Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

v3.20.2
Revenue Recognition
 9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
NOTE 5. REVENUE RECOGNITION
We recognize revenue in accordance with ASC 606, “
Revenue from Contracts with Customers”
(“ASC 606,”) a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to customers at an amount that reflects the consideration expected to be received. The application of ASC 606 requires the use of significant judgment and estimates in applying a five-step model applicable to all revenue streams as follows:
Identification of the contract, or contracts, with a customer
A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.
We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
Identification of the performance obligations in the contract
Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.
When a contract includes multiple promised goods or services, we apply judgment to determine whether the promised goods or services are capable of being distinct and are distinct within the context of the contract. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation.
Determination of the transaction price
The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods or services to our customer. We estimate any variable consideration included in the transaction price using the expected value method that requires the use of significant estimates for discounts, cancellation periods, refunds and returns. Variable consideration is described in detail below.
Allocation of the transaction price to the performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative Stand-Alone Selling Price (“SSP”) basis. We determine SSP based on the price at which the performance obligation would be sold separately. If the SSP is not observable, we estimate the SSP based on available information, including market conditions and any applicable internally approved pricing guidelines.
Recognition of revenue when, or as, we satisfy a performance obligation
We recognize revenue at the point in time that the related performance obligation is satisfied by transferring the promised goods or services to our customer.
A summary of our principal sources of revenue is as follows:
Block Programming
.
We recognize revenue from the sale of blocks of airtime to program producers that typically range from 12
1
/
2
, 25 or
50-minutes
of time. We separate block program revenue into three categories, National, Local and Infomercial revenue. Our stations are classified by format, including Christian Teaching and Talk, News Talk, Contemporary Christian Music, Spanish Language Christian Teaching and Talk and Business. National and local programming content is complementary to our station format while infomercials are closely associated with long-form advertisements. Block programming revenue may include variable consideration for charities and programmers that purchase blocks of airtime to generate donations and contributions from our audience. Block programming revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Block programming revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency.
Spot Advertising
. We recognize revenue from the sale of airtime to local and national advertisers who purchase spot commercials of varying lengths. Spot Advertising may include variable consideration for charities and programmers that purchase spots to generate donations and contributions from our audience. Advertising revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case revenue is reported net of the commission retained by the agency.
Network Revenue
.
Network revenue includes the sale of advertising time on our national network and fees earned from the syndication of programming on our national network. Network revenue is recognized at the time of broadcast, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Network revenue is recorded on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Digital Advertising.
We recognize revenue from the sale of banner advertising on our owned and operated websites and on our own and operated mobile applications. Each of our radio stations, our digital media entities and certain of our publishing entities have custom websites and mobile applications that generate digital advertising revenue. Digital advertising revenue is recognized at the time that the banner display is delivered, or the number of impressions delivered meets the previously agreed-upon performance criteria, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Digital advertising revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Broadcast digital advertising revenue consists of local digital advertising, such as the sale of banner advertisements on our owned and operated websites, the sale of advertisements on our own and operated mobile applications, and advertisements in digital newsletters that we produce, as well an national digital advertising, or the sale of custom digital advertising solutions, such as web pages and social media campaigns, that we offer to our customers. Advertising revenue is recorded on a gross basis unless an agency represents the advertiser, in which case, revenue is reported net of the commission retained by the agency.
Salem Surround, our national multimedia advertising agency, offers a comprehensive suite of digital marketing services to develop and execute audience-based marketing strategies for clients on both the national and local level. Salem Surround specializes in digital marketing services for each of our radio stations and websites as well as provides a full-service digital marketing strategy for each of our clients. In our role as a digital agency, our sales team provides our customers with integrated digital advertising solutions that optimize the performance of their campaign, which we view as one performance obligation. Our advertising campaigns are designed to be “white label” agreements between Salem and our advertiser, meaning we provide special care and attention to the details of the campaign. We provide custom digital product offerings, including tools for metasearch, retargeting, website design, reputation management, online listing services, and social media marketing. Digital advertising solutions may include third-party websites, such as Google or Facebook, which can be included in a digital advertising social media campaign. We manage all aspects of the digital campaign, including social media placements, review and approval of target audiences, and the monitoring of actual results to make modifications as needed. We may contract directly with a third-party, however, we are responsible for delivering the campaign results to our customer with or without the third-party. We are responsible for any payments due to the third-party regardless of the campaign results and without regard to the status of payment from our customer. We have discretion in setting the price to our customer without input or approval from the third-party. Accordingly, revenue is reported gross, as principal, as the performance obligation is delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation.
Digital Streaming
. We recognize revenue from the sale of advertisements and from the placement of ministry content that is streamed on our owned and operated websites and on our owned and operated mobile applications. Each of our radio stations, our digital media entities and certain of our publishing entities have custom websites and mobile applications that generate streaming revenue. Digital streaming revenue is recognized at the time that the content is delivered, or when the number of impressions delivered meets the previously agreed-upon performance criteria. Delivery of the content represents the point in time that control is transferred to the customer thereby completing our performance obligation. Streaming revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Digital Downloads and
e-books
. We recognize revenue from sale of downloaded materials, including videos, song tracks, sermons, content archives and
e-books.
Payments for downloaded materials are due in advance of the download, however, the download is often instant upon confirmation of payment. Digital download revenue is recognized at the time of download, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is recorded at the gross amount due from the customer. All sales are final with no allowances made for returns.
Subscriptions
. We recognize revenue from the sale of subscriptions for financial publication digital newsletters, digital magazines, podcast subscriptions for
on-air
content, and subscriptions to our print magazine. Subscription terms typically range from three months to two years, with a money-back guarantee for the first 30 days. Refunds after the first
30-day
period are considered on a
pro-rata
basis based on the number of publications issued and delivered. Payments are due in advance of delivery and can be made in full upon subscribing or in quarterly installments. Cash received in advance of the subscription term, including amounts that are refundable, is recorded in contract l
i
abilities. Revenue is recognized ratably over the subscription term at the point in time that each publication is transmitted or shipped, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is reported net of estimated cancellations, which are based on our experience and historical cancellation rates during the cancellable period.
Book Sales
. We recognize revenue from the sale of books upon shipment, which represents the point in time that control is transferred to the customer thereby completing the performance obligation. Revenue is recorded at the gross amount due from the customer, net of estimated sales returns and allowances based on our historical experience. Print-based consumer books are sold on a fully returnable basis. We do not record assets or inventory for the value of returned books as they are considered “used” regardless of the condition upon return. Our experience with unsold or returned books is that their resale value is
not
 
