Technology_Advances_Present_New_Challenges_for_the_Entertainment_Industry_201808312008

During the last several years, the film and television industry has undergone a massive transformation. Viewers can now enjoy programming streamed into the palms of their hands, any time and any place.

In this new market, it's possible to license content that, in previous generations, would have already completed its life cycle. Music, dating back decades, can be downloaded by the album or song, or streamed via subscription. Content to be revised and re-sold, like discontinued television series, which are now accessible in every language, in every country in the world.

Streaming technology creates vast opportunities for content creators and distributors, but the exponential growth of all types of video on demand (VOD) and music streaming platforms present many new challenges.

To tap into these new revenue streams, media and entertainment (M&E) companies must manage and maximize their content libraries. Although M&E companies are known as technology leaders on the creative side, that often does not apply to their back office processes. In fact, many companies still rely on legacy systems such as spreadsheets, which are ultimately incapable of keeping up with the rapidly growing demands of the new business model.

Additionally, tracking royalties and what is known as "participation"— payments, including residuals and profit shares — has become increasingly complicated.

Jason Kassin, the founder and CEO of FilmTrack, a leader in this industry, predicted this impending roadblock while designing in-house software for film and television distribution companies. “As the industry transformed, it was clear that the tools to manage the industry must transform as well," he explained. Now FilmTrack, like similar software companies, offers a cloud-based array of back office solutions.

Yet many M&E companies resist change given the upfront expense of installing a new system and the employee learning curve.

But according to global advisory services firm EY, it's worth taking that leap. "By acting decisively to evolve their business models, M&E companies can avoid being trapped by legacy and will be well-positioned to take advantage of growth opportunities available today," the company said in a report issued earlier this year.

Many cutting edge software remedies now exist— it is critical for M&E companies to adapt.

Managing Royalties and Participations

There are many different VOD platforms — subscription, ad-supported, transactional and free — each with its own revenue structure. A movie or series might be available on Netflix for six months, then show up on airline in-flight entertainment menus for a year, creating immense data and accounting challenges that require updated software.

“Once you have more than two titles, two deals, it becomes information that's too overwhelming to handle and too sensitive to leave in the hands of a spreadsheet," said Clay Epstein, president of Film Mode Entertainment, a Los Angeles-based production studio and distribution company.

Software company Exactuals developed PaymentHub specifically to manage payments to industry guilds for disbursement to artists, such as actors, writers and musicians in the form of residuals.

Actors or screenwriters might receive a thousand residual checks a year, some for as little as two cents — Exactuals' software streamlines the process by enabling direct deposits and providing digital reports and top level security. "We try to present a very zen, very easy to understand, actionable set of information to put the industry on the same page. Exactuals takes massive amounts of residuals and royalties data and makes it easy to understand," said CEO Mike Hurst.

Likewise modern accounting, bill paying and banking integration has emerged. For the past 40 years, software company Datafaction offered elegant, sophisticated programs for business management and accounting, but their original legacy software doesn't have the flexibility of modern technology. To keep pace, they launched AgilLink—a web based accounting platform that has the capability to fully integrate with Exactuals' PaymentHub for even more automation. As general manager Verna Grayce Chao explained, “We're adding efficiency where before a person used to have to do all this aggregation manually at every single stage."

Unfortunately, installing a new system is only half the battle.

Ed Klaris, CEO of KlarisIP, a New York City-based consulting firm dedicated to helping M&E companies monetize intellectual property assets, believes workflow must also be updated when integrating new systems.

According to Klaris, there is a "psychological barrier" against adopting new processes. Employees, who have thus far performed their jobs using spreadsheets, are often reluctant to change. This is why it's also important to invest in training— typically offered by software providers.

"You'll fail to meet your goals if you don't do change management at your company, make sure your data goes into the right system, and manage your system well," he said.

Epstein experienced this first-hand, from two different perspectives. His first job in the film industry was entering information into an early, but efficient, media software platform. At his next job, a production company, there was resistance to change and so employees still relied on spreadsheets.

“It was an absolute disaster," Epstein said. “The amount of money the company was spending on employees to maintain this spreadsheet that was never accurate, was far more than they would have spent on a good database. It was penny wise and pound foolish."

Tracking Avails

For M&E companies, continuously licensing their entire library is critical for survival in today's market.

Entertainment content, unlike other products, can be resold again and again and run on three platforms simultaneously. Classic films can be unearthed and licensed even for short time slots or “tweens."

Varied time frames, multiple episodes, different territories and languages multiply opportunities for profit, but create an organizational nightmare, especially when analytics come into play — determining when and where content is likely to succeed.

Committing to change and new technology enables M&E companies to fully exploit their inventory. According to Klaris, the initial costs pay off.

“Content owners have added vast sums when they have invested in systems, trained employees and data to give insights and organize their inventory," he said.

The entertainment industry prides itself on inventing new technology for production and distribution, wowing viewers with thrilling digital photography and special effects, and creating new ways to enjoy content with ease.

Tracking royalties and participations, crunching data and managing avails may not be as glamorous, but upgrading the business end of “the business" greatly increases productivity and potential profit. Otherwise, as Klaris explains, "You're in the stone ages — and the world doesn't have any time for the stone ages."

This report is for general information and education only and was compiled from data and sources believed to be reliable. It is provided as a courtesy to the clients and friends of City National Bank. The bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the report with no obligation to update or notify of inaccuracy or change. Exactuals is a subsidiary and Datafaction is an affiliate of City National Bank. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.