Youku Q1 content cost increase changed straight line amortization to accelerated amortization

On May 6, 2011, Beijing time, Youku announced its financial report for the first quarter of 2011. The cost of Q1 content was RMB 36.1 million (US$5.5 million), accounting for 28% of net income, compared with 17% in the same period last year. Increase. The increase in content costs is due on the one hand to the increase in video content libraries and the increase in unit purchase cost of copyright content. On the other hand, the company decided to use accelerated amortization rather than straight-line method to calculate content costs.

In accordance with the United States Generally Accepted Accounting Principles (GAAP), copyright costs are usually amortized using a straight-line method, that is, the cost for each year is apportioned equally during the copyright period. For example, if a "Dwelling House" has been purchased for 5 years, it will amortize 20% of the purchase cost every year. Domestic listed companies and other companies listed in the United States adopt the straight-line amortization method.

However, after analyzing website traffic data, Youku found that there are many problems with straight-line amortization. For example, after a new drama is launched, the traffic and attention will be the largest in the first year, such as dramas such as "Dwelling House" and "Hidden", but after a period of time, the traffic of these dramas will continue to decline. Straight line amortization will undoubtedly make the financial statements better in the short term, but it does not actually reflect the true operation status of the website. For example, if a drama cannot receive as much attention and traffic as when it was first launched, it will naturally not generate as much advertising value. After that, it will amortize 20% of the cost every year (taking the copyright period of 5 years as an example), and the pressure on natural operation will gradually accumulate, which will cause everything to be glamorous at the beginning of listing and be under great pressure after listing.

Youku executives decided to change straight-line amortization to accelerated amortization. Based on the previously accumulated traffic change data, calculate the corresponding amortization coefficient (currently calculated, if the copyright period is 5 years, the amortization will be about 50% in the first year, 25% in the second year, and 12% in the third year) to accelerate the amortization of copyright costs.

Before 2011, Youku's copyright content cost amortization was calculated using a straight line based on the authorization period. The new method adopts a more conservative principle.