OnOctober 14, 2020 , we acquired Legacy CuriosityStream. The Business Combination was accounted for as a reverse recapitalization in accordance with Accounting Standards Codification ("ASC") 805, Business Combinations. Under this method of accounting,Software Acquisition Group Inc. , which was the legal acquirer in the Business Combination, was treated as the "acquired" company for financial reporting purposes and Legacy CuriosityStream was treated as the accounting acquirer. Except as otherwise provided herein, our financial statements presentation includes (1) the results of Legacy CuriosityStream as our accounting predecessor for periods prior to the completion of the Business Combination, and (2) the results of the Company for periods after the completion of the Business Combination.
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of operations and financial condition. The following discussion should be read in conjunction with the Company's financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in "Risk Factors" and elsewhere in this Annual Report on Form 10-K. Unless the context otherwise requires, references in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" to "we," "us," "our," and "the Company" are intended to mean the business and operations of LegacyCuriosityStream prior to the Business Combination and toCuriosityStream Inc. following the closing of the Business Combination. OverviewCuriosityStream is a media and entertainment company that offers premium video programming across the entire category of factual entertainment, including science, history, society, nature, lifestyle and technology. Our mission is to provide premium factual entertainment that informs, enchants and inspires. We are seeking to meet demand for high-quality factual entertainment via SVoD platforms, as well as via bundled content licenses for SVoD and linear offerings, partner bulk sales, brand partnerships and content sales. We are well-positioned for growth as a digital-native video platform monetizing content across this broad revenue stack. We operate our business as a single operating segment that provides premium streaming content through multiple channels, including the use of various applications, partnerships and affiliate relationships. We generate our revenue through six lines of business: Direct to Consumer, Partner Direct Business, Bundled Distribution, Program Sales, Corporate & Association Partnerships and Sponsorships. For the year endedDecember 31, 2020 , Direct to Consumer and Corporate & Association Partnerships together represented approximately 42% of our revenue as ofDecember 31, 2020 , followed by Bundled Distribution (approximately 35% of our revenue) and Partner Direct Business (approximately 7% of our revenue), Program Sales (approximately 15% of our revenue) and Sponsorships (approximately 1% of our revenue). Our product and service lines and channels through which we generate revenue are described in further detail below. Our content library features more than 3,100 nonfiction episodes, including more than 1,000 original, commissioned or co-produced documentaries, of short-form, mid-form and long-form duration, with an estimated$1 billion in original production value. Our content, approximately one-third of which is originally produced and the other two-thirds of which is licensed programming, is available directly through our O&O Service and App Services. Our App Services enable access toCuriosityStream on almost every major consumer device, including streaming media players like Roku, Apple TV and Amazon Fire TV, all major smart TV brands (e.g., LG, Vizio, Samsung, Sony) and gaming consoles like Xbox. Our Direct Service is available to any household in the world with a broadband connection for$2.99 per month or$19.99 per year for high definition resolution, or$9.99 per month or$69.99 per year for service in 4K. The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a license fee for sales to individuals who subscribe toCuriosityStream via the partners' respective platforms. We have affiliate agreement relationships with, and our service is available directly from, major MVPDs that include Comcast, Cox, Dish and vMVPDs and digital distributors that include Amazon Prime Video Channels, Roku Channels, Sling TV and YouTube TV. 37
In addition to our Direct and Partner Direct Businesses, we have affiliate relationships withMVPDs and Bundled MVPD Partners to whom we can offer a broad scope sets of rights, including 24/7 "linear" channels, our on-demand content library, mobile rights and pricing and packaging flexibility, in exchange for an annual fixed fee or fee per subscriber. Our Corporate & Association Partnerships business to date has been comprised primarily of selling subscriptions in bulk to companies and organizations that in turn offer these subscriptions to their employees and members as an employment benefit or "gift of curiosity." To date, over 30 companies have purchased annual subscriptions at bulk discounts for their employees. In the future, we hope to enter into multi-year integrated partnerships where we create