v3.22.1

Fair Value Measurements

12 Months Ended

Dec. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

25. FAIR VALUE MEASUREMENTS

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1		–		Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2		–		Include observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3		–		Unobservable inputs which are supported by little or no market activity.

ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

Assets and Liabilities Measured or Disclosed at Fair Value on a recurring basis

In accordance with ASC 820, the Company measures equity investments with readily determinable fair value, investments accounted for at fair value, available-for-sale debt investments and derivatives instruments at fair value on a recurring basis. The fair values of time deposits are determined based on the prevailing interest rates in the market. The fair values of the Company’s held-to-maturity debt investments as disclosed are determined based on the discounted cash flow model using the discount curve of market interest rates. The fair value of the Company’s short-term available-for-sale debt investments are measured using the income approach, based on quoted market interest rates of a similar instrument and other significant inputs derived from or corroborated by observable market data. The fair values of the Company’s equity investments in equity securities of publicly listed companies are measured using quoted market prices. The fair value of derivative instruments of interest rate swaps are based on broker quotes. The fair value of financial liability is estimated based on the quoted market price of a similar asset to the underlying assets. Investments accounted for at fair value are equity investments in listed and unlisted companies held by consolidated investment companies. These investments in unlisted companies and long-term available-for-sale debt investments do not have readily determinable market value, which were categorized as Level 3 in the fair value hierarchy. The Company uses a market approach based on the Company’s best estimate, which is determined by using information including but not limited to the pricing of recent rounds of financing of the investees, liquidity factors and multiples of a selection of comparable companies.

The fair values of the Company’s notes payable are extracted directly from their quoted market prices. The fair values of the convertible senior notes are based on broker quotes. The Company carries the convertible senior notes at face value less unamortized debt discount and issuance costs on its consolidated balance sheets and presents the fair value for disclosure purposes only.

Assets and liabilities measured on a recurring basis or disclosed at fair value are summarized below:

						Fair value measurement or disclosure at December 31, 2020 using
		Total fair value at December 31, 2020				Quoted prices in active markets for identical assets (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)
		RMB				RMB				RMB				RMB
		(In millions)
Fair value disclosure
Cash equivalents:
Time deposits			16,133								16,133
Money market funds			198				198
Short-term investments:
Held-to-maturity debt investments			124,132								124,132
Convertible senior notes, current portion			4,967								4,967
Long-term investments:
Held-to-maturity debt investment			9,754								9,754
Long-term notes payable			52,575								52,575
Convertible senior notes, non-current portion			12,078								12,078
Fair value measurements on a recurring basis
Short-term investments:
Available-for-sale debt investments			2,865								2,865
Long-term investments:
Equity investments at fair value with readily determinable fair value			12,978				12,978
Investments accounted for at fair value			2,238												2,238
Available-for-sale debt investments			2,607												2,607
Total assets measured at fair value			20,688				12,978				2,865				4,845
Accounts payable and accrued liabilities:
Derivative instruments			40								40
Amounts due to related parties, current:
Financial liability			327								327
Total liabilities measured at fair value			367				—				367

										Fair value measurement or disclosure at December 31, 2021 using
		Total fair value at December 31, 2021								Quoted prices in active markets for identical assets (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)
		RMB				US$				RMB				RMB				RMB
		(In millions)
Fair value disclosure
Cash equivalents:
Time deposits			16,262				2,552								16,262
Money market funds			3				—				3
Short-term investments:
Held-to-maturity debt investments			141,584				22,218								141,584
Long-term investments:
Held-to-maturity debt investment			8,014				1,258								8,014
Notes payable, current portion			10,659				1,673								10,659
Notes payable, non-current portion			45,073				7,073								45,073
Convertible senior notes, non-current portion			9,547				1,498								9,547
Fair value measurements on a recurring basis
Short-term investments:
Available-for-sale debt investments			2,557				401								2,557
Long-term investments:
Equity investments at fair value with readily determinable fair value			16,375				2,570				16,375
Equity investments without readily determinable fair value using NAV practical expedient(i)			957				150
Investments accounted for at fair value			4,228				663				457								3,771
Available-for-sale debt investments			2,262				355												2,262
Other non-current assets
Derivative instruments			149				23								149
Total assets measured at fair value			26,528				4,162				16,832				2,706				6,033
Amounts due to related parties, current:
Financial liability			288				45								288
Total liabilities measured at fair value			288				45								288

(i) Investments are measured at fair value using NAV as a practical expedient. These investments have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

Reconciliations of assets categorized within Level 3 under the fair value hierarchy are as follow:

Investments accounted for at fair value:

		Amounts
		RMB
		(In millions)
Balance at December 31, 2019			1,819
Additions			371
Disposals			(63	)
Net unrealized fair value increase recognized in earnings			151
Foreign currency translation adjustments			(40	)
Balance at December 31, 2020			2,238
Additions			475
Disposals			(59	)
Net unrealized fair value increase recognized in earnings			1,187
Foreign currency translation adjustments			(20	)
Transition to assets categorized within level 1(i)			(50	)
Balance at December 31, 2021			3,771
Balance at December 31, 2021, in US$			592

(i) The fair value hierarchy of certain equity investments were transferred from level 3 to level 1 due to the public listing of the investees during the year ended December 31, 2021

Available-for-sale debt investments:

		Amounts
		RMB
		(In millions)
Balance at December 31, 2019			3,970
Additions			5
Disposals			(500	)
Reclassification			412
Conversion to equity investment			(1,355	)
Share of losses in excess of equity method investment in ordinary shares			(82	)
Net unrealized fair value increase recognized in other comprehensive income			153
Accrued interest			68
Foreign currency translation adjustments			(64	)
Balance at December 31, 2020			2,607
Additions			67
Conversion to equity investment			(18	)
Share of losses in excess of equity method investment in ordinary shares			(207	)
Net unrealized fair value change recognized in other comprehensive income			(243	)
Accrued interest			75
Foreign currency translation adjustments			(19	)
Balance at December 31, 2021			2,262
Balance at December 31, 2021, in US$			355

Assets measured at fair value on a non-recurring basis

The Company measures certain non-financial assets on a nonrecurring basis.

