Have we seen the death of the programme acquisition licence fee? Successful on-line distribution is key to maximising revenue streams but no-one has worked out how to monetise it. How do you make money from exploiting content on-line when the consumers of that content expect it to be made available for free?
One answer is the advertising-funded model. Nothing new there really – TV has been funded that way for years. What is new is that producers may be asked to forgo a licence fee altogether and take a punt on the share of advertising revenue received by the online distributor.
So when the share of ad revenue programme acquisition deal memo lands in the Inbox how should producers approach it? Here are some top tips to help you navigate those white water stretches of the online streaming licence:
1. Exclusive or non-exclusive? If no licence fee is being offered think long and hard before you agree an exclusive rights deal. What are the commitments of the online distributor which would justify your granting exclusive rights?
2. Licence period. Where no licence fee is being paid it makes sense to keep the licence period short, particularly where exclusive rights have been granted. However, you obviously need to factor into this the ad revenue cycle. Don’t forget that ad revenue may continue to be received by the online distributor after the licence period has ended! The licence should make provision for payment of any share of income due following the expiry of the licence period.
3. Territory. As for any agreement for rights distribution, it is crucial for the territory to be clearly defined. The licence should provide for the online streaming to be restricted to the territory by geo-blocking or other appropriate measures and protected by secure DRM measures to ensure it cannot be downloaded and retained by the consumer.
4. Rights licensed. You need to define clearly the rights being licensed. If not, you might restrict your ability to licence rights to other distributors. Don’t accept vague definitions such as online rights – there should be a full definition set out in or annexed to the deal memo. The URL from which the Licensee is permitted to stream the programme should be limited to a specified URL or URLs.
5. Minimum guarantee. Ask the online distributor to guarantee a minimum level of advertising revenue on which you will receive a percentage share, especially if you are being asked to tie up rights on an exclusive basis.
6. Recoupment of production costs. Try to agree that all or a proportion of any unrecouped production costs can be deducted from ad revenue before the distributor takes its share or for an enhanced percentage of ad revenue until production costs have been recouped.
7. Gross or net revenue? You will clearly be better off with a share of gross revenue but the distributor is likely to insist on net. Do not accept vague definitions. The definitions should be detailed and in the case of net revenue you need to ensure that all deductions are proper and reasonable and directly linked to generating the revenue (rather than contributing a princely sum to the distributor’s office overheads!)
8. Payment terms. The licence should specify when the online distributor will account to you for payment and provide for detailed and accurate statements (showing all receipts and deductions) to be provided to you on specified accounting dates so that you can check whether you have been paid the correct amount. A provision for interest on late payments is advisable even though a statutory right to interest may exist - a reminder in the contract can be a deterrent to late payment.
9. Books and records and rights of audit. The licence drafted by the distributor may well omit these essential provisions for the distributor to keep complete and accurate records relating to the exploitation of rights and to allow them to be inspected and audited so you will probably need to ask for them to be included.
10. Options. Licensees are fond of including options to extend the term on the same terms for a further period. Don’t commit yourself to a renewal unless you’re sure this deal is going to work for you. Or if you do, use it as a bargaining counter to get that minimum guarantee or enhanced share of ad revenue until recoupment.
Pamela Forte is a lawyer and founder of niche media law practice Forte Law which advises producers, broadcasters and individual talent. She is a visiting specialist lecturer on copyright and rights related issues at the International Film School, Wales and on Newport University’s creative sound and music course.
Disclaimer: The above tips are general guidelines and should not be regarded as a substitute for legal advice on any particular agreement.
© Forte Law 2009
This article was first published by Emap (Broadcast) on 23 June 2009.
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