Pangs of Partner Payments for FAST/AVOD Content Providers

FAST/AVOD platforms are transforming the way content is delivered and consumed. Major studios, content providers, and distributors use consumption data to illuminate viewer content affinities, and help explain which program channels align best with the right mix of advertisers.

Yet, this is only half the battle.  Alongside this innovation come the challenges to track and manage all the complex financial relationships among revenue-sharing and viewership data from platform partners in order to efficiently manage and monetize FAST data.

Standardized data is crucial to optimize revenue performance at the title-level, and resolve primary reporting pain points around viewership for TV and film content rights on FAST platforms. In a world where advertising revenue is king, companies of all sizes must have an easy way to monitor revenue performance prior to, during, and after deals are finalized, as a means to success.

Challenges in Reporting
In this new landscape, content providers are generally paid through revenue-sharing agreements, and they face major hurdles in building payment processes that monitor, reconcile and report on financial operations, and key performance measurements, such as fixed and recoupable fees, inventory share and more.

Finance Infrastructure Development
The fast-paced nature of the media industry has forced FAST/AVOD platforms to hastily establish their finance infrastructures. Often, this process involves numerous spreadsheets and manual processes that are time-consuming and prone to errors. As the platform matures, however, it becomes crucial to streamline and automate payment processes in order to reduce the risk of inaccuracies, improve operational efficiency, and scale partnerships.

Auditability and Traceability Issues
Maintaining auditability and traceability is imperative for maintaining control over financial transactions. As platforms expand their revenue-sharing agreements with content providers, audits increasingly become an inevitable aspect of the business. Ensuring that these audits can be handled with ease requires a comprehensive system that accurately records all financial interactions among the platform and its content providers. This safeguards against discrepancies and fosters trust.

Reporting Intricacies
The intricacies of reporting within the FAST/AVOD landscape are manifold. Other prominent challenges include:

  • Adjustments for different supply and demand partners: FAST/AVOD platforms often collaborate with various supply and demand partners, each with unique financial terms and conditions. Ensuring accurate adjustments for these differences demands a meticulous approach.
  • Accounting for contract terms and recoupable expenses: Content providers are compensated through various financial terms, including minimum guarantees (MGs), recoupable fees, fixed fees, and inventory share.
  • Managing these variables requires precise tracking and calculation.
    Generating content provider statements: Generating accurate and comprehensive content provider statements on a regular basis is crucial for transparency and accountability.
  • Determining advertiser revenue and billing: Monthly tasks involve determining the revenue generated from advertisers, billing, and generating the required Journal Entries (JE) for accurate financial reporting.

How to Overcome Challenges
The challenges mentioned — rapid finance infrastructure development, auditability and traceability concerns, and reporting intricacies — highlight the need for a well-structured and single automated payment system.   Such a unified system provides for:

Streamlined Title-Level Revenue Reporting
Meet reporting obligations, improve accuracy and control, and streamline title-level revenue reporting to hundreds of content providers.

Control and Management of Content Cost
ASC 920 and direct-to-consumer are impacting the industry, forcing networks and streaming platforms to revisit the way they account for content costs. It is critical to automate and enforce policy into the way that content is accounted for and paid. Direct integrations to ERP systems increase cost savings and control.

Settlement Processing Acceleration
Having an automated workflow eliminates tedious manual work while ensuring control, accuracy and auditability for all pay TV, free to air and SVOD fees. Automated programmer settlements should directly consume subscriber billing data, calculate all fee types from residential to B2B, generate statements and invoicing, and provide analytics into costs.

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The ability to automate a VOD supply chain, and seamlessly connect to studios and content readiness partners, makes financial operations more efficient and provides an advantage and ability to drive growth.

The Writers Strike and Subscriber Inertia Versus Churn

The writers strike, pundits say, is likely to last for a while, cutting the flow of new content. The strike comes just as studios were already cutting back on streaming content and raising prices for subscribers.

Will consumers surrender to the inertia of monthly subscriptions despite these headwinds, or will they unsubscribe?

Recent studies have shown churn (canceling subscriptions once subscribers have watched what they want) was high even before the strike. Deloitte’s recent 17th annual media trends report found that subscriber churn for paid SVOD services during a six-month period was around 40%. For Gen Z and millennial consumers, those numbers jumped to 57% and 62%, respectively. Around half of consumers said they pay too much for the SVOD services they use, and about a third said they intended to reduce their number of entertainment subscriptions. A recent survey from Reviews.org also found nearly 40% of streaming VOD subscribers canceled a service in the past six months. Of the respondents who canceled, 44% cited the need to cut back on monthly expenses, while another 37% cited lack of use.

Indeed, content is key. In a January 2023 Hub Intel study, 41% of respondents said in the past year they had signed up for a new streaming service just to watch one show (up from 35% in 2021). Hub also found the most common reason that people drop a streaming platform is that they “ran out of things to watch.”

