A Comprehensive Guide to Royalty Management in the Digital Era

It’s no secret that the media & entertainment industry is becoming increasingly fragmented. While no two consumers are exactly alike, these days, what nearly all of them have in common is the expectation of flexibility. Rather than heading to the theater to see the latest movie –– the exception being blockbuster hits like Avengers or Star Wars –– consumers want to be able to watch what they want, where they want, and when they want. This shake-up has completely turned the traditional theatrical distribution model on its head. To succeed in today’s hyper-competitive digital landscape, profitable growth requires having multiple revenue streams that extend beyond the traditional sources of monetization.
 

The Revenue Stream Revolution

Not long ago, consumers were at the mercy of linear broadcasting schedules and theatrical releases, tethered to the immobility of living room television sets and movie theater projection screens. Today, video on demand (VOD) programming has created a culture where consumers are in control –– binge the entire series of Breaking Bad in a weekend, stream live NFL games on-the-go from a smartphone or tablet, or watch any flavor of content across YouTube’s network of free and paid channels.
 
Though VOD has been in existence for well over a decade, its popularity has shown tremendous growth within the last several years. Research has found that nearly two-thirds of people around the world watch some form of VOD programming and, on average, Americans watch 38 hours of video content per week (39 percent of which is streamed).
 
When it comes to video on demand, there are three main revenue models:

  • SVOD
    Subscription video on demand (SVOD) services allow users to consume premium content when they want and where they want in exchange for a recurring monthly fee. In 2017, the top US subscription video services generated close to $15 billion in monthly fees alone, and PwC projects that the SVOD sector will grow to almost $25 billion by 2022.
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  • TVOD
    With transactional video on demand (TVOD), users can choose to pay a one-time fee to rent content for a limited time or purchase it permanently. According to the Entertainment & Media Outlook for 2018, transactional VOD generated an estimated $4.1 billion in 2017.
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  • AVOD
    The advertising video on demand model allows users to watch ad-supported content for free.

 

Distribution Rights & Royalty Payments

What is a Royalty?
Royalties involve payments for the right to use intellectual property (e.g., movies, TV shows, or music). Royalty income –– royalties in –– is a percentage of gross or net revenues for the right to use intellectual property. Conversely, a royalty payment –– royalties out –– is the amount of money that a licensee would pay to a licensor for the use of intellectual property.
 
Dissecting Digital Dollars
While VOD platforms have ushered in a wealth of opportunity for monetization, varying revenue structures have also created myriad challenges when it comes to recording, tracking, and calculating royalty payments.
 
Traditional contracts were much more straightforward: they’d involve either a single title or a small handful, the exploitation windows were longer, and they would typically encompass multiple distribution rights (e.g., “I want theatrical all the way through television for 15 years.”).
 

 
When it comes to video on demand deals, things get agonizingly complicated. VOD platform providers usually acquire licensing rights for movies and TV series only for a certain period of time. You might see 40 movies on Netflix for six months. Then, when that license expires, 30 of those movies become available on Amazon Prime and the other 10 become available on both Amazon Prime and HBO.
 
Which brings up the matter of exclusivity…
 
For example, Hulu has exclusive streaming rights to seasons 1-14 of Law and Order: SVU. This means that Hulu is the only streaming provider that is allowed to exploit those seasons throughout the duration of the license. On the flip side, Hulu and Netflix have non-exclusive streaming rights to seasons 15-18 of Law and Order: SVU. In this case, the licensor has allowed multiple licensees to exploit the same content at the same time.
 
Calculating revenue adds an additional layer of complexity to the mix because VOD deals can be structured so that payment is fixed, variable, or a combination of both.
 

A Modern Approach to Back Office Operations

The current approach for royalty management is not adaptable or scalable enough to support the rapidly evolving media & entertainment industry. It’s no secret that original legacy software and simple spreadsheets don’t have the flexibility to govern the complex accounting challenges brought on by today’s digital economy. As more content is created and digital channels become the primary means of distribution, businesses will be forced to migrate to modern software to handle back office operations.
 
For many organizations, IT departments are already spread thin or there isn’t enough bandwidth to manually manage the complex financials associated with digital distribution deals. SaaS-based technologies are an appealing fix to these problems in that they’re affordable, flexible, and capable of automating royalty calculations in a matter of seconds.
 
Royalty Management Software Made Simple
With a cloud-based solution like FilmTrack, real-time data insights and analytics reports allow businesses to make critical decisions for growth. Rights and availabilities are united with critical financial and contractual information in a central, secure hub, ensuring that data is accurate and synchronous at all times.
 
Here’s how finance teams use FilmTrack to streamline complex business operations surrounding VOD contracts and the resulting flow of revenue distribution:

  • Step #1: Establish royalty definitions
    Pull pertinent information from your licensing agreement (e.g. how much profit you will receive for every purchase/view/ticket/etc.) then upload directly to the platform.
  • Step #2: Mass ingest royalty statements by licensee
    Instead of having to manually input data –– which could be up to 10,000 lines when it comes to VOD statements –– our software allows users to automate the entire ingestion process.
  • Step #3: Process and calculate royalty statements
    Our software reduces the risk of human error by automatically generating detailed royalty statements.
  • Step #4: Budget for and report on royalty statements
    FilmTrack gives you the ability to analyze by title, territory, right, channel, and SKU. Verify actual versus projected and identify delinquent statements.

Ready to see how FilmTrack can streamline your finance operation? Contact us today to book a demo.