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Why License Fee Management Is Harder Than Ever (And What You Can Do)

11.15.2022 | Ray Gilmartin
 

Managing royalty revenues has changed dramatically in recent years. Even media finance professionals with years of experience handling the collection and distribution of royalties on behalf of the biggest companies are finding the task daunting in the current media landscape.

In this article, we are going to cover the top five license fee management challenges, and the most successful strategies used by our clients to overcome them.

 

1: Agreements Aren’t Standardized

Humans negotiate the agreements between content owners and distributors which means those licensing agreements come in all shapes, colors, and flavors.

It is not as straightforward as “rate x a subscriber = revenue.” Distribution teams are creative, and typically both sides of the table must make concessions. Managing thousands of different agreements per month on behalf of our client base taught us the complexities and deviations of finance, legal, and licensing functions.

Success Strategy: Store agreements in a single location to cut down on the time it takes to track down, analyze, and review them. Whether using an on-premise or cloud-based licensing revenue management system, a tightly maintained and easily accessible platform makes it easier to reference your many agreements on a frequent basis.

 

2: Humans Miscalculate

Although distributors commonly use software to calculate royalty payments, humans are involved too — and humans make mistakes. Over the years in royalty management and media audits, we have determined that at least 25% of remittances have errors.

Typically, inaccurate distributor payments are accidental; a rate increase was overlooked, subscriber counts were inaccurate, or a distributor forgot that a system was transferred to another operator until months after they had paid revenue on it. But those mistakes have very material impacts on already-compressed media organizations feeling the pain of subscriber churn.

Success Strategy: When possible, use software to automatically detect errors in distributor data. If humans are calculating remittance and royalty payments, be sure to include a “quality assurance” checkpoint: someone with the know-how to flag anomalies. Consider outsourcing at least some of this work if you don’t have the headcount to support it.

 

3: Experience Matters

It is expensive for organizations to hire, train, and maintain the skillsets necessary for proper licensed revenue management.

This is not simply an accounts receivable or cash application function. You need to understand license fee agreements, reporting models, the dynamic nature of subscribers, the various behavior patterns of every distributor, and what is considered acceptable in the industry.

For example, MVPD 234 is known for being very forthcoming with information while MVPD 237 is known for providing as little information as legally and humanly possible. How would someone know to pay extra attention to MVPD 237 if they did not have years of experience in the industry? It’s crucial to have industry insiders who understand MVPD strategies.

It is learned through immersion and is difficult to teach humans (though software can be trained more easily). As natural workforce transitions occur, institutional knowledge goes out the door. Media organizations must either commandeer a candidate (ideally an expert in content licensing rights) from a competitor or start all over from scratch.

Success Strategy: Firm, documented processes and procedures prevent employee churn from damaging productivity. Centralize your historical records and data to lower the risk of losing important intelligence when employees turn over and to reduce time spent transferring knowledge from one employee to the next. Consider software that “knows” how to spot errors that are invisible to humans.

 

4: Revenue Leaks Go Undetected

What is a “reasonable” drop in subscribers? Is there a threshold within the industry that we should consider within a reasonable tolerance?

It is a loaded question because it really depends on the circumstances. Is subscriber variance due to seasonality, or a promotion being run by a distributor in a certain region? Either of those two scenarios is indicative of higher-than-expected variances. But unless you are actually analyzing subscriber trends at the most granular distributor level, it is nearly impossible to detect.

If your team is analyzing trends at the distributor level, rather than the system level, true abnormalities would be difficult to identify. If, however, you have experienced industry personnel reviewing your data, and they are leveraging software solutions to support the analysis, the chances are much greater that anomalous reporting errors and revenue leakage will be detected.

Success Strategy: Make sure that experienced industry personnel are regularly reviewing data from every distributor and conducting comprehensive analyses; the chances of catching errors and revenue leakage are much higher. You can also leverage software solutions to support revenue analysis and automatically detect anomalies.

 

5: There’s No Macro Insight

the datasheetHave you ever opened your subscriber remit and wondered, “Is this just happening to my organization or is this huge retro-adjustment something that is happening to other programmers too?”

Of course, it immediately jumps out as something that requires follow-up with your distributor, but you are probably longing to know if it is specific to your organization or industry-wide.

Many issues simply would not be detected in the absence of an audit, as distributors are not required to substantiate all aspects of the relationship in their monthly remits. Self-reporting revenue models are naturally riddled with issues.

Success Strategy: The only way to get macro-level data on a distributor is to ask other programmers or analyze the remittances of other distributors who would most likely be experiencing similar trends. There’s no easy solution, but at SymphonyAI Media we’ve been able to give our clients that type of insight without breaching confidentiality. At the end of the day, conducting an audit is the best way to be assured compliance.

 

You’re Not Alone

The media industry has outgrown the systems and processes originally built to support it.

Revenue teams are retrofitting paper agreements into digital workflows, negotiating more (and more complex) agreements with more distributors, and losing subscribers to churn and competing platforms. It puts even the most capable teams at a disadvantage, but not a total loss.

These are the ways we’ve helped clients apply the success strategies mentioned above:

  • Access to industry data: Since we have the benefit of seeing so much revenue data every day, we are quickly able to ascertain if an abnormality is specific to the client or if it is a systemic issue that permeates the industry.
  • Unmatched experience: We have the benefit of seeing multiple payments from the same worldwide distributors on a monthly basis – and we’ve been doing it for over 30 years. Our senior experts are a stable extension of client teams, even (and especially) when they are impacted by turnover.
  • Insider knowledge: Understanding how the industry functions and responding with solutions, processes, and procedures to support these learnings is key. Managing license fee revenues is what we do… and what we’ve trained the Revedia software platform to do, too.
  • World-class software: In addition to our capable humans, our intelligent software can detect and resolve issues before they escalate. Between our proprietary technology and our team’s expertise, we estimate that we can consistently detect more issues than any other solution available – before they become catastrophic to our clients.

Whether you are looking for a long-term partner or a temporary sounding board, we are glad to share what we have learned to help you navigate the complex revenue challenges of licensing partnerships. When you’re ready, get in touch.

 

*This blog was updated and republished in November 2022.

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