and distribute content in support of these partners' CSR and membership initiatives. In the future, we hope to continue developing integrated digital brand partnerships with advertisers. These sponsorship campaigns would offer companies the chance to be associated withCuriosityStream content in a variety of forms, including short and long form program integration, branded social media promotional videos, broadcast advertising spots, and digital display ads. We believe the impressions accumulated in these multi-faceted campaigns would roll up to verifiable metrics for the clients. We executed on two such sponsorships in 2020: one in the financial services sector as well as a brand in the health and fitness sector. The sixth line of business in our revenue stack is our Program Sales Business. We are able to sell to certain media companies a collection of our existing titles in a traditional program sales deal and as ofDecember 31, 2020 , we were party to a multi-year, multi-million dollar program sales agreement with one such media company. We are also able to sell selected rights (such as in territories or on platforms that are lower priority for us) to content we create before we even begin production. This latter model reduces risk in our content development decisions and creates program sales revenue. Prior to the Business Combination,Software Acquisition Group Inc. was a blank check company, incorporated as aDelaware corporation onMay 9, 2019 and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Until the consummation of the Business Combination,Software Acquisition Group Inc. did not engage in any operations nor generate any revenue. OnOctober 14, 2020 , upon the consummation of the Business Combination, Legacy CuriosityStream becameSoftware Acquisition Group Inc.'s direct subsidiary and in connection with the Closing, we changed our name from "Software Acquisition Group Inc. " to "CuriosityStream Inc. " Recent Developments Equity Financing OnFebruary 8, 2021 , we consummated an underwritten public offering (the "Offering") of 6,500,000 shares of the Company's common stock, par value per share$0.0001 ("Common Stock"), plus an over-allotment option to purchase up to 975,000 additional shares of Common Stock granted to the underwriters who participated in the Offering, which over-allotment option was exercised by the underwriters in full onFebruary 5, 2021 . The net proceeds to us from the Offering were$94.1 million , after deducting underwriting discounts and commissions and the offering expenses payable by us in connection with the Offering. The Offering was made pursuant to the Company's Registration Statement on Form S-1, filed with theSEC onFebruary 1, 2021 and declared effective onFebruary 3, 2021 . During the months of January andFebruary 2021 , we received funds of approximately$55 million for the exercise of 4.8 million Warrants. The receipt of the net proceeds from the Offering as well as proceeds received from the exercise of Warrants subsequent toDecember 31, 2020 has resulted in a significant cash balance that has mitigated the Company's potential capital
risk through at least 2021. 38 COVID-19 Pandemic InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughoutthe United States and globally. The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Item 1A: "Risk Factors" section set forth in this Annual Report on Form 10-K for additional details. In an effort to protect the health and safety of our employees, our workforce has had and continues in most instances to spend a significant amount of time working from home, international travel has been severely curtailed. Our other partners have similarly had their operations disrupted, including those partners that we use for our operations as well as development, production, and post-production of content. While we and our partners have resumed productions and related operations in many parts of the world, our ability to produce content remains affected by the pandemic. In an effort to contain COVID-19 or slow its spread, governments around the world have also enacted various measures, some of which have been subsequently rescinded, modified or reinstated, including orders to close all businesses not deemed "essential," isolate residents to their homes or places of residence, and practice social distancing. We anticipate that these actions and the global health crisis caused by COVID-19, including any resurgences, will continue to negatively impact business activity across the globe. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.
Key Factors Affecting Results of Operations
Our future operating results and cash flows are dependent upon a number of opportunities, challenges and other factors, including our ability to efficiently grow our subscriber base and expand our service offerings to maximize subscriber lifetime value. In particular, we believe that the following factors significantly affected our results of operations over the last two fiscal years and are expected to continue to have such significant effects:
