By Michael McGuire, Chief Revenue Officer, FilmTrack –
Hollywood and its distribution model have changed drastically, and the change is not showing any signs of slowing down. Entertainment distribution has evolved into one of the most complex distribution models of any industry, following the complexities of the AdTech world. We as consumers are overwhelmed with tons of options, ranging from basic cable to streaming, to consume content at home and have been freed from the shackles of having to tune into a certain network, at a certain time to watch our favorite show.
This is not only overwhelming as a consumer, but overwhelming for the organizations that power Hollywood.
Major Hollywood players now have to ask themselves, where is our content going to come from? Do we originate it on our own or do we acquire a library? How do we construct our contracts in order to meet today’s distribution model? How do we manage all payments, inbound and outbound, that are associated with each contract?
Easily managed deals with only minimum guarantees are declining.
Today’s multi-tiered distribution model has disrupted the industry in such a way that content providers are no longer settling for minimum guarantees, but are requiring dynamic fee calculations in their contracts. Instead of licensors paying upfront, licensees are now requiring payment based on the performance of their content.
Dynamic fees are changing the way Hollywood manages its financial responsibilities, from recognizing revenue to billing and recording contracts. This change came to be due to the distribution model changing, however there’s yet another change coming to the industry.
With networks and studios beginning to see the value of their own content and the consumers’ need for their content, we will begin to see more and more self- serving VOD platforms pop up. This change will affect how M&E businesses acquire content and how deals are done between parties when it comes to cross- selling. The competition around content is also going to lead to a land grab for new content and library acquisitions.
Pay for performance
Knowing that content providers need data, major players are going to change the financial standards of the business, from contracts with a minimum guarantee to contracts that are based on data — number of clicks, number of downloads, etc. While Netflix purchases content for a set fee, these new VOD services are sharing the “secret sauce” with content providers by paying for content based on performance. This will provide them with the competitive edge needed to compete for content.
The need to understand what’s available to license out or in is crucial. Deals today are dynamic — the amount is unknown, the set of titles is unknown — which changes the way money flows in and the way it’s reported out. To record revenue that’s in line with new contract models, agreements are being written based on content performance data and payments are calculated after the fact.
So how does the industry keep up with the changes that keep disrupting how Hollywood operates?
Disruptive OTT and VOD platforms have forced M&E businesses to handle millions, if not billions of lines of data on a regular basis. Systems of the past were not designed to manage this level of complexity. To maximize efficiency across the entire content lifecycle, organizations with legacy systems, that are client server based, cannot account for today’s consistently changing industry.
However, organizations utilizing SaaS-based systems can easily manage each evolution of the distribution model’s requirements, automatically pushing out new releases and updates.
Pay with precision
This isn’t just about the system you’re using. It’s about whether or not you’ve taken the effort to encode your languages, territories, rights and titles properly so that you can account for content accurately. The state of today’s industry requires precision around your data to accommodate the many ways of getting content paid for, financed and recouped. Establishing a unified platform to not only calculate, but to facilitate payments, is quickly becoming the norm.
M&E companies have started to adopt SaaS-based solutions to manage their rights and availabilities. Additionally, they are beginning to take the next step to ensure that their systems can handle the financials associated with each contract. Having the financial capabilities to not only manage dynamic fee calculations associated with each unique agreement but having a system in place to adapt to the inevitable updates and changes that will affect how to calculate dynamic fees, as well as being able to facilitate payments, will be key.
Facilitating payments in real — or close to real — time will provide organizations with transparency on how and when payments are occurring, as well as minimize errors.
Handling the entire content lifecycle from creation through financial distribution will allow organizations to navigate the industry changes as they come, instead of trying to keep up.