cancellation, cost is recovered plus a margin, is recognised ITV Studios also operates in ten other international locations, together called ITV Studios International, being over time, over the term of the contract Australia, Germany, France, Italy, Spain, the Netherlands, Sweden, Norway, Finland and Denmark where content is • A licence is granted for the exploitation of a format in a stated territory, Format licences • Payment term is produced for local and international broadcasters, networks and streaming platforms. This content is either locally media and period. Licence revenue is recognised when the licence over the term of created IP or formats that have been created elsewhere by ITV, primarily in the UK, the Netherlands and in Israel. period has commenced (point in time) the contract ITV Studios Global Partnerships license ITV’s finished programmes, formats and third-party content internationally. Programme • A licence is granted for the transmission of a programme in a stated • Payment term is Within this business, the Group also finances productions both on and off ITV to acquire global distribution rights. distribution territory, media and period and revenue is recognised at the point over the term of rights when the contract is signed, the content is available for download and the contract Media & Entertainment the licence period has started (point in time) ITV is the largest commercial broadcaster and streamer in the UK, delivering unrivalled audience scale and reach. Segment Major classes of revenue and revenue recognition policy Payment terms Media & Entertainment (M&E) includes Streaming and Broadcast through which we distribute content via ITVX, our free advertiser-funded streaming service, and via our free-to-air linear TV channels. Our content is also distributed Media & Entertainment • Net advertising revenue is generated from selling spot airtime on linear on third-party partner platforms such as Sky and Virgin. Total advertising • Received in the revenue TV and is recognised at the point of transmission month after ITVX also includes a subscription tier, ITVX Premium, which provides subscribers with all of ITVX’s programming • Online advertising revenue from video on demand is generated from transmission ad-free along with other exclusive content. selling advertising on ITVX (ITV Hub before the launch of ITVX in • Received in the December 2022) and is recognised at the point of delivery month after ITV offers advertisers a unique combination of mass simultaneous reach, targeted advertising, and commercial and • Revenue from the sponsorship of programmes across ITV linear campaign is delivered creative partnerships, in a brand-safe environment across ITVX and our linear TV channels. channels and online is recognised over the period of transmission • Received prior to transmission Digital revenue is predominantly made up of digital advertising revenues, subscription revenue and digital Subscriptions • Revenue from subscription services is recognised over the • Payment term is sponsorship and commercial partnerships. subscription period over the term of Non-digital advertising revenue is predominantly made up of advertising, sponsorship and commercial partnership the contract or revenue from our linear television channels. subscription period SDN • Revenue is generated from the carriage fee or capacity of the digital • Payment term is Other revenue is predominantly made up of competitions around our linear television programming and third party multiplex and is recognised over the term of the contract over the term of licensing revenue. the contract Partnerships and • Revenue from platforms such as Sky and Virgin Media O2, and • Payment term is Accounting policies other revenue third-party commissions. Revenue related to performance obligations over the term of Revenue measurement and recognition delivered over time (e.g. provision of HD and SD channels and updated the contract The Group derives revenue from the transfer of goods and services. Revenue recognition is based on the delivery of library content) are recognised over the term of the contract while performance obligations and an assessment of when control is transferred to the customer. Revenue is recognised revenues related to one-time provision of content are recognised on either when the performance obligation in the contract has been performed (‘point in time’ recognition) or ‘over time’ delivery of the content (point in time) as control of the performance obligation is transferred to the customer. • Interactive revenue is earned from entries to competitions and is • Payment term is recognised as the event occurs (point in time) within two months Customer contracts can have a wide variety of performance obligations, from production contracts to format • Minorities revenues is the revenue received from Channel 3 licencees of the competition licences and distribution activities. For these contracts, each performance obligation is identified and evaluated. that are not part of the ITV Group. The performance obligations are being aired Under IFRS 15 the Group needs to evaluate if a format or licence represents a right to access the content (revenue delivered as programming is delivered to the licensee and revenue is • Payment term is recognised over time) or represents a right to use the content (revenue recognised at a point in time). The Group has recognised over the term of the contract (over time) over the term of determined that most format and licence revenues are satisfied at a point in time due to there being limited ongoing • Other categories of revenues within ‘Partnerships and other revenue’ the contract involvement in the use of the licence following its transfer to the customer. are individually immaterial