13 Aug Perspective: Content Payments Must Evolve as Distribution Evolves
THREE PREDICTIONS FOR THE FUTURE OF CONTENT PAYMENTS
August 13, 2018 | For five years, I’ve been a sort of “honeybee” in the world of payments for content owners and rights holders in television, film, video games, sports and elsewhere. It’s been fun and illuminating to flit from company to company to work on payment terms and related issues with more than 50 firms, and hundreds of finance, distribution and legal executives each year for the dominant payment auditor in these sectors. But the most common question I currently receive (sometimes even at the beginning of the meetings) from these folks is with regard to future change.
Richard Taub | Pequan Group
There has been and will continue to be extraordinary change in consumption and distribution behavior as a result of digital advancement. There has been and will continue to be extraordinary evolution in corporate structure and ownership of rights as a result of the need for increased scale, especially on the content owner side. And there has been and will continue to be extraordinary metamorphosis in the actual content that constitutes “entertainment” or “media” as a result of experimentation in content and distribution by professionals and amateurs alike. But, there has not been a corresponding rate of change seen in the methods or efficacy of how payments are remitted to those content owners and rights holders after consumption. Payments and/or corresponding (correct) data are still received in a delayed fashion, human involvement results in errors, and multiple layers of parties handling payments leads to inefficiency and reduced margins throughout the remittance value chain. So, the questions finance, distribution and legal executives ask is this: How and when will payment processes evolve?
My current expectation is that three major trends will affect how quickly and effectively payments for consumption of media and entertainment will advance.
1. Relentless drive to lower prices, easier usage models
a. Subscription. Why would the market stop with buffet-style movies and TV episodes (whether or not combined with the ability to get free shipping on virtually anything) or movie attendance? The video game industry has taken steps toward this inevitability — as seen by EA, Nintendo’s Switch Online service and others — all meant to provide recurring revenues that are not shared with retailers, and provide a defensive strategy against massive, unforeseen free-to-play releases (ask your kids about Fortnite, League of Legends, etc.). If you like audiobooks, chances are you’ve considered Audible’s subscription option with free periods, member-only discounts, etc. The list goes on. Further, as the cost of launching these services continues to decrease, expect more options.
What does this mean in the world of payments? Leading content providers, learning from recent history, will develop consensus to push for more variably-based payment and data-reporting terms to share in upside and guard against usage data asymmetry access; expectations for more timely and correct payment data will increase, leading to new technologies being developed in this area. Expect increasing experimentation with blockchain and other technologies in an effort to simplify the process, remove layers of operational cost and complexity and accelerate payment to the ultimate recipients.
b. Micropayments. At the same time and on the other side of the spectrum, micro-consumption and micro-pay-ability also have shown to be appealing to consumers in mobile gaming and music, and payment systems from Apple, Amazon and Google have advanced to facilitate this buying behavior with fewer clicks and other transactional friction. Experimentation with even lower price points, for smaller IP packets, should become more common for media such as individual TV episodes, newspaper articles and more.
Sports betting (where the model is not the Las Vegas sportsbook, but rather mobile-based bets from the kitchen or bathroom during halftime on the spread at the end of the third quarter), may goose the amount of investment in this area and experimentation will multiply and intensify at an even more rapid rate. In this new world, expect a wider variety of purchase opportunities for consumers (which will test the ability of all parties to manage and analyze the data), and again, applications of enterprise-based, private blockchain systems and other facilitators.
2. Password sharing/user inflation
Whose college-aged kid pays full freight for their own entertainment subscription to anything? Tom Rutledge of Charter Communications, in his complaints about password sharing for “authenticated” viewership, is prescient in his warnings. What began as an innocent marketing tool by cell phone service providers years ago with socially friendly themes such as the “friends and family plan,” which enabled consumers to amortize an important entertainment cost among several people, has spawned numerous behaviors and practices that are both legitimate (Netflix’s version of the same sales device) and illegitimate (literal sharing of passwords for Amazon Prime, cable, OTT, etc.). As a result, the revenue growth curve plateaus, net payments per unit of media slow and the integrity of usage data for analytical purposes is compromised. Expect that when growth for the most widely-used platforms slows, a critical mass of concerned parties will emerge to creatively address this problem. A case study for them may be MoviePass.
3. Distribution agreement complexity
This one I would love to leave for the attorneys. The sheer variety and complexity of new consumption, distribution and payment methods will test attorneys, those managing the contracts, those receiving the payments and the legacy (and future) systems in place that will be applied to remittances. Perhaps of all forecasts, this one is the surest: as the creative marketing genius finds new ways each day to service consumer wants in every way, the gap between the intent and wording of static executed distribution agreements and the reality on the ground of how content wants to be consumed and paid for will grow. The onus will be on the content providers to be as market-savvy as their distribution partners are to ensure payments and data are acceptable.