Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

v3.22.2.2
Revenue Recognition
 9 Months Ended
Sep. 30, 2022
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
NOTE 4. REVENUE RECOGNITION
We recognize revenue in accordance with FASB ASC Topic 606, “
Revenue from Contracts with Customers,”
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 FASB ASC Topic 606 requires us to use significant judgment and estimates when applying a five-step model applicable to all revenue streams.
The following table presents our revenues disaggregated by revenue source for each of our operating segments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
Nine Months Ended September 30, 2022
  
    
Broadcast
     
Digital Media
     
Publishing
     
Consolidated
  
                             
    
(Dollars in thousands)
  
By Source of Revenue:
                                    
Block Programming – National
    $ 39,998      $ —        $ —        $ 39,998  
Block Programming – Local
      18,183        —          —          18,183  
    
 
 
     
 
 
     
 
 
     
 
 
  
Broadcast Programming Revenue
   
 
58,181
 
      —          —       
 
58,181
 
    
 
 
     
 
 
     
 
 
     
 
 
  
Spot Advertising – National
      11,344        —          —          11,344  
Spot Advertising – Local
      31,915        —          —          31,915  
Network Advertising
      15,961        —          —          15,961  
    
 
 
     
 
 
     
 
 
     
 
 
  
Broadcast Advertising Revenue
   
 
59,220
 
      —          —       
 
59,220
 
    
 
 
     
 
 
     
 
 
     
 
 
  
Infomercials
      569        —          —          569  
Other Revenue
      6,789        —          —          6,789  
    
 
 
     
 
 
     
 
 
     
 
 
  
Other Broadcast Revenue
   
 
7,358
 
      —          —       
 
7,358
 
    
 
 
     
 
 
     
 
 
     
 
 
  
Digital Advertising
      21,042        13,453        —          34,495  
Digital Streaming
      3,915        2,687        —          6,602  
Digital Downloads
      546        5,485        —          6,031  
Digital Subscriptions
      731        9,549        —          10,280  
Other Digital Revenue
      1,027        119        —          1,146  
    
 
 
     
 
 
     
 
 
     
 
 
  
Digital Revenue
   
 
27,261
 
   
 
31,293
 
      —       
 
58,554
 
    
 
 
     
 
 
     
 
 
     
 
 
  
Book Sales
      —          —          10,816        10,816  
Estimated Sales Returns & Allowances
      —          —          (2,799 )       (2,799 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
Net Book Sales
      —          —          8,017        8,017  
    
 
 
     
 
 
     
 
 
     
 
 
  
E-Book
Sales
      —          —          937        937  
Self-Publishing Fees
      —          —          5,189        5,189  
Other Publishing Revenue
      —          —          697        697  
    
 
 
     
 
 
     
 
 
     
 
 
  
Publishing Revenue
      —          —       
 
14,840
 
   
 
14,840
 
    
 
 
     
 
 
     
 
 
     
 
 
  
    
$
152,020
 
   
$
31,293
 
   
$
14,840
 
   
$
198,153
 
    
 
 
     
 
 
     
 
 
     
 
 
  
Timing of Revenue Recognition
                                    
Point in Time
    $ 150,352      $ 31,293      $ 14,840      $ 196,485  
Rental Income (1)
      1,668        —          —          1,668  
    
 
 
     
 
 
     
 
 
     
 
 
  
    
$
152,020
 
   
$
31,293
 
   
$
14,840
 
   
$
198,153
 
    
 
 
     
 
 
     
 
 
     
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
Nine Months Ended September 30, 2021
  
    
Broadcast
     
Digital Media
     
Publishing
     
Consolidated
  
                             
    
(Dollars in thousands)
  
By Source of Revenue:
                                    
Block Programming – National
    $ 35,824      $ —        $ —        $ 35,824  
Block Programming – Local
      18,072        —          —          18,072  
    
 
 
     
 
 
     
 
 
     
 
 
  
Broadcast Programming Revenue
   
 
53,896
 
      —          —       
 
53,896
 
    
 
 
     
 
 
     
 
 
     
 
 
  
Spot Advertising – National
      10,565        —          —          10,565  
Spot Advertising – Local
      30,123        —          —          30,123  
Network Advertising
      14,729        —          —          14,729  
    
 
 
     
 
 
     
 
 
     
 
 
  
Broadcast Advertising Revenue
   
 
55,417
 
      —          —       
 
55,417
 
    
 
 
     
 
 
     
 
 
     
 
 
  
Infomercials
      682        —          —          682  
Other Revenue
      6,825        —          —          6,825  
    
 
 
     
 
 
     
 
 
     
 
 
  
Other Broadcast Revenue
   
 
7,507
 
      —          —       
 
7,507
 
    
 
 
     
 
 
     
 
 
     
 
 