Revenues Currently, the main sources of our revenue are (i) subscriber fees from Direct Business and Direct Subscribers, (ii) license fees from affiliates who receive subscriber fees forCuriosityStream from such affiliates' subscribers ("Partner Direct Business" and "Partner Direct Subscribers"), (iii) bundled license fees from distribution affiliates ("Bundled MVPD Business" and "Bundled MVPD Subscribers"), and (iv) license fees from program sales arrangements. As ofDecember 31, 2020 , we had approximately 15 million total paying subscribers, including Direct Subscribers, Partner Direct Subscribers and Bundled MVPD Subscribers. Since our founding in 2015, we have generated the majority of our revenues from Direct Subscribers in the form of monthly or annual subscription plans. We charge$2.99 per month or$19.99 dollars per year for our Direct Service in high-definition resolution, or$9.99 per month or$69.99 per year for service in 4K. The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a license fee. We recognize subscription revenues ratably during each subscriber's monthly or yearly subscription period. We pay a fixed percentage distribution fee to our partners for subscribers accessing our platform via App Services to compensate these partners for access to their customer and subscriber bases. Our MVPD, vMVPD and digital distributor partners host and stream our content to their customers via their own platforms, such as set top boxes in the case of most MVPDs. We do not incur billing, streaming or backend costs associated with content distribution through our MVPD, vMVPD and digital distributor partners. Operating Costs Our primary operating costs relate to the cost of producing and acquiring our content, the costs of advertising and marketing our service, personnel costs, and distribution fees. As ofDecember 31, 2020 , licensed content represented 2,041 titles and original titles represented 949 titles. Producing and co-producing content and commissioned content is generally more costly than content acquired through licenses. The Company's business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. If such changes are identified, the aggregated content library will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off. For a discussion of the accounting policies for content impairment write-down and management estimates involved therein, see "- Critical Accounting Policies and Estimates" below. 39 Further, our advertising and marketing expenditures and personnel costs constitute primary operating costs for our business. These costs may fluctuate based on advertising and marketing objectives and personnel needs. In general, we intend to focus marketing dollars on efficient customer acquisition. With respect to personnel costs, for the first several years of our existence, we invested heavily in engineering, marketing and programming staff to build the Company and its service offering. Beginning in 2019, however, we began to focus on sales staff and other revenue-generating personnel. Results of Operations The financial data in the following table sets forth selected financial information derived from our audited financial statements for the years endedDecember 31, 2020 and 2019 and shows our results of operations as a percentage of revenue or as a percentage of costs, as applicable, for the periods indicated. We conduct business through one operating segment,CuriosityStream . Year ended December 31, 2020 2019 $ Change % Change (in thousands) Revenues: Subscriptions$ 16,508 42 %$ 9,793 54 %$ 6,715 69 % License fee 22,523 57 % 8,219 46 % 14,304 174 % Other 590 1 % 14 0 % 576 nm Total Revenues$ 39,621 100 %$ 18,026 100 %$ 21,595 120 % Operating expenses: Cost of revenues 15,418 20 % 6,810 11 % 8,608 126 % Advertising and marketing 42,016 53 % 41,628 67 % 388 1 % General and administrative 21,135 27 % 14,035 22 % 7,100 51 % Total operating expenses$ 78,569 100 %$ 62,473 100 %$ 16,096 26 % Operating loss (38,948 ) (44,447 ) 5,499 (12 %) Other income (expense) Interest and other income (expenses) 500 2,072 (1,572 ) (76 %) Loss before income taxes (38,448 ) (42,375 ) 3,927 (9 %) Provision for income taxes 179 142 37 26 % Net loss$ (38,627 ) $ (42,517 ) $ 3,890 (9 %)
nm - Percentage not meaningful
Revenue Revenue for the years endedDecember 31, 2020 and 2019 was$39.6 million and$18 million , respectively. The increase of$21.6 million , or 120% is due to a$6.7 million increase in subscription revenue, a$14.3 million increase in license fee revenue, and$0.6 million increase in other revenue. The increase in subscription revenue of$6.7 million resulted from a$5.6 million increase in subscriber fees received by us from Direct subscribers for annual plans which resulted from increased brand awareness from greater advertising and marketing spending, as well as a$1.1 million increase inCorporate & Association Partnership sales. The increase of$14.3 million in license fees resulted primarily from a$8.4 million increase in revenue from Bundled MVPD partners mainly due to third-party affiliate agreements entered into during late 2019, and a$0.6 million increase in license fees from Partner Direct Business, in each case as a result of an increase in the number of users and/or subscribers for our service, as well as a$5.2 million increase in license fees received by us related to program sales contracts. The increase in other revenue of$0.6 million is due to new sponsorship revenue deals with customers. 