If You're Not Careful, NTR Spells Trouble

"Cash is King," the saying goes, but today NTR, which stands for non-traditional revenue, represents a larger share of the total take of many media companies.

And those that don't comply with the accounting principles that govern reporting the revenues and expenses associated with NTR can net themselves some royal punishment.

Those punishments are even greater today, under Sarbanes-Oxley, where company executives must certify their financial statements and report material weaknesses that arise from not having sufficient accounting controls.

In addition to SEC fines, such as the one levied against a leading ISP for not properly expensing its free trial CDs, companies must sometimes restate their earnings and report material weaknesses and are likelier to experience a decline in their stock prices.

What's more, CFOs in "restatement firms" experience "higher turnover rates and severe labor market penalties," according to a recent University of Arkansas study.

With so much riding on the importance of NTR accounting, it was one of the major topics at the recent annual conference for BCFM (to be officially renamed MFM — Media Financial Management Association — as soon as the government files our amended articles of incorporation) and its Broadcast Cable Credit Association subsidiary.

At our conference, attendees learned that media companies are creating revenue-generating activities that can also build stronger audiences for their traditional broadcasts and create highly engaging marketing campaigns for advertisers and sponsors.

One example is the "discount deal" being pioneered by Clear Channel radio stations in the Dallas market.

The cross-platform promotion involves having a local advertiser, like a restaurant or retail store, provide $5,000 worth of gift cards valued at $50 each, in return for on-air and online promotion by the station.

Listeners can purchase the $50 gift cards for only $25 via the station's Web site. ClearMart, a sister company, manages the fulfillment and sends a check to the station for the total number of cards sold at the end of each month

While we may be concerned only with how well the program is doing financially (and the answer is very well), accountants also need to know how to book the two forms of revenue—the value of the gift cards and the cash received from viewers.

They also must properly determine when to record the revenues, the documentation to use for proof of performance and how to handle sales commissions for their AEs.

In addition to thanking the Web for providing stations the means to offer greater accountability, engagement and direct sales potential to their advertisers, the Internet gets kudos from accountants who remember the days of manual bookkeeping.

Imagine being the business manager who once received 9,000 checks for 9 cents each from a cookbook sale sponsored by her station. The AEs not only thought it would be fun to get so many checks for that nominal amount, they handed them over for processing on Dec. 31.

While the business manager didn't say how she handled their commissions, I'm thinking the AEs didn't have the last laugh.

Of course, cookbooks are selling for more than 9 cents today, and stations are receiving larger sums of cash at special events.

Take a live concert for example. When you consider the money that's paid for on-site ticket sales, refreshments, T-shirts and other items, it's not uncommon for a station to have more than $100,000 in the cash box by the time the band is performing its encore.

Holding $100,000 or more in cash is a tempting scenario for employees in any business.

In fact, asset misappropriation is the most common type of fraud — more than 90 percent of occurrences and approximately 88 percent of asset misappropriation involves cash misappropriation, according to a recent report from the Association of Certified Fraud Examiners.

In addition to developing and enforcing the added controls required for preventing event fraud, accountants must also learn and follow the latest accounting rules concerning special events.

This includes knowing how to report revenue and expenses and when to report net versus gross receipts, which is affected by whether the station is a sponsor or an organizer of the event.

Although these examples come from our colleagues in radio, they give us an idea for the challenges faced by accountants in broadcast and cable television.

Whether it's a severe weather guidebook published by the station's top meteorologist, or a cross-platform promotion for gift cards, we need to address many of the same accounting challenges as we move from operating in one medium to being multimedia companies.

In addition to reflecting this shift toward multi-platform media with our organization's name change, from Broadcast Cable Financial Management Association to Media Financial Management Association, we are enhancing our educational materials to address the new business issues of new media businesses.

With the support of top accounting experts at our member companies and that of accounting firms specializing in the media industry, we have published a new Revenue Recognition Operational Guideline and an update to our Record Retention Guideline which is now called Records Management Operational Guideline.

These guidelines address the situations that were discussed at the conference session on NTR along with many other issues. A complete set of guidelines is part of every BCFM new-member packet. Guidelines and updates are also available via the BCFM online bookstore (www.bcfm.com or www.mediafinance.org) at a discounted rate for our members.

Members may also receive assistance with specific questions through our online "ask the experts" service.

As our pending new name indicates, we will continue to focus our attention on educating members about the changing requirements affecting the financial management of media companies.

Please let us know how we are doing and what we can do to help your company or situation.

Thanks to a membership that is truly dedicated to advancing the state of industry's finance and accounting, I can say with certainty that "our experts are standing by."

Mary Collins is the president and CEO of the Broadcast Cable Financial Management Association (soon to be the Media Financial Management Association), a professional society for addressing the diverse needs of financial and business professionals in the broadcast, cable, and electronic media industries. Her column appears here every other Friday.