  
Digital Advertising
      18,415        13,859        132        32,406  
Digital Streaming
      3,559        2,579        —          6,138  
Digital Downloads
      510        4,796        —          5,306  
Digital Subscriptions
      828        9,227        —          10,055  
Other Digital Revenue
      290        142        —          432  
    
 
 
     
 
 
     
 
 
     
 
 
  
Digital Revenue
   
 
23,602
 
   
 
30,603
 
   
 
132
 
   
 
54,337
 
    
 
 
     
 
 
     
 
 
     
 
 
  
Book Sales
      —          —          15,074        15,074  
Estimated Sales Returns & Allowances
      —          —          (4,223 )       (4,223 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
Net Book Sales
      —          —          10,851        10,851  
    
 
 
     
 
 
     
 
 
     
 
 
  
E-Book
Sales
      —          —          1,294        1,294  
Self-Publishing Fees
      —          —          4,730        4,730  
Print Magazine Subscriptions
      —          —          262        262  
Print Magazine Advertisements
      —          —          123        123  
Other Publishing Revenue
      —          —          701        701  
    
 
 
     
 
 
     
 
 
     
 
 
  
Publishing Revenue
      —          —       
 
17,961
 
   
 
17,961
 
    
 
 
     
 
 
     
 
 
     
 
 
  
    
$
140,422
 
   
$
30,603
 
   
$
18,093
 
   
$
189,118
 
    
 
 
     
 
 
     
 
 
     
 
 
  
    
Nine Months Ended September 30, 2021
  
    
Broadcast
     
Digital Media
     
Publishing
     
Consolidated
  
                             
    
(Dollars in thousands)
  
Timing of Revenue Recognition
            
Point in Time
    $ 138,540      $ 30,603      $ 18,093      $ 187,236  
Rental Income (1)
      1,882        —          —          1,882  
  
 
 
     
 
 
     
 
 
     
 
 
  
  
$
140,422
 
   
$
30,603
 
   
$
18,093
 
   
$
189,118
 
  
 
 
     
 
 
     
 
 
     
 
 
  
 
(1)
Rental income is not applicable to FASB 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.
A summary of our principal sources of revenue is as follows:
Block Programming
.
We recognize revenue from the sale of airtime to program producers in blocks that typically range from 12
1
/
2
, 25 or
50-minutes
of time. We separate block programming revenue into three categories, National, Local, and Infomercial revenue. Our stations are classified by format, including Christian Teaching and Talk, News Talk, and Contemporary Christian Music. 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. 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 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 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 owned and operated mobile applications, and advertisements in digital newsletters that we produce, as well as 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 and provides a full-service digital marketing strategy for each of our clients. In our role as a digital advertising 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 all 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 a 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 our 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 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, and podcast subscriptions for
on-air
content. 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 labilities. 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. Major new title releases represent a significant portion of the revenue in the current period. 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 returned. Our experience with unsold or returned books is that their resale value is insignificant and they are often destroyed or disposed of.
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 were historically recorded under the caption “deferred revenue” and 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.
Other Revenue
.
Other revenue includes 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.
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.
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 Condensed 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 commission expenses are periodically reviewed for impairment. At September 30, 2022, 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 were historically recorded under the caption “deferred revenue” and 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, 2022
    $ 12,294      $ 2,222  
Revenue recognized during the period that was included in the beginning balance of contract liabilities
      (8,916 )       —    
Additional amounts recognized during the period
      18,277        643  
Revenue recognized during the period that was recorded during the period
      (10,807 )       —    
Transfers
      895        (895 ) 
    
 
 
     
 
 
  
Balance, end of period September 30, 2022
    $ 11,743      $ 1,970  
    
 
 
     
 
 
  
Amount refundable at beginning of period
    $ 12,282      $ 2,222  
Amount refundable at end of period
    $ 11,731      $ 1,970  
We expect to satisfy these performance obligations as follows:
 
 
 
 
 
 
    
Amount
  
For the Year Ended June 30,
   
(Dollars in thousands)
  
2023
    $ 11,743  
2024
      1,152  
2025
      556  
2026
      158  
2027
      104  
Thereafter
      —    
    
 
 
  
     $ 13,713  
    
 
 
  
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, 2022, and September 30, 2027. 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 on 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.
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,
 
 
  
2021
 
  
2022
 
  
2021
 
  
2022
 
 
  
(Dollars in thousands)
 
Net broadcast barter revenue
   
$
582
 
   
$
593
 
   
$
1,647
 
   
$
2,118
 
Net digital media barter revenue
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
Net publishing barter revenue
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
Net broadcast barter expense
   
$
619
 
   
$
472
 
   
$
1,704
 
   
$
2,104
 
Net digital media barter expense
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
Net publishing barter expense
   
 
(2
) 
   
 
—  
 
   
 
(5
) 
   
 
—