10. IMPAIRMENT LOSS

The following table summarizes the impairment losses recorded by the Company in 2011, 2012 and 2013 as a result of impairment reviews:

	2011			2012			2013

Broadcasting licenses:
Peretz analog umbrella license	$	5,300		$	22,603		$	—
Peretz analog regional licenses		5,582			21,192			—
CTC analog regional licenses		7,278			19,523			—
Domashny analog regional licenses		5,398			16,224			—
Channel 31 analog license		—			2,961			—
Total analog broadcasting licenses	$	23,558		$	82,503		$	—


Peretz goodwill		71,688			—			—


DTV trade name		11,136			—			—


Production unit goodwill		—			—			29,869


Total impairment losses	$	106,382		$	82,503		$	29,869




Income tax effect		(6,939	)		(16,501	)		—




Total effect on consolidated net income	$	99,443		$	66,002		$	29,869

See details below.

Impairment reviews during 2011

The economic slowdown experienced in the second half of 2011, in both the European and global economies, resulted in reduced advertiser demand. The instability in the macroeconomic environment adversely affected the Company's expectations for the total advertising market in the medium-term and, in turn, affected the fair values of certain of the Company's assets in 2011. As the result of an impairment review performed in 2011, the Company recorded non-cash impairment losses totaling $18,258 related to several regional broadcasting licenses, $5,300 related to the Peretz umbrella broadcasting license and $71,688 related to Peretz goodwill, primarily due to a decrease in cash flow projections in response to the more conservative forecast for advertising market growth for 2012 and thereafter. In addition, the Company recorded impairment losses of $11,136 related to the DTV trade name as a result of the re-branding of the channel as Peretz. For a detailed discussion, refer to the Company's 2011 Annual Report.

Impairment reviews during 2012

In 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 2018.

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.

Impairment reviews during 2013

Goodwill of production reporting unit

The Company's goodwill allocated to its in-house production unit is highly sensitive to the volume of 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. In 2013, the Company initiated a review of the current economic model for its in-house production unit and is currently engaged in restructuring its in-house production operations to better align its structure with the current and future needs of its channels. While not complete, this restructuring is expected to result in closer alignment of creative talent to each of the Company's channels. Based on this restructuring initiative, changes in the economic model for in-house production were approved by the Board of Directors on December 17, 2013. In December 2013, based on these changes, the Company has also concluded that the carrying value of the goodwill associated with the Company's in-house production unit exceeded its fair value as a result of downward revisions of the long-term cash flow projections in respect of this unit. These downward revisions primarily reflect a reduction in the expected volume of in-house production, an expected increase in production costs as the Company faces increased competition from other market participants for a scarce supply of quality talent, and projections of a decreased rate of growth in the Russian TV advertising market.

Accordingly, in the fourth quarter of 2013, the Company recorded an impairment charge for goodwill associated with the in-house production unit in the full amount of $29,869.

Goodwill of CTC, Domashny and Peretz reporting units

The planned transition to digital broadcasting could impact the Company's assumptions used in 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. Given the terms and fees associated with participation in the second multiplex, the Company expects to encounter certain risks and uncertainties in the execution of each of CTC and Domashny channels' business models. It is difficult to predict accurately how the digitalization of broadcasting may affect the market. While digital broadcasting would increase CTC's and Domashny's overall technical penetration, the necessary investments for digital migration may not be fully monetized. Currently, the Company believes the most significant of these uncertainties relate to the Company's overall operating costs during (and following) the transition to digital broadcasting.

In addition, uncertainty exists about Peretz's technical penetration and its impact on advertising revenues after the end of analog broadcasting. 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.

There may be other risks and expenses that the Company encounters during and subsequent to the transition that the Company is unable to anticipate at this time that could be material to its future financial position and results of operations. While the models used in the Company's assessments of its reporting units in its impairment testing incorporate changes in assumptions on revenues and costs, as well as risks associated with those uncertainties, depending on further information about the terms of the transition to digital broadcasting, as well as 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. Subject to the availability of further information from the government and market participants, and the Company's ability to make further assessments of the government's plans, additional impairments may be required in the foreseeable future.

In addition, 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. As of December 31, 2013, the Company has determined that no downward adjustments to the macroeconomic outlook are required.

The Company performed tests for goodwill impairment of its reporting units (CTC, Domashny and Peretz). As of December 31, 2013, the carrying values of goodwill related to CTC, Domashny and Peretz totalled $51,551, $26,017 and $57,609, respectively. Based on information currently available and current assessment of factors that could impact the Company's future cash flows in connection with the anticipated digitalization, the estimated fair values of the impacted reporting units exceeded of their respective carrying amounts by more than 10%.

In order to check the reasonableness of the fair values implied by cash flow estimates, the Company also calculates the value of its common stock implied by its cash flow forecasts and compares this to actual traded values. As of December 31, 2013, the Company's consolidated net book value (or shareholders' equity) amounted to $734,116 (after the impairment losses recorded as a result of impairment review, as described above). This compares to a market capitalization of the Company of $2,164,379 as of December 31, 2013 ($1,510,394 as of March 3, 2014). See also Note 2, Basis of presentation and summary of significant accounting policies "—Goodwill Impairment Test" and "—Fair value measurements".

The Company considers all current information in 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.