significant and they are often destroyed or disposed of.
e-Commerce
. We recognize revenue from the sale of products sold through our digital platform. Payments for products are due in advance shipping. We record a contract liability when we receive customer payments in advance of shipment. The time frame from receipt of payment to shipment is typically one business day based on the time that an order is placed as compared to fulfillment.
E-Commerce
revenue is recognized at the time of shipment, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue is reported net of estimated returns, which are based on our experience and historical return rates. Returned products are recorded in inventory if they are unopened and
re-saleable
with a corresponding reduction in the cost of goods sold.
Self-Publishing Fees
. We recognize revenue from self-publishing services through Salem Author Services (“SAS”), including book publishing and support services to independent authors. Services include book cover design, interior layout, printing, distribution, marketing services and editing for print books and eBooks. As each book and related support services are unique to each author, authors must make payments in advance of the performance. Payments are typically made in installments over the expected production timeline for each publication. We record contract liabilities equal to the amount of payments received, including those amounts that are fully or partially refundable. Contract liabilities are reported as current liabilities or long-term liabilities on our consolidated financial statements based on the time to fulfill the performance obligations under terms of the contract. Refunds are limited based on the percentage completion of each publishing project.
Revenue is recognized upon completion of each performance obligation, which represents the point in time that control of the product is transferred to the author, thereby completing our performance obligation. Revenue is recorded at the net amount due from the author, including discounts based on the service package.
Advertising - Print
. We recognize revenue from the sale of print magazine advertisements. Revenue is recognized upon delivery of the print magazine which represents the point in time that control is transferred to the customer thereby completing the performance obligation. Revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Other Revenues
.
Other revenues include various sources, such as event revenue, listener purchase programs, talent fees for
on-air
hosts, rental income for studios and towers, production services, and shipping and handling fees. We recognize event revenue, including fees earned for ticket sales and sponsorships, when the event occurs, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Revenue for all other products and services is recorded as the products or services are delivered or performed, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Other revenue is reported on a gross basis unless an agency represents the customer, in which case, revenue is reported net of the commission retained by the agency.
Trade and Barter Transactions
In broadcasting, trade or barter agreements are commonly used to reduce cash expenses by exchanging advertising time for goods or services. We may enter barter agreements to exchange airtime or digital advertising for goods or services that can be used in our business or that can be sold to our audience under Listener Purchase Programs. The terms of these barter agreements permit us to preempt the barter airtime or digital campaign in favor of customers who purchase the airtime or digital campaign for cash. The value of these
non-cash
exchanges is included in revenue in an amount equal to the fair value of the goods or services we receive. Each transaction must be reviewed to determine that the products, supplies and/or services we receive have economic substance, or value to us. We record barter operating expenses upon receipt and usage of the products, supplies and services, as applicable. We record barter revenue as advertising spots or digital campaigns are delivered, which represents the point in time that control is transferred to the customer thereby completing our performance obligation. Barter revenue is recorded on a gross basis unless an agency represents the programmer, in which case, revenue is reported net of the commission retained by the agency.
 