40 Operating Expenses Operating expenses for the years endedDecember 31, 2020 and 2019 were$78.6 million and$62.5 million , respectively. This increase of$16.1 million , or 26%, primarily resulted from the following: Cost of Revenues: Cost of revenues for the year endedDecember 31, 2020 increased to$15.4 million from$6.8 million for the year endedDecember 31, 2019 . Cost of revenues primarily includes content amortization, hosting and streaming delivery costs, payment processing costs and distribution fees, commission costs and subtitling and broadcast costs. This increase of$8.6 million , or 126%, is due primarily to the increase in content amortization of$5.8 million , of which$4.0 million is due to the timing and number of titles published during the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 and$1.8 million is due to accelerated content amortization related to our program sales contracts during the year endedDecember 31, 2020 with no comparable amounts in the prior year. The balance of the increase in cost of revenue is due to increases in hosting and streaming delivery costs (increase of$0.4 million ), processing and distribution fees (increase of$0.6 million ), commission costs (increase of$0.4 million ), subtitling and broadcast costs (increase of$1.0 million ), and other costs (increase of$0.4 million ). The increase of cost of revenues is in line with the increase in revenue during the year endedDecember 31, 2020 . Advertising & Marketing: Advertising and marketing expenses for the year endedDecember 31, 2020 increased to$42.0 million from$41.6 million for the year endedDecember 31, 2019 . This increase of$0.4 million , or 1%, primarily resulted from increased marketing to support subscriber growth on various social media platforms during the year endedDecember 31, 2020 . General and Administrative: General and administrative expenses for the year endedDecember 31, 2020 increased to$21.1 million from$14.0 million for the year endedDecember 31, 2019 . This increase of$7.1 million , or 51%, was attributable to$1.4 million for incremental salaries and benefits,$0.5 million for accrued bonuses and$3.6 million for increased stock-based compensation expense due to higher volume and grant-date fair value of grants made to key executives, as well some incremental increased head count. This was offset by the recognized benefit from the Paycheck Protection Plan (PPP) Loan of$1.2 million we received inMay 2020 . In addition, an increase of$1.6 million was primarily attributable to finance and legal professional fees related to becoming a public company and an increase of$0.4 million was due to additional insurance incurred necessary for a public company. We expect to incur additional expenses in future periods as we continue to invest in corporate infrastructure to support public activities of the Company, including adding personnel and systems to our administrative and revenue-generating functions. Operating Loss Operating loss for the years endedDecember 31, 2020 and 2019 was$38.9 million and$44.4 million , respectively. The decrease of$5.5 million , or 12%, in operating loss resulted from the increase in revenue of$21.6 million , or 120%, offset by the increase in operating expenses of$16.1 million , or 26%, in each case during the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 , as described above.
Interest and other income (expense)
Interest and other income (expense) for the year endedDecember 31, 2020 decreased to$0.5 million from$2.1 million for the year endedDecember 31, 2019 . This decrease of$1.6 million , or 76%, primarily resulted from a decrease in interest income as a result of the average invested amount decreasing as well as decreasing interest rates during the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 . Provision for Income Taxes Due to generating a loss before income taxes in each of the years endedDecember 31, 2020 and 2019, we had a provision for income taxes of$179 thousand and$142 thousand , respectively. This increase of$37 thousand , or 26%, was primarily due to an increase in foreign withholding tax expense due to an increase in contracts executed with third parties in foreign jurisdictions. The Company's provision for income taxes differs from the federal statutory rate primarily due to the Company being in a full valuation allowance position and not recognizing a benefit for either federal or state income tax purposes. 41 Net Loss Net loss for the years endedDecember 31, 2020 and 2019 was$38.6 million and$42.5 million , respectively. The decrease of$3.9 million , or 9%, resulted primarily from the increase in revenue, offset by a smaller increase in operating expenses and a decrease in interest and other income (expense), in each case during the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 , as described above.
