Why License Fee Management Is Harder Than Ever (And What You Can Do)
When I accepted the role of leading the Revenue Management Services (RMS) division of Symphony MediaAI nearly five years ago, I admit to naively thinking that the knowledge and skills gained during my six years handling the collection and distribution of royalties on behalf of the world’s largest technology and patent owning companies would make the transition easy breezy.
What I quickly learned is that there are numerous complexities associated with the process of managing subscriber-based revenues.
These are the top five challenges I’ve seen, and the most successful strategies used by our clients (the world’s top media brands) to overcome them.
1: Agreements Aren’t Standardized
Humans negotiate the agreements between content owners and distributors – not robots (yet!) – which means they come in all shapes, colors and flavors you could imagine.
It is not as straightforward as “rate times a subscriber equals revenue.” Distribution teams are creative and after all both sides of the table must make concessions most of the time. Managing over 4,200 different agreements per month on behalf of our client base taught me the complexities and deviations of the affiliate finance function.
Success Strategy: Store agreements in a single location to cut down on the time it takes to review. Whether it’s on-premise or cloud-based, a tightly maintained and easily accessible platform makes it easier to reference your many agreements on a frequent basis.
2: Humans (Mis)calculate
Although technology is used to deliver our content, humans work for the distributors and humans make mistakes sometimes. Over the years in RMS, we have determined that at least 25% of remittances have errors.
Typically they are accidental; the rate increased for the period but the MVPD forgot to pay at the new rate, or the MVPD forgot to tell us that a system had been transferred to another operator until months after they had paid revenue on it. But sometimes the mistakes have very material impacts on already compressed media organizations feeling the pain of subscriber churn.
Success Strategy: When possible, use software to avoid errors. If humans are calculating remittance payments, be sure to include a “quality assurance” checkpoint: someone with the know-how to detect anomalies and errors. (Consider outsourcing at least some of this work if you don’t have head count to support it.)
3: Experience Matters
It is expensive for organizations to hire, train, and maintain the skillsets necessary to properly manage license fees.
This is not simply an accounts receivable or cash application function. You need to understand license fee agreements, the revenue reporting models, the dynamic nature of subscribers, the various behavior patterns of MVPDs, and overall, 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 that if they did not have years of experience in the industry?
It is learned through immersion and is difficult to teach. As natural workforce transitions occur, gained knowledge goes out the door. Media organizations must either commandeer a candidate 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 MVPD data to lower the risk of losing important intelligence when employees turn over and reduce time spent transferring knowledge from one employee to the next.
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 the subscriber variance due to seasonality or due a promotion being run by a distributor in a certain region? Either of those two scenarios are indicative of higher than expected subscriber variances, but unless you have an eye for it, are using software solutions to support the process, and are actually analyzing subscriber trends at the most granular carriage level, it is nearly impossible to detect.
If your affiliate finance team is analyzing trends at the MVPD level, rather than the system level, it is highly unlikely true abnormalities would be unidentifiable. If, however, you have experienced industry personnel reviewing your monthly remits from MVPDs, 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 reviewing your monthly remits from MVPDs; the chances of catching reporting errors and revenue leakage are much higher. You can also leverage software solutions to support revenue analysis and automatically flag anomalies.
5: There’s No Macro Insight
Have 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 MVPDs 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 an MVPD 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 Symphony MediaAI we’ve been able to give our clients 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 MVPDs, and losing subscribers to DTC services. 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 I shared above:
- Access to Industry Data: Since we have the benefit of seeing so many remittances per month, we are quickly able to ascertain if abnormalities specific to the client or if it is a systemic issue that permeates through to the broader client base.
- Unmatched Experience: We have the benefit of seeing multiple remits from the same MVPDs, across all 210 DMAs, on a monthly basis – and we’ve been doing it for 30 years. Our senior experts are a stable extension of client teams, even (and especially) when they are impacted by turnover.
- Depth and Breadth of 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…every day.
- World-class Software: In addition to our capable humans, our intelligent software can detect and resolve issues before they escalate into something profound. Between our software and our team’s expertise we estimate that we can consistently detect around 80% of these issues early on 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 challenges of revenue management. When you’re ready, get in touch.