Takeaways from “The Future Of Upside” Panel

On May 13, I moderated a Zoom panel entitled Film And TV Profit Participations: The Future Of Upside For Streaming Entertainment. The full conversation is viewable here.

We covered a lot of ground in one hour. In this post, I summarize my main takeaways from the program as a whole.

But first, the “cast of characters” who kindly accepted my invitation to be panelists:

Caryn Mandabach, keynoter. Caryn has had a long association with Carsey Werner Productions, producing such iconic hits as The Cosby ShowRoseanneThird Rock from the Sun and That 70’s Show. She currently produces and owns Peaky Blinders and is now based in England.

Peter Klass, a principal and filmed entertainment practice leader at GHJ, a CPA and business advisory firm in Los Angeles, who specializes in profit participations and contract compliance.

Tom Lane, EVP Business and Legal Affairs at ITV Studios America, with responsibility for scripted programming.

Robert Osher, an entertainment business consultant who has held top business affairs and operating positions at major film companies including Disney, Turner Pictures, Miramax and Sony.

Turning to program takeaways:

As long as I’ve been a business affairs-type lawyer, and longer, three principles have prevailed in the entertainment industry.

First, key creatives and rights holders have been paid not just on the frontend but also on the backend, via success-based compensation formulas, typically via a revenue share or royalties. Of course, financial definitions and accountings are too often problematic, but the principle is established.

Second, in the independent sector, when independent product has been licensed to exhibitors, licenses have typically been for windows which are limited in respect of media, territory and duration.

Third, a single movie or TV series can trigger a life-changing financial windfall for a creative, an independent studio and/or a distributor. This potential, however remote, and the associated alignment between creatives, independent studios and distributors, have been at the heart of the entertainment business.

But when creating for and selling to streamers which buy all rights, worldwide, in perpetuity, but for use solely on their platforms, these three principles don’t necessarily govern. While a streamer may pay lip service to backend, at this point, their contingent payments don’t really correspond to actual value or success achieved.

So how can creatives, independent studios and streamers come back into alignment? They can become re-aligned if streamers would commit to rewarding them for success.

Of course, that begs the question: on any given streaming project, what is success? Streamers only selectively release topline usage data, such as popularity of shows. They rarely release more granular data, such as minutes consumed and percentage of viewers who complete. And they never release their most critical data, which is how specific programs do or don’t lead to subscriber acquisition and retention – the key metrics for subscription services.

If incentives are to be realigned, consider the following:

**        At the time of greenlight, streamers undoubtedly estimate the likelihood of buzz, minutes consumed, and marginal subscriber acquisition and retention, all in relation to production cost. And if they don’t always do the analysis by program, they almost certainly do it by genre or other programming category.

**        If Program A (whether film or series) can deliver the same results as Program B, but costs only half as much, Program A is twice as efficient. The streamers reportedly measure “efficiency” in this way.

**        Talent relationships and halo effects are always important but, overall, marginal subscriber acquisition and retention is the “bottom line” of programming decisions. And marginal subscription activity is directly measurable, especially by looking at the first program(s) watched by new and previously inactive subscribers.

**        Success-based compensation could simply be based on delivery of “above average”, “above forecast” or another standard of results for a program’s cost level. That applies to both movies and series. It’s the rough theory behind current longevity bonuses for series.

Of course, direct disclosure of marginal subscriber metrics would require the streamers to reveal data and their special formulas. And they’re not likely to do that, at least not anytime soon. And, of course, each streamer has its own agenda: Netflix as a pure play exhibitor is different than Amazon as an e-tailer, for whom a key metric has to be customers’ ordinary transactions as well.

Maybe a streamer would be willing to create a “black box” calculator, if participants would agree to abide by the box. Like the black box of a WGA credit arbitration. But it seems science fiction-y to me. And I don’t think streamers, with their enormous program acquisition costs, are going to turn into ASCAP, paying out on a rights owner / membership model.

Streamers could theoretically agree to a derivative metric, based on, say, Parrot Analytics’ “demand expressions” metric. Industry analysts at Parrot www.parrotanalytics.com say their signature metric, when properly crunched, can effectively reproduce marginal subscriber acquisition and retention data.

But the further you get away from actual sales, the softer the metric, and any business would be reluctant to tie a substantial component of pricing to soft data. So, the streamers’ posture would likely be:

1. No, we won’t disclose hard data.

2. How can you expect us to use soft data when we have hard data?

The above assumes the streamer is also the studio. When there’s an independent studio in the mix, many more considerations emerge, including possible disconnects between the formulas by which indie studios take versus how they pay out. That disconnect may come to the fore when mega showrunners, with giant upfront fees, effectively function as dependent studios.

To realign the various contributors to commercial success, I think it will take a combination of efforts – individuals pushing the agencies and guilds, individuals pushing the streamers, independent studios pushing the streamers, and individuals, the agencies, guilds and indie studios collectively pushing the streamers. Noted filmmaker James Schamus posted his early thinking here (see, especially, section 14). Ironically, if, as anticipated, there’s a decline in packaging, agencies could end up less of a countervailing force to streamers than they might otherwise have been.

In sum, there are pathways to realignment of creatives, independent studios and streamers in success. First, though, the streamer would have to find value in sharing more of the upside.