Intangible Assets
Intangible Assets
| Other intangible assets | |||||||
|---|---|---|---|---|---|---|---|
| in € millions | Goodwill | Music and film rights | Other rights and licenses | Internally generated intangible assets | Advance payments | Total | Total |
| Cost | |||||||
| Balance as of 1/1/2015 | 7,915 | 2,354 | 1,878 | 879 | 2 | 5,113 | 13,028 |
| Currency translation differences | 159 | 113 | 82 | 52 | – | 247 | 406 |
| Acquisitions through business combinations | 124 | 34 | 43 | 9 | – | 86 | 210 |
| Other additions | – | 215 | 95 | 56 | 12 | 378 | 378 |
| Reductions through disposal of investments | (7) | (15) | (72) | – | – | (87) | (94) |
| Other disposals | – | (32) | (45) | (5) | – | (82) | (82) |
| Reclassifications in accordance with IFRS 5 | – | – | – | – | – | – | – |
| Reclassifications and other changes | 2 | 32 | 8 | (29) | (3) | 8 | 10 |
| Balance as of 12/31/2015 | 8,193 | 2,701 | 1,989 | 962 | 11 | 5,663 | 13,856 |
| Currency translation differences | 28 | (54) | (10) | 21 | – | (43) | (15) |
| Acquisitions through business combinations | 255 | 27 | 77 | 5 | – | 109 | 364 |
| Other additions | – | 179 | 104 | 76 | 9 | 368 | 368 |
| Reductions through disposal of investments | (8) | – | (18) | – | – | (18) | (26) |
| Other disposals | – | (72) | (57) | (11) | – | (140) | (140) |
| Reclassifications in accordance with IFRS 5 | (2) | – | (5) | – | – | (5) | (7) |
| Reclassifications and other changes | (1) | 50 | 5 | (51) | (7) | (3) | (4) |
| Balance as of 12/31/2016 | 8,465 | 2,831 | 2,085 | 1,002 | 13 | 5,931 | 14,396 |
| Accumulated amortization | |||||||
| Balance as of 1/1/2015 | 300 | 1,130 | 868 | 816 | – | 2,814 | 3,114 |
| Currency translation differences | – | 25 | 23 | 52 | – | 100 | 100 |
| Amortization | – | 157 | 163 | 32 | – | 352 | 352 |
| Impairment losses | – | 1 | 4 | 1 | 4 | 10 | 10 |
| Reversals of impairment losses | – | (1) | (7) | – | – | (8) | (8) |
| Reductions through disposal of investments | (2) | (10) | (41) | – | – | (51) | (53) |
| Other disposals | – | (32) | (40) | (4) | – | (76) | (76) |
| Reclassifications in accordance with IFRS 5 | – | – | – | – | – | – | – |
| Reclassifications and other changes | – | (1) | 1 | – | – | – | – |
| Balance as of 12/31/2015 | 298 | 1,269 | 971 | 897 | 4 | 3,141 | 3,439 |
| Currency translation differences | (1) | 2 | (6) | 21 | – | 17 | 16 |
| Amortization | – | 183 | 157 | 25 | – | 365 | 365 |
| Impairment losses | – | – | 5 | 2 | – | 7 | 7 |
| Reversals of impairment losses | – | – | (1) | – | – | (1) | (1) |
| Reductions through disposal of investments | (6) | – | (11) | – | – | (11) | (17) |
| Other disposals | – | (63) | (53) | (11) | – | (127) | (127) |
| Reclassifications in accordance with IFRS 5 | – | – | (2) | – | – | (2) | (2) |
| Reclassifications and other changes | – | 1 | 6 | (9) | – | (2) | (2) |
| Balance as of 12/31/2016 | 291 | 1,392 | 1,066 | 925 | 4 | 3,387 | 3,678 |
| Carrying amount as of 12/31/2016 | 8,174 | 1,439 | 1,019 | 77 | 9 | 2,544 | 10,718 |
| Carrying amount as of 12/31/2015 | 7,895 | 1,432 | 1,018 | 65 | 7 | 2,522 | 10,417 |
Other rights and licenses include brands, supply rights, publishing rights along with acquired software and other licenses. In the financial year, BMG acquired music catalogs in the amount of €123 million, €81 million of which related to several music catalogs in the United Kingdom and €19 million to several music catalogs in the United States. Internally generated intangible assets mostly include own film and TV productions and internally generated software. As in the previous year, no intangible assets have been provided as collateral for liabilities.