Trade and barter revenues and expenses were as follows:
 
    
Three Months Ended

September 30,
     
Nine Months Ended

September 30,
  
     2019     
2020
      2019     
2020
  
    
(Dollars in thousands)
  
Net broadcast barter revenue
    $ 1,366      $
444
 
    $ 4,080      $
2,118
 
Net digital media barter revenue
      —       
 
—  
 
      —       
 
—  
 
Net publishing barter revenue
      17     
 
3
 
      33     
 
34
 
Net broadcast barter expense
    $ 1,199      $
413
 
    $ 3,667      $
1,971
 
Net digital media barter expense
      —       
 
—  
 
      —       
 
—  
 
Net publishing barter expense
      5     
 
—  
 
      6     
 
—  
 
Contract Assets
Contract Assets - Costs to Obtain a Contract:
We capitalize commissions paid to sales personnel in our self-publishing business when customer contracts are signed and advance payment is received. These capitalized costs are recorded as prepaid commission expense in the Consolidated Balance Sheets. The amount capitalized is incremental to the contract and would not have been incurred absent the execution of the customer contract. Commissions paid upon the initial acquisition of a contract are expensed at the point in time that related revenue is recognized. Prepaid commissions are periodically reviewed for impairment. At September 30, 2020, our prepaid commission expense was $0.7 million.
Contract Liabilities
Contract liabilities consist of customer advance payments and billings in excess of revenue recognized. We may receive payments from our customers in advance of completing our performance obligations. Additionally, new customers, existing customers without approved credit terms and authors purchasing specific self-publishing services, are required to make payments in advance of the delivery of the products or performance of the services. We record contract liabilities equal to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms. Contract liabilities are reported as current liabilities on our consolidated financial statements when the time to fulfill the performance obligations under terms of our contracts is less than one year. Long-term contract liabilities represent the amount of payments received in excess of revenue earned, including those that are refundable, when the time to fulfill the performance obligation is greater than one year. Our long-term liabilities consist of subscriptions with a term of
two-years
for which some customers have purchased and paid for multiple years.
Significant changes in our contract liabilities balances during the period are as follows:
 
    
Short-Term
     
Long-Term
  
    
(Dollars in thousands)
  
Balance, beginning of period January 1, 2020
    $ 9,493      $ 1,744  
Revenue recognized during the period that was included in the beginning balance of contract liabilities
      (6,123 )       —    
Additional amounts recognized during the period
      21,022        678  
Revenue recognized during the period that was recorded during the period
      (10,283 )       —    
Transfers
      604        (604 ) 
  
 
 
     
 
 
  