Liquidity and Capital Resources
As ofDecember 31, 2020 , we had cash and cash equivalents, including restricted cash, of$17.4 million . For the year endedDecember 31, 2020 , we incurred a net loss of$38.6 million and used$52.9 million of net cash in operating activities, while investing activities provided$25.5 million of net cash and financing activities provided$36.0 million of net cash. During the year endedDecember 31, 2019 and through the date of the Merger, we have financed our operations primarily from the net proceeds of our sale of Series A Preferred Stock in November andDecember 2018 . An additional source of liquidity includes borrowings under our Line of Credit Facility with a bank (the "Line of Credit"). This Line of Credit provides for borrowings of up to$4.5 million with interest-only monthly payments at a rate equal to theLIBOR Daily Floating Rate plus 2.25%. The Line of Credit carries an unused fee of 0.25% annually on all committed but unused capital, payable quarterly in arrears. The entire unpaid principal balance is due when the Line of Credit matures onFebruary 28, 2022 , following the execution of a one year extension duringFebruary 2021 . The Line of Credit is collateralized by cash of$4.5 million that is held in restricted cash in current assets on the consolidated balance sheet. In connection with the Business Combination, we received net cash proceeds of approximately$41.5 million , prior to the payment of$5.7 million of offering costs. OnFebruary 8, 2021 , we consummated the Offering. The net proceeds to us from the Offering were$94.1 million , after deducting underwriting discounts and commissions and offering expenses payable by us in connection with the Offering. During the months of January andFebruary 2021 , we received funds of approximately$55 million for the exercise of 4.8 million Warrants. There were no Warrants exercised inMarch 2021 . We believe that our cash flows from financing, combined with our current cash levels and available borrowing capacity, will be adequate to support our ongoing operations, capital expenditures and working capital for at least the next twelve months, as evidenced by our cash flows from financing activities and subsequent cash balances in 2021. We believe that we have access to additional funds, if needed, through the capital markets to obtain further financing under the current market conditions. Our principal uses of cash are to acquire content, promote our service through advertising and marketing, and provide for working capital to operate our business. We have experienced significant net losses since our inception and, given the significant operating and capital expenditures associated with our business plan, we anticipate that we will continue to incur net losses. 42 Cash Flows The following table presents our cash flows from operating, investing and financing activities for the years endedDecember 31, 2020 andDecember 31, 2019 : Year endedDecember 31, 2020 2019 (in thousands)
Net cash used in operating activities (52,914 ) (44,711 ) Net cash provided by (used in) investing activities 25,455 (8,986 ) Net cash provided by financing activities 36,024 - Net increase (decrease) in cash, cash equivalents and restricted cash 8,565 (53,697 )
Cash Flow from Operating Activities
Cash flow from operating activities primarily consists of net losses, changes to our content assets (including acquisitions and amortization), and other working capital items. During the years endedDecember 31, 2020 and 2019, we recorded a net cash outflow from operating activities of$52.9 million and$44.7 million , respectively, or an increased outflow of$8.2 million , or 18%. The increase in cash outflows from operating activities was attributable to an increase of$12.3 million in our content investment (additions to content assets and change in content liabilities) from$14.9 million during the year endedDecember 31, 2019 to$27.2 million during the year endedDecember 31, 2020 . The increase in cash outflows is also due to an increase in the change in our accounts receivable of$0.5 million during the year endedDecember 31, 2019 as compared to$5.4 million during the year endedDecember 31, 2020 due primarily to increased receivables from the program sales contracts. In addition, the increase in cash outflows is due to a reduction in accounts payable of$1.5 million during the year endedDecember 31, 2020 as compared to an increase in accounts payable of$2.4 million during the year endedDecember 31, 2019 , which was primarily due to increased digital marketing investment. These increases were partially offset by a decrease in our net loss minus our content amortization and stock-based compensation, from$37.7 million during the year endedDecember 31, 2019 to$24.3 million during the year endedDecember 31, 2020 .
Cash Flow Provided by (Used in) Investing Activities
Cash flow provided by (used in) investing activities consists of purchases, sales and maturities of investments and purchases of property and equipment.
During the years endedDecember 31, 2020 and 2019, we recorded a net cash inflow from investing activities of$25.5 million and net cash outflow from investing activities of($9.0) million , respectively, or an increased inflow of$34.5 million . The significant increase in cash inflow from investing activities was primarily attributable to less purchases and higher sales and maturities of investments.
Cash Flow from Financing Activities
During the year endedDecember 31, 2020 , we recorded a net cash inflow provided by financing activities of$36.0 million , which was mainly attributable to proceeds from the Business Combination of$41.5 offset by the offering costs of$5.7 million related to the Business Combination. There were no similar financing cash activities during the year endedDecember 31, 2019 . Capital Expenditures
Going forward, we expect to make expenditures for additions to our content assets, and purchases of property and equipment. The amount, timing and allocation of capital expenditures are largely discretionary and within management's control. Depending on market conditions, we may choose to defer a portion of our budgeted expenditures until later periods to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected returns and potential to generate cash flow. Subject to financing alternatives, we may also increase our capital expenditures significantly to take advantage of opportunities we consider to be attractive. 43
Off Balance Sheet Arrangements
As of
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operation is based upon our financial statements, which have been prepared in accordance withU.S. GAAP. Certain amounts included in or affecting the financial statements presented in this Annual Report and related disclosure must be estimated, requiring management to make assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important "critical accounting policies" for the Company. A critical accounting policy is one which is both important to the portrayal of a company's financial condition and results of operations and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management's forecasts as to the manner in which such circumstances may change in the future. Content Assets The Company acquires, licenses and produces content, including original programming, in order to offer members unlimited viewing of factual entertainment content. The content licenses are for a fixed fee and specific windows of availability. Payments for content, including additions to content library and the changes in related liabilities, are classified within "Net cash used in operating activities" on the consolidated statements of cash flows. The Company recognizes its content library (licensed and produced) as "Content assets , net" on the consolidated balance sheets. For licenses, the Company capitalizes the fee per title and records a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known, and the title is accepted and available for streaming. For productions, the Company capitalizes costs associated with the production, including development costs, direct costs and production overhead. Based on factors including historical and estimated viewing patterns, the Company generally amortizes the content library (licensed and produced) in "Cost of revenues" on the consolidated statements of operations on a straight-line basis over the shorter of each title's contractual window of availability or estimated period of use, beginning with the month of first availability. The Company reviews factors impacting the amortization of the content library on an ongoing basis and will record amortization on an accelerated basis when there is more upfront use of a title, for instance due to significant program sales.