Goodwill and other intangible assets are attributable to the following cash-generating units:
Goodwill and Other Intangible Assets with Indefinite Useful Life by Cash-Generating Units
| Goodwill | Other intangible assets with indefinite useful life | |||
|---|---|---|---|---|
| in € millions | 12/31/2016 | 12/31/2015 | 12/31/2016 | 12/31/2015 |
| RTL Group | 5,160 | 5,081 | 121 | 121 |
| RTL Group, Group level | 2,123 | 2,123 | – | – |
| Fremantle Media | 1,055 | 1,042 | – | – |
| Television Germany | 953 | 915 | – | – |
| Television France | 459 | 446 | 120 | 120 |
| RTL Nederland | 152 | 152 | – | – |
| SpotX | 126 | 121 | – | – |
| StyleHaul | 117 | 114 | – | – |
| Other | 175 | 168 | 1 | 1 |
| Penguin Random House | 979 | 1,002 | – | – |
| Penguin Random House Ventures | 934 | 957 | – | – |
| Random House Germany | 45 | 45 | – | – |
| Gruner + Jahr | 547 | 471 | – | – |
| Magazines and digital business Germany & MPS | 327 | 282 | – | – |
| Magazines and digital business International | 204 | 173 | – | – |
| Newspapers | 16 | 16 | – | – |
| BMG | 343 | 341 | – | – |
| Arvato | 508 | 491 | – | – |
| Financial Solutions | 410 | 402 | – | – |
| Other | 98 | 89 | – | – |
| Bertelsmann Printing Group | 39 | 38 | – | – |
| Print US | 25 | 24 | – | – |
| Other | 14 | 14 | – | – |
| Bertelsmann Education Group | 598 | 471 | – | – |
| Online Learning | 592 | 465 | – | – |
| Other | 6 | 6 | – | – |
| 8,174 | 7,895 | 121 | 121 | |
Intangible assets with an indefinite useful life are primarily Groupe M6 trademark rights in France (€120 million; previous year: €120 million). In determining that the M6 brand has an indefinite useful life, management has considered various factors such as the past and expected longevity of the brand, the impact of possible changes in broadcasting technologies, the impact of possible evolutions of the regulatory environment in the French television industry, the current and expected audience share of the M6 channel, and M6 management’s strategy to maintain and strengthen the trademark “M6.” Based on the analysis of these factors, as of December 31, 2016, that there is no foreseeable limit to the period of time over which the M6 brand is expected to generate cash inflows.
For the purpose of impairment testing in accordance with IAS 36, goodwill from a business combination is allocated to the cash-generating units that are expected to benefit from the synergies of the business combination. The cash flow forecasts underlying the impairment testing of the individual cash-generating units bearing material goodwill are based on the following assumptions relating to the market development for the beginning of the detailed planning period:
- For 2017, with the exception of continued significant growth in Spain and a slightly declining development in the Netherlands and Hungary, the European TV advertising markets are expected to remain stable or to show slight growth.
- In the book markets, an overall stable development is expected.
- In the magazine business, the print advertising and circulation markets in Germany and France are expected to decline further in 2017, while continued growth is expected in the digital segment.
- For 2017, continuing moderate growth of the global music market is expected in the publishing and recording rights segments.
- In 2017, the services markets are expected to achieve moderate to significant growth as in the previous year.
- The relevant European print markets and the North American book printing market are likely to show continued decline in 2017.
- For the US education markets, continuing allover strong growth is expected in the relevant segments.
In addition, fair values were measured using the following individual business-specific growth rates and discount rates for periods after the detailed planning period:
Overview of Growth and Discount Rates
| Growth rate in % for the year | Discount rate in % for the year | |||
|---|---|---|---|---|
| 12/31/2016 | 12/31/2015 | 12/31/2016 | 12/31/2015 | |
| RTL Group | ||||
| RTL Group, Group level | 2.0 | 2.0 | 7.0 | 6.9 |
| Fremantle Media | 2.5 | 2.5 | 7.1 | 7.4 |
| Television Germany | 2.0 | 2.0 | 6.9 | 6.9 |
| Television France | 2.0 | 2.0 | 7.4 | 7.5 |
| RTL Nederland | 2.0 | 2.0 | 6.9 | 6.9 |
| SpotX | 2.0 | 2.0 | 12.0 | 10.8 |
| StyleHaul | 2.0 | 2.0 | 13.9 | 13.0 |
| Other | -1.0 – 2.0 | 0.0 – 2.0 | 7.2 – 13.9 | 6.5 – 13.0 |
| Penguin Random House | ||||
| Penguin Random House Ventures | 0.5 | 0.5 | 8.5 | 8.4 |
| Random House Germany | 0.5 | 0.5 | 6.5 | 6.9 |
| Gruner + Jahr | ||||
| Magazines and digital business Germany & MPS | -0.8 | -0.8 | 6.0 | 6.0 |
| Magazines and digital business International | -0.5 | -0.5 | 6.4 | 7.5 |
| Newspapers | -1.0 | -1.5 | 7.0 | 6.9 |
| BMG | 2.0 | 2.0 | 6.5 | 6.7 |
| Arvato | ||||
| Financial Solutions | 1.0 | 1.0 | 6.3 | 5.7 |
| Other | 1.0 | 0.0 – 1.0 | 6.1 – 8.1 | 5.7 – 8.3 |
| Bertelsmann Printing Group | ||||
| Print US | -1.0 | -1.0 | 9.0 | 6.5 |
| Other | -0.8 – 0.0 | 0.0 | 6.0 – 7.6 | 5.7 |
| Bertelsmann Education Group | ||||
| Online Learning | 2.5 | 2.5 | 8.9 | 8.6 |
| Other | 2.5 | 2.5 | 11.5 | 10.2 |
The recoverable amount for the impairment test for RTL Group’s goodwill recognized at the Group level was determined on the basis of value in use. No impairment was identified for goodwill carried, and the validation with the stock market price confirms this estimate. The recoverable amount for the other cash-generating units of the RTL Group division equals the value in use as well.
