Over-The-Top (OTT) video streaming has significantly disrupted the linear television market (broadcasting, cable, satellite) since the first OTT platforms launched in the mid-2000s. Linear TV subscriptions still generate $86.3 billion in annual revenue for U.S. MVPDs, but that figure is declining as OTT streaming revenue (estimated at $119 billion in 2022) and viewership increase each year.
As consumer preferences trend towards OTT video streaming, content sellers are shifting their distribution strategies away from traditional linear models and toward a growing number of OTT platforms with diverse business models (SVOD, AVOD, TVOD, FAST, etc.).
As a result, finance professionals who have been managing linear workflows for years are now expected to manage digital media workflows for their content-selling companies.
Adjusting to the new requirements of digital media finance is creating challenges for linear finance experts everywhere. Here, we offer four actionable tips that linear finance experts can use to better understand digital media finance workflows and succeed in the new environment of OTT content monetization.
1) Automate licensing agreement management
The Challenge:
There are significant differences between linear and OTT licensing deals that make agreement management challenging for media finance teams.
On the linear side, we have a mature business model where agreements have been standardized in many ways. Content sellers are typically paid a simple rate per MVPD subscriber, and agreements are usually for 3+ years with basic escalator rates year over year. Under these agreements, data sharing is usually limited to basic information like subscriber counts and demographics.
Linear TV distribution is also highly consolidated, so entrenched content sellers will have stable relationships with the same Pay TV distributors. Licensing agreement terms can remain in place for 10+ years in some cases, with contractual amendments used to renew the agreement or adjust rates instead of a wholesale re-negotiation of terms.
On the digital side, licensing agreements are more complex and varied. These agreements are characterized by:
- Shorter and highly variable licensing windows.
- Varied payment terms depending on the OTT platform business model (guaranteed minimum payments, pay-per-engagement, transactional/advertising revenue sharing, etc.).
- Varied data sharing requirements depending on what the OTT provider can deliver and what the content seller can negotiate to receive.
Plus, there are far more OTT video streaming providers than established MVPDs, which often means more agreements for media finance professionals to manage.
What To Do:
Unless you’re ready to significantly increase staff, managing digital licensing agreements manually is not a viable approach.
Instead, use software tools to automate the process of ingesting OTT licensing agreements and managing agreement terms, royalty rates, and revenue sharing. We also recommend writing data-sharing terms into your licensing agreements and negotiating to receive as much useful data as possible from OTT distribution partners.
2) Collaborate with distributors to protect shared interests
The Challenge:
MVPDs and content sellers (especially broadcasting networks) face a common threat from OEMs like Samsung, LG, and VIZIO, whose Smart and Connected TV products give audiences access to free linear TV content via built-in FAST services like Samsung TV Plus, Watch Free Plus, and LG Channels.
Over the past five years, FAST services have primarily distributed niche and nostalgic content that couldn’t be effectively monetized on Pay TV or SVOD platforms, but we’re now starting to see news and sports networks, mainstays of Pay TV, distributing their content via FAST as well.
But here’s the problem: MVPDs generate far more revenue for content sellers than FAST platforms do in 2023. Not only do content sellers earn substantially less money from FAST revenue sharing than Pay TV distribution, when they license to FAST channels, they’re also undermining the value of their content on Pay TV and helping CTV/OEMs cannibalize the MVPD subscriber base.
The bottom line is that content sellers need to be careful about choosing OTT distribution when it can impact the short or long-term revenue potential of their assets in linear distribution channels.
What To Do:
Historically, content sellers and MVPDs have always been on opposite sides of the negotiating table – but when faced with a common threat, there are more reasons than ever before for content sellers and MVPDs to work together to protect their shared interests.
Content sellers can form tighter partnerships with MVPDs around the shared goal of keeping high-quality content exclusively on linear Pay TV to preserve subscribers and revenue.
3) Aggregate and normalize OTT platform data
The Challenge:
The reporting that content sellers receive from linear MVPDs is relatively consistent in terms of what data is provided. Some MVPDs may vary in terms of how they format reports (e.g. Excel vs. PDF), but many use the same billing system and share roughly the same data.
MVPDs typically provide information about the service, the negotiated rate for the period, number of subscribers, and the system DMA where the subscribers are located. Broadcasters will often report on whether subs are in-market or out-of-market, while cable providers may report on which package the subscribers have purchased (basic, deluxe, etc.).
On the digital side, reporting is highly non-standardized. When it comes to reporting on content performance, engagement, earnings, and payments, OTT distributors will provide content sellers with entirely different data sets. Even when some data points can be compared between distributors, the report formats and labels are often completely different.
What To Do:
Aggregating and normalizing OTT platform data into a single source of truth is a necessary step before media finance teams can efficiently analyze the data to understand content performance and make smarter distribution decisions that optimize revenue.
Media finance teams should work to identify all relevant data sources and automate data aggregation/normalization using software to create a single source of truth for OTT platform data.
4) Measure the value of each content asset
The Challenge:
Content valuation is a fresh and important challenge for media finance experts working with OTT distribution agreements.
This represents an important shift for media finance teams. In the past, it was important to understand the value of a given distributor to the content seller’s bottom line. But in the digital age, media finance teams are also interested in questions like:
With traditional linear Pay TV, licensing agreements are distributor-centric and revenue from MVPDs is determined based on the number of subscribers an MVPD has and a negotiated rate per subscriber.
But with OTT distribution, licensing agreements are oftentimes content-centric: the revenue content sellers receive from OTT platforms is based on the individual performance of each piece of licensed content. In this model, every piece of content can be treated as a unique asset with its own performance characteristics and revenue-generating potential.
- What is my library worth?
- What are individual content assets worth?
- Which OTT distribution service(s) can generate the most revenue with this content? Where is it worth the most?
What To Do:
Optimizing your content distribution strategy depends on being able to accurately and efficiently measure the value of content assets. To achieve this, we recommend using software to sort, store, and manage your content data/metadata.
By integrating content performance and metadata with financial tools, content sellers can start using data-driven content valuation to enhance their distribution strategies and optimize revenue.
Manage and automate digital media finance workflows with Revedia Digital
Revedia Digital is a data intelligence platform that helps media finance teams automate workflows, manage distributor relationships, and maximize the value of their content assets.
With the Revedia Digital platform, media finance professionals in content-selling companies can:
- Ingest licensing agreement terms to better manage and oversee licensing terms and payments,
- Automate royalty calculations and check distributor payments against agreement terms to verify compliance,
- Aggregate and normalize OTT platform data into a single source of truth to support content performance analytics,
- Integrate content performance and metadata with financial data to measure the value of content assets, and
- Streamline financial workflows, including accruals, end-of-month reporting, and revenue forecasting.
Revedia Digital gives media finance teams a significant and immediate advantage when it comes to managing OTT finance workflows and maximizing OTT revenue.
Ready to learn more?
Watch our Intro to Revedia Digital Webinar and see how Revedia Digital can help media finance teams address key challenges in OTT distribution.