Balance, end of period September 30, 2020
    $ 14,713      $ 1,818  
  
 
 
     
 
 
  
Amount refundable at beginning of period
    $ 9,403      $ 1,744  
Amount refundable at end of period
    $ 14,648      $ 1,818  
We expect to satisfy these performance obligations as follows:
 
    
Amount
  
For the Twelve Months Ended September 30,
   
(Dollars in thousands)
  
2021
    $ 14,713  
2022
      618  
2023
      689  
2024
      266  
2025
      128  
Thereafter
      117  
  
 
 
  
   $ 16,531  
  
 
 
  
The following table presents our revenues disaggregated by revenue source for each of our operating segments:
 
    
Nine Months Ended September 30, 2020
  
    
Broadcast
     
Digital Media
     
Publishing
     
Consolidated
  
    
(dollars in thousands)
  
By Source of Revenue:
            
Block Programming - National
    $ 35,536      $ —        $ —        $ 35,536  
Block Programming - Local
      18,211        —          —          18,211  
Spot Advertising - National
      10,179        —          —          10,179  
Spot Advertising - Local
      28,630        —          —          28,630  
Infomercials
      750        —          —          750  
Network
      13,505        —          —          13,505  
Digital Advertising
      10,676        14,473        216        25,365  
Digital Streaming
      1,981        2,611        —          4,592  
Digital Downloads and eBooks
      3,049        4,291        960        8,300  
Subscriptions
      868        6,679        519        8,066  
Book Sales and
e-commerce,
net of estimated sales returns and allowances
      1,128        108        6,849        8,085  
Self-Publishing Fees
      —          —          3,860        3,860  
Print Advertising
      1        —          278        279  
Other Revenues
      5,527        193        684        6,404  
  
 
 
     
 
 
     
 
 
     
 
 
  
  
$
130,041
 
   
$
28,355
 
   
$
13,366
 
   
$
171,762
 
  
 
 
     
 
 
     
 
 
     
 
 
  
Timing of Revenue Recognition
                            
Point in Time
    $ 128,157      $ 28,319      $ 13,366      $ 169,842  
Rental Income (1)
      1,884        36        —          1,920  
  
 
 
     
 
 
     
 
 
     
 
 
  
  
$
130,041
 
   
$
28,355
 
   
$
13,366
 
   
$
171,762
 
  
 
 
     
 
 
     
 
 
     
 
 
  
 
    
Nine Months Ended September 30, 2019
  
    
Broadcast
     
Digital Media
     
Publishing
     
Consolidated
  
    
(dollars in thousands)
  
By Source of Revenue:
            
Block Programming - National
    $ 36,517      $ —        $ —        $ 36,517  
Block Programming - Local
      22,867        —          —          22,867  
Spot Advertising - National
      11,956        —          —          11,956  
Spot Advertising - Local
      38,467        —          —          38,467  
Infomercials
      1,091        —          —          1,091  
Network
      13,923        —          —          13,923  
Digital Advertising
      8,558        15,136        290        23,984  
Digital Streaming
      557        2,947        —          3,504  
Digital Downloads and eBooks
      —          4,196        1,232        5,428  
Subscriptions
      825        6,076        581        7,482  
Book Sales and
e-commerce,
net of estimated sales returns and allowances
      294        468        9,342        10,104  
Self-Publishing Fees
      —          —          4,258        4,258  
Print Advertising
      25        —          474        499  
Other Revenues
      7,774        526        885        9,185  
  
 
 
     
 
 
     
 
 
     
 
 
  
  
$
142,854
 
   
$
29,349
 
   
$
17,062
 
   
$
189,265
 
  
 
 
     
 
 
     
 
 
     
 
 
  
Timing of Revenue Recognition
            
Point in Time
   
$
 141,161     
$
 29,301     
$
 17,062     
$
 187,524  
Rental Income (1)
      1,693        48        —          1,741  
  
 
 
     
 
 
     
 
 
     
 
 
  
  
$
142,854
 
   
$
29,349
 
   
$
17,062
 
   
$
189,265
 
  
 
 
     
 
 
     
 
 
     
 
 
