6. IMPAIRMENT LOSS

Impairment reviews during 2012

As of September 30, 2012, the Company's impairment loss related to analog broadcasting licenses reflecting the reassessment of their useful lives from indefinite to finite as a result of developments in the transition to digital broadcasting.

Following the government's launch of a first digital multiplex in 2011, on October 16, 2012, the Russian Federal Service for Supervision in the Sphere of Telecommunications, Information Technologies and Mass Communications (Roskomnadzor) announced the terms of the tender for a second digital multiplex. The announced terms did not contemplate a process for the legal and economic conversion of analog licenses to digital licenses. Governmental authorities have also announced that the existing analog broadcasting system will be switched off following the rollout period, and indicated regional deadlines ranging from 2014 to 2017.

In light of these events, the Company determined that the lives of its analog broadcasting licenses were no longer indefinite. As the broadcasting licenses are no longer expected to continue to contribute to the Company's cash flows for the foreseeable future, the Company tested them for impairment as of September 30, 2012, and commenced amortization from October 1, 2012. As of September 30, 2012, the decrease in estimated cash flows attributable to analog broadcasting licenses resulted in impairment losses of $82,503.

The following table summarizes the impairment losses recorded by the Company in the nine months ended September 30, 2012:

	Nine months ended September 30, 2012

Broadcasting licenses:
Peretz regional and umbrella licenses	$	43,795
CTC regional licenses		19,523
Domashny regional licenses		16,224
Channel 31 license		2,961

Total impairment losses	$	82,503

Income tax effect		(16,501	)

Total effect on consolidated net income	$	66,002

See also the Annual Report on Form 10-K filed with the SEC on March 6, 2013—"Item 8. Financial Statements and Supplementary Data—Note 10, Impairment loss" and "—Fair value measurements".

Impairment reviews during 2013

The planned transition to digital broadcasting could impact the Company's assumptions used in its economic models and its assessment of the fair value of its reporting units. In December 2012, CTC and Domashny channels were selected in a public tender for inclusion in the second digital multiplex; Peretz channel was not selected.

As of September 30, 2013, the Company estimated that the fair values of CTC, Domashny and Peretz reporting units exceeded their carrying values by more than 10%. The fair value of the Peretz reporting unit is particularly sensitive to changes in revenues and costs that may result depending on its distribution model after the end of analog broadcasting. Currently, the terms for participation in the third digital multiplex have not been specified. In addition, current Russian legislation does not provide 'must carry' obligations for cable and satellite operators, and accordingly the Company may be unable to secure or maintain carriage of its signal over cable in certain regions, or at transmission rates that are consistent with its historical experience. As a result, there can be no assurance that the Company will be able to negotiate mutually acceptable transmission agreements with cable providers in the future relating to the carriage of the Peretz signal. Depending on further information about the terms of the transition to digital broadcasting, terms of interaction with cable and satellite providers, and other future developments, the Company may need to further revise its projected cash flows, which could adversely impact the fair value of its reporting units and related goodwill. As of September 30, 2013, the carrying values of goodwill related to CTC, Domashny and Peretz were $51.5 million, $26.3 million and $58.9 million, respectively.

Also, uncertainty remains concerning global economic stability in the medium-term. Any significant continuation or worsening of the current economic instability could result in decreases in the fair values of goodwill and require the Company to record additional impairment losses that could have a material adverse impact on its net income.

In addition, the fair value of the goodwill attributable to the Company's production operating unit is highly sensitive to the volume and quality of in-house programming that is expected to be produced and sold to the Company's channels for broadcast. Although the Company encourages its channels to obtain content from its in-house production unit, the channels are not required to acquire any minimum amount of programming from the in-house unit, and may choose to commission programming from third parties. As a result, the in-house production unit must compete against other sources of programming, including on price and quality. The competition is intense in Russia for talented creative people. The Company continues to support the further development of in-house production in order to secure a steady supply of high-quality original programming, particularly in the key timeslots, given the strong competition from other channels for quality content. Management, in consultation with the Board of Directors, is in the process of reviewing the current economic model for its production unit, as management believes that control and ownership of content is becoming increasingly important. Changes in the economic model for in-house production may result in downward revisions of the long-term cash flow projections of the in-house production unit in response to increased competition, as a result of which the Company may be required to record an impairment of production unit goodwill by the end of 2013. As of September 30, 2013, the carrying value of production unit goodwill was approximately $30.2 million.

The Company considers all current information when determining the need for, or calculating the amount of, any impairment charges. However, future changes in events or circumstances could result in decreases in the fair values of its intangible assets and goodwill.