Revenue recognition
Subscriptions - O&O Service
The Company generates revenue from monthly subscription fees from its O&O Service.CuriosityStream subscribers enter into non-refundable, month-to-month or annual subscriptions with the Company. The Company bills the monthly subscriber on each subscriber's monthly anniversary date and recognizes the revenue ratably over each monthly membership period. The annual subscription fees are collected by the Company at the start of the annual subscription period and are recognized ratably over the subsequent twelve-month period. Revenues are presented net of the taxes that are collected from subscribers and remitted
to governmental authorities. Subscription - App Services The Company also earns subscription revenues through its App Services. These subscriptions are similar to the O&O Service subscriptions, but these subscriptions are generated based on agreements with certain streaming media players as well as with Smart TV brands and gaming consoles. Under these agreements, the streaming media player typically bills the subscriber directly and then remits the collected subscriptions to the Company, net of a distribution fee. The Company recognizes the gross subscription revenues when earned and simultaneously recognizes the corresponding distribution fees as an expense. The Company is the principal in these relationships as the Company retains control over service delivery to its subscribers. 44 Licensing - Affiliates The Company generates license fee revenues from MVPDs such as Altice, Comcast and Cox as well as from vMVPDs such as Amazon and Sling TV (MVPDs and vMVPDs are also referred to as affiliates). Under the terms of the agreements with these affiliates, the Company receives license fees based upon contracted programming rates and subscriber levels reported by the affiliates. In exchange, the Company licenses its content to the affiliates for distribution to their subscribers. The Company earns revenue under these agreements either based on the total number of subscribers multiplied by rates specified in the agreements or based on fixed fee arrangements. These revenues are recognized over the term of each agreement when earned. Licensing - Program Sales The Company has distribution agreements which grant a licensee limited distribution rights to the Company's programs for varying terms, generally in exchange for a fixed license fee. Revenue is recognized once the content is made available for the licensee to use. The Company's performance obligations include (1) access to its SVoD platform via the Company's O&O Service and App Services, (2) access to the Company's content assets, and (3) licenses of specific program titles. In contracts containing the right to access the Company SVoD platform, the performance obligation is satisfied as access to the SVoD platform is provided post any free trial period. In contracts which contain access to the Company's content assets, the performance obligation is satisfied as access to the content is provided. For contracts with licenses of specific program titles, the performance obligation is satisfied as that content is made available for the customer
to use.
Recently Issued Financial Accounting Standards
InFebruary 2016 , the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under currentU.S. GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. The new guidance also requires qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance is effective for the Company's fiscal year beginningJanuary 1, 2022 , with early adoption permitted, and is required to be implemented using a modified retrospective approach. The Company is currently assessing the impact of the new standard on its financial statements, but anticipates a material increase in assets and liabilities due to the recognition of the required right-of-use asset and corresponding lease liability for all lease obligations that are currently classified as operating leases, such as real estate leases for corporate headquarters, as well as additional disclosure on all its lease obligations. The income statement recognition of lease expense is not expected to significantly change from the current methodology. InJune 2016 , the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in currentU.S. GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses. The guidance also modifies the impairment model for available-for-sale debt securities. ASU 2016-13 is effective for the Company's fiscal year beginningJanuary 1, 2023 . The Company is continuing to assess the potential impacts of ASU 2016-13 on its financial statements.
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