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Time to Reinstall Windows

The entertainment business has finally smacked up against reality. It’s just not profitable to offer the bulk of a studio’s catalog (including the newest theatrical hits) at a subscription price around $10 a month. Who knew? 

Studio executives of yore. 

In the rush to cut costs to fill the profit hole left by the subscription streaming craze, perhaps entertainment chiefs should look to those past strategies. Maybe it’s time to reinstall some windows. 

Raising SVOD sub prices (as many have done), selling ads (as Netflix and others have done) and cutting costs by laying off 7,000 to save $5.5 billion (a la Disney) are only stop-gap measures. Windows are, and have always been, a way to extract the maximum revenue from content. 

Studios need to go back to basics. Offer content in the window (and successive windows) that will extract the best overall return. For some titles, that begins with a theatrical window; for others it starts in the home entertainment pipeline, including streaming. But it makes sense for some very desirable titles to open numerous windows between theatrical and streaming — including newer, higher-priced premium digital purchase (PEST) and rental (PVOD) windows. And let’s not forget regularly priced digital purchase and rental — and disc. 

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Streaming is only one stop in the entertainment pipeline. It doesn’t necessarily have to be the first or last. Services should get content when it’s the best time for that content to maximize revenue. Streaming — no longer the shiny new kid on the block — should earn its place in the window lineup. 

Streaming Golden Age Waning

I recently marveled at the vast array of streaming content at my fingertips — movies barely out of theaters, big-budget series I could binge in one afternoon —  as well as at the fact that it all came at a lower price than our old cable service. (We cut the cord a while ago.)

Then I thought to myself, “This won’t last.”

Indeed, the Golden Age of streaming for consumers seems to be coming to an end. Now that Wall Street has realized that streaming will have to generate a profit as legacy distribution flags, financiers are putting pressure on companies to make it pay. When the distribution method was new, Wall Street hailed streamers for gathering subscribers and offering ever more expensive content to entice them. No longer.

Suddenly dismayed at Disney’s losses from its streaming service, investors helped push out CEO Bob Chapek, who had been doing what Wall Street previously wanted by growing streaming as quickly as possible. Meanwhile, Warner’s experiment with theatrical releases hitting HBO Max at the same time had earlier been scrapped by Warner Bros. Discovery CEO David Zaslav as he looked at looming debt and layoffs.

“We’re going to be open to all … forms of distribution … to get the best return for every dollar of content spend,” his CFO Gunnar Wiedenfels said at a recent confab.

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Indeed, streaming prices are on the way up.

“We will move prices up, no question about it,” said Paramount Global CEO Bob Bakish at a December conference, echoing the sentiment of his counterparts. “We feel very comfortable with our ability to do that.”

(Source: Reelgood)

And ads are headed to previously ad-free services such as Netflix and Disney+. Indeed, consumers will have to pay more to dodge those ads and even get some of the premium content. A recent study by Reelgood noted that Netflix’s ad-supported service features significantly less content — hundreds of fewer movies and TV shows. Some of the most popular movies on Netflix, including Sony’s Bullet Train, are not available on the ad-supported service. Popular TV shows not available on the Netflix ad-supported service include “The Walking Dead,” “New Girl” and “Brooklyn Nine-Nine.”

In the streaming future, we’ll all be paying more for less. So I’ll be streaming as much as I can before the shine comes off this Golden Age.

Ending a Relationship

It had been a long time coming.

Cable TV had been a big part of our lives for decades, a constant entertainment companion, but being together so much during the pandemic took a toll on the relationship. Suddenly, those ever-expanding commercial breaks seemed endless after watching ad-free streaming services such as Netflix, Disney+ and Amazon Prime. Even Hulu, which we watched with ads, served up a more palatable break — and conveniently offered a little countdown to tell us when it would be over.

We picked up YouTube TV for live programming, and that was it. The cable relationship was over. We cut the cord.

Apparently, we are not alone. A Roku survey found one in three U.S. households are cord cutters, and many have decided to make the change in recent months, citing the pandemic, the abundance of free AVOD services, and lack of live sports, among other factors.

Aside from the learning curve on how to work the remote to get to the channel or program I want, it’s been a smooth divorce. Kicking cable out also gave us more space. We gained some shelves by ditching the boxes.

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So far, I don’t miss the old companion. I haven’t found a program or channel that I previously had on cable that I can’t find or approximate on our new streaming combo. Sure, I don’t have the convenient clock on the box to see the time. It takes a little more effort to figure out what I want to watch among all the new choices, but, honestly, I don’t miss cable.

It was the growing relationship with our SVOD services, the new-and-improved version of live TV on YouTube TV and the cable bill’s increasing drain on our finances that drew us away.

When we announced the decision to end it, my daughters looked up from their phones and sarcastically said, “Oh, no! We watch so much cable.”

Goodbye old friend.