For the cash-generating units of all other divisions, the recoverable amount equals the fair value, which is derived from discounted cash flows less costs of disposal, and which is based on level 3 of the fair value hierarchy. Projected cash flows were based on internal estimates for three detailed planning periods and generally two further detailed planning periods were applied in addition. For periods after this detailed horizon, a perpetual annuity was applied, taking into account individual business-specific growth rates.
As in the previous year, no impairment losses were recognized for goodwill in the financial year 2016. Impairment losses on goodwill and other intangible assets with indefinite useful lives are disclosed in the income statement under “Amortization/depreciation, impairment losses and reversals of intangible assets and property, plant and equipment.”
In addition to organic initiatives to develop new formats and intellectual property, Fremantle Media has continued its focus on the identification and integration of new businesses in order to increase the pipeline of new shows (IP creation), to gain presence in new markets and to continue expanding its drama footprint. Fremantle Media’s key brands continue to perform well and this is expected to remain the case in the coming years. Fremantle Media continues to build a scalable digital business by expanding capabilities across the value chain and by developing new specific content. Therefore, despite continuing pressure on margins and volumes, the increase of the diversity of Fremantle Media’s portfolio has led to an updated business plan confirming an expected slight increase of its EBITA margin. The recoverable amount was determined using the value in use on the basis of the discounted cash flow method with a long-term growth rate of 2.5 percent (previous year: 2.5 percent) and a discount rate of 7.1 percent (previous year: 7.4 percent). As of December 31, 2016, the recoverable amount exceeds the carrying amount by €237 million (previous year: €189 million). In the event of an increase in the discount rate by 0.7 percentage points, a reduction in the annual revenue of 1.0 percent or a reduction in the EBITDA margin by 1.2 percentage points, the recoverable amount is lower than the carrying amount.
Revenue growth of StyleHaul was impeded by the delayed ramp-up of certain revenue streams, notably branded entertainment. Gross profit increased from an improvement in talent revenue shares. At this stage, the increase in operating costs fully offsets the improved gross profit. The recoverable amount was determined using the value in use on the basis of the discounted cash flow method with a long-term growth rate of 2.0 percent (previous year: 2.0 percent) and a discount rate of 13.9 percent (previous year: 13.0 percent). As of December 31, 2016, the recoverable amount exceeds the carrying amount by €23 million (previous year: €11 million). In the event of an increase in the discount rate by 1.3 percentage points, a reduction in the annual revenue of 2.6 percent or a reduction in the EBITDA margin by 2.7 percentage points, the recoverable amount is lower than the carrying amount.
As of December 31, 2016, the recoverable amount for the cash-generating unit BMG exceeds the carrying amount by €367 million (previous year: €295 million). In the event of an increase in the discount rate by 0.8 percentage points, a reduction in the long-term growth rate by 0.8 percentage points or a reduction in the EBITDA margin by 3.9 percentage points, the recoverable amount is lower than the carrying amount.
As of December 31, 2016, the recoverable amount for the cash-generating unit Magazines and G+J digital business Germany & MPS exceeds the carrying amount by €44 million (previous year: €131 million). In the event of an increase in the discount rate by 0.6 percentage points, a reduction in the longterm growth rate by 0.7 percentage points or a reduction in the EBITDA margin by 0.4 percentage points, the recoverable amount is lower than the carrying amount.
Other material goodwill was not subject to impairment even given a change by one of the two most important factors: discount rate (increase of 1.0 percentage point) and long-term growth rate (reduction of 1.0 percentage point).
