Netflix Dropping Disc References in Fiscal Statements

Netflix hasn’t been shy about distancing itself from its DVD by-mail rental legacy. The SVOD pioneer characterizes itself first and foremost as a digital movie/TV content producer/distributor.

In the company’s 10K filling on Jan. 29, Netflix disclosed that beginning in 2020 it would no longer reference DVD in select financial statements such as the “consolidated statements of cash flows” and “consolidated balance sheets.”

In a reclassification of financial statements, the amortization of DVD content assets is now considered “other non-cash items” within “cash flows from operating activities.” In addition, cash flows from the acquisition of DVD content assets have been downsized to “change in other assets” within “cash flows from investing activities.”

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In the “consolidated balance sheets,” DVD content assets have been relegated to “other non-current assets,” and DVD content liabilities have been reclassified from “current content liabilities” and “non-current content liabilities” to “accrued expenses and other liabilities” and “other non-current liabilities,” respectively.

Disc rental revenue in 2019 was $300 million, down from $400 million in 2018 and $500 million in 2017. More than 2 million Netflix subscribers still rent DVD/Blu-ray Disc movies.

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Finally, Netflix will no longer separate contribution profit (loss) for domestic streaming, international streaming and domestic DVD, claiming its “chief operating decision maker” (CEO Reed Hastings) no longer reviews the data independently — due in part because Netflix increasingly obtains multi-territory or global rights for streaming content. Hastings apparently now focuses on the company’s global operating margin as the primary measure of profitability and basis for allocation of resources.

 

MoviePass Lost More Money Than Originally Reported

In another blow to fiscally-challenged theatrical ticket subscription service MoviePass, parent Helios and Matheson Analytics March 12 issued a revised financial statement revealing the service lost millions more than originally reported.

HMNY said its revised third-quarter (ended Sept. 30, 2018) net loss topped $146.6 million — nearly 7% more than a net loss of $137 million originally reported. For nine months of the fiscal year, HMNY lost $256.3 million, 3.8% more than a loss of $246.7 million.

HMNY attributed the error to overstatement of subscription revenue, including $700,000 of revenue from terminated MoviePass subscriptions by Costco; false recognition of about $5.9 million of revenue from certain suspended subscriptions that had not yet been consented to by subscribers.

The company also identified a non-cash error related to the accounting of derivative securities, which resulted in an understatement of net loss of approximately $2.9 million. HMNY said the error underscored a “material weakness” relating to subscription management.

CEO Ted Farnsworth and CFO Stuart Benson said measures have been taken to avoid future accounting issues, including implementation of software upgrades to provide “real-time” information for managing and accounting for subscriptions, including subscriptions that are terminated or in a suspended state.

“Members of the company’s management have discussed the matters with Rosenberg Rich Baker Berman, P.A., [HMNY’s] accounting firm,” Benson wrote in the filing.

HMNY, which had its stock delisted by Nasdaq for failing to meet the $1 minimum share value, has struggled to sustain the MoviePass business  model that enabled subscribers daily access to a theatrical screening for $9.95 monthly fee.