Income Recognition in the Motion Picture Industry

The motion picture industry has undergone significant changes since the 1960s. Originally, companies such as Paramount Pictures had to rely solely on domestic and foreign screenings of their movies for their revenues. The birth of the television industry in the 1960s resulted in opportunities for broadcasting rights to networks and individual stations. Moreover, the introduction of cable television in the 1970s opened up substantial new sources of revenue. In addition, the unsaturated demand for new films resulted in a market for madefortelevision films. And the invention of the video recorder opened yet another revenue source for these companies. The production of a film involves four phases:

1. Acquisition of the story rights
2. Preproduction, including script development, set design, cost selection, costume design, and selection of a filming location
3. Actual filming
4. Postproduction, including film editing, adding the musical score, and special effects.

Warmen Brothers Production Company has just finished the production ofAbsence of Forethought, a movie that is expected to be successfully distributed to all available markets.

Required:

1.What markets are available to Warmen Brothers for this film?

2.In what order would you suggest Warmen Brothers attempt to enter each market? Why?

3.How should revenues be recognized from each market?

4.How should costs be matched against these revenues?

5.What effect will your decisions have on Warmen Brothers' income statements for the year's revenue?