  
 
(1)
Rental income is not applicable to ASC Topic 606, but shown for the purpose of identifying each revenue source presented in total revenue on our Condensed Consolidated Financial Statements within this report on Form
10-Q.
Principal versus Agent Considerations
When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent. Our evaluation to determine if we control the goods or services within ASC 606 includes the following indicators:
We are primarily responsible for fulfilling the promise to provide the specified good or service.
When we are primarily responsible for providing the goods and services, such as when the other party is acting on our behalf, we have indication that we are the principal to the transaction. We consider if we may terminate our relationship with the other party at any time without penalty or without permission from our customer.
We have inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer.
We may commit to obtaining the services of another party with or without an existing contract with our customer. In these situations, we have risk of loss as principal for any amount due to the other party regardless of the amount(s) we earn as revenue from our customer.
The entity has discretion in establishing the price for the specified good or service.
We have discretion in establishing the price our customer pays for the specified goods or services.
Significant Financing Component
The length of our typical sales agreement is less than 12 months; however, we may sell subscriptions with a
two-year
term. The balance of our long-term contract liabilities represents the unsatisfied performance obligations for subscriptions with a remaining term in excess of one year. We review long-term contract liabilities that are expected to be completed in excess of one year to assess whether the contract contains a significant financing component. The balance includes subscriptions that will be satisfied at various dates between October 1, 2021 and September 30, 2025. The difference between the promised consideration and the cash selling price of the publications is not significant. Therefore, we have concluded that subscriptions do not contain a significant financing component under ASC 606.
Our self-publishing contracts may exceed a
one-year
term due to the length of time for an author to submit and approve a manuscript for publication. The author may pay for publishing services in installments over the production timeline with payments due in advance of performance. The timing of the transfer of goods and services under self-publishing arrangements are at the discretion of the author and based on future events that are not substantially within our control. We require advance payments to provide us with protection from incurring costs for products that are unique and only sellable to the author. Based on these considerations, we have concluded that our self-publishing contracts do not contain a significant financing component under ASC 606.
Variable Consideration
We make significant estimates related to variable consideration at the point of sale, including estimates for refunds and product returns. Under ASC 606, estimates of variable consideration are to be recognized before contingencies are resolved in certain circumstances, including when it is probable that a significant reversal in the amount of any estimated cumulative revenue will not occur.
We enter into agreements under which the amount of revenue we earn is contingent upon the amount of money raised by our customer over the contract term. Our customer is typically a charity or programmer that purchases blocks of programming time or spots to generate revenue from our audience members. Contract terms can range from a few weeks to a few months, depending the charity or programmer. If the campaign does not generate a
pre-determined
level of donations or revenue to our customer, the consideration that we expect to be entitled to may vary above a minimum base level per the contract. Historically, under ASC Topic 605, we reported variable consideration as revenue when the amount was fixed and determinable. Under ASC 606, variable consideration is to be estimated using the expected value or the most likely amount to the extent it is probable that a significant reversal will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Based on the constraints for using estimates of variable consideration within ASC 606, and our historical experience with these campaigns, we will continue to recognize revenue at the base amount of the campaign with variable consideration recognized when the uncertainty of each campaign is resolved. These constraints include: (1) the amount of consideration received is highly susceptible to factors outside of our influence, specifically the extent to which our audience donates or contributes to our customer or programmer, (2) the length of time in which the uncertainty about the amount of consideration expected is to be resolved, and (3) our experience has shown these contracts have a large number and broad range of possible outcomes.
Practical Expedients and Exemptions
We elected certain practical expedients and policy elections as follows:
 
 
•
 
We do not adjust the promised amount of consideration for the effects of a significant financing component if the period between transfer of product and customer payment is expected to be less than one year at the time of contract inception;
 
 
•
 
We do not assess promised goods or services as performance obligations if they are immaterial in the context of the contract with the customer;
 
 
•
 
We exclude sales and similar taxes from the transaction price;
 
 
•
 
We treat shipping and handling costs that occur after control transfers as fulfillment activities instead of assessing such activities as separate performance obligations; and
 
 
•
 
We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.