For equity securities accounted for under the measurement alternative, when there are observable price changes in orderly transactions for identical or similar investments of the same issuer, the investments are re-measured to fair value (Note 4). The non-recurring fair value measurements to the carrying amount of an investment usually requires management to estimate a price adjustment for the different rights and obligations between a similar instrument of the same issuer with an observable price change in an orderly transaction and the investment held by the Company. These non-recurring fair value measurements were measured as of the observable transaction dates. The valuation methodologies involved require management to use the observable transaction price at the transaction date and other unobservable inputs (level 3) such as expected volatility and probability of exit events as it relates to liquidation and redemption preferences. When there is impairment of equity securities accounted for under the measurement alternative and equity method investments, the non-recurring fair value measurements are measured at the date of impairment. The fair values of the Company’s equity method investments in publicly listed companies are measured using quoted market prices. Estimating the fair value of investees without observable market prices is highly judgmental due to the subjectivity of the unobservable inputs (level 3) used in the valuation methodologies used to determine fair value. The Company uses valuation methodologies, primarily the market approach, which requires management to use unobservable inputs (level 3) such as selection of comparable companies and multiples, expected volatility, discount for lack of marketability and probability of exit events as it relates to liquidation and redemption preferences, when applicable. These unobservable inputs

and resulting fair value estimates may be affected by unexpected changes in future market or economic conditions. The fair value information presented is not as of the period’s end, and is sensitive to changes in the unobservable inputs used to determine fair value and such changes could result in the fair value at the reporting date to be different from the fair value presented.

Other non-financial assets, intangible assets, licensed copyrights and produced content, would be measured at fair value whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The fair values of non-financial long-lived assets were measured under income approach, based on the Company’s best estimation. Significant inputs used in the income approach primarily included future estimated cash flows and discount rate.

The following table summarizes the Company’s financial assets held as of December 31, 2020 and 2021 for which a non-recurring fair value measurement was recorded during the years ended December 31, 2020 and 2021:

		Total Balance								Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable inputs (Level 2)				Significant unobservable inputs (Level 3)				Fair value adjustment								Impairment
		RMB				US$				RMB				RMB				RMB				RMB				US$				RMB				US$
		(In millions)
Fair value measurements on a non-recurring basis
As of December 31, 2020
Long-term investments(i)			14,205								367								13,838				3,725								(1,862	)
Intangible assets(i)			62								—				—				62												(350	)
Mainland China film group—Licensed copyrights as of March 31, 2020 (ii)			7,186								—				—				7,186												(390	)
Mainland China film group—Produced contents as of March 31, 2020(ii)			4,124								—				—				4,124												(210	)
Produced content monetized on its own(iii)			40								—				—				40												(205	)
As of December 31, 2021
Long-term investments(i)			9,653				1,515				—				145				9,508				896				141				(4,316	)			(677	)
Produced content monetized on its own(iii)			30				5				—				—				30												(161	)			(25	)

(i) Due to factors such as the outbreak of coronavirus (COVID-19) resulting in declined financial performances and changes in business circumstances of certain investees, the Company recognized impairment charges of long-term investments in the consolidated statement of comprehensive (loss) income during the years ended December 31, 2020 and 2021. For equity securities accounted for under the measurement alternative, when there are observable price changes in orderly transactions for identical or similar investments of the same issuer, the investments are re-measured to fair value. The Company recognized impairment loss on intangible assets as of March 31, 2020. The impairment loss on intangible assets in 2021 was immaterial.

(ii) The outbreak of COVID-19 during the first quarter of 2020 also has resulted in a downward adjustment to forecasted advertising revenues for the Mainland China film group. As a result, the Company performed an assessment to determine whether the fair value of the Mainland China film group was less than its unamortized film costs as of March 31, 2020 with the assistance of a third-party valuation firm. The Company uses a discounted cash flow approach to estimate the fair value. The Company estimated the most likely future cash flows based on historical results, economic useful lives or license periods and perception of future performance. The Company has incorporated those cash outflows necessary to generate the cash

inflows, including future production, operation, exploitation and administrative costs, which were estimated at 32%-37% of revenue in aggregate. The discount rate was determined to be the weighted average cost of capital of the Mainland China film group at 15%. As of March 31, 2020, the fair value of the Mainland China film group was less than its corresponding carrying value and resulted in the Company recognizing an impairment charge of RMB390 million related to licensed copyrights and RMB210 million related to produced content, respectively. The impairment charge was recognized as cost of revenues in the consolidated statement of comprehensive income for the year ended December 31, 2020.

(iii) In addition, due to adverse changes in the expected performance of certain produced content and the reduced amount of ultimate revenue expected to be recognized, an impairment charge of RMB205 million and RMB161 million (US$25 million) was recognized for produced content predominantly monetized on its own and was recognized as cost of revenues in the consolidated statement of comprehensive income for the years ended December 31, 2020 and 2021, respectively. The fair value information presented is not as of the period’s end, and is sensitive to changes in the unobservable inputs used to determine fair value and such changes could result in the fair value at the reporting date to be different from the fair value presented.

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- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258

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