Hard lessons for OTT dealmakers
April 16, 2015
Larry Gerbrandt offers expert advice to anyone planning an OTT channel launch.
Is there anyone who isn’t starting an online video channel for the OTT market? Having just wrapped up a consulting gig assisting a client to develop an economic and programming model for a start-up Over-The-Top online channel, some of the lessons (and battle scars) are still fresh.
I’ve never promised a client that I could make them a lot of money, but instead focus on helping them lose as little as possible during the start-up phase by making smarter choices and decisions.
Lesson #1: At this point in the OTT game you are not going to be first to market so at least learn the best practices of the leaders. You must have at least one unique and exclusive hit programme. Look at what Sex & The City, followed by The Sopranos did for HBO. Look at the mileage Netflix has gotten from House of Cards. AMC was a third-tier basic network until it came up with Mad Men. Of course these are major league success stories and to quote legendary programmer Barry Diller, “most television programming fails most of the time.” But without something unique that can be easily marketed your start-up will likely be another also-ran. (Having a ‘unique concept’ for a channel isn’t good enough—viewers don’t watch concepts, they watch programmes).
Lesson #2: Decide your business model before acquiring programming. When acquiring third party OTT programme rights from syndicators and content owners, one of the first questions they will ask is whether the channel will be ad-supported, SVoD or download sales. Each of those may carry very different rights, prices and terms and if you negotiate for one type you can’t decide to switch your business model later without redoing the deal.
Lesson #3: Expect to pay. One of the first things I learned is that just about everyone who owns content has been pitched (and burned by) a ‘revenue-share’ deal. Barter deals are one of the original ‘rev-share’ models but they were based on each party selling a split of advertising availabilities and the broadcast TV market in the US had already been around for 30 years when barter deals became commonplace. A inquiry to discuss cash licence fees will at least get an initial dialogue going and brands you as a potentially real player. Rev-share deals are non-starters for a newbie player.
Lesson #4: Become fluent with programme deal terms. Every contract or licence deal I’ve seen have certain elements in common: a) Number of episodes being licensed. b) Programme length; sometimes a) & b) are combined as 13×30, which means 13 episodes of 30 minutes duration. c) Territory, which can range from a specific market to worldwide. d) Term length, either months or years or even perpetuity. e) Medium; as already noted, this is critical because you only want to pay for the rights you are going to use, such as online rights vs. cable and online rights. f) Payment terms: don’t be surprised if you are asked to pay up front, in full unless you have a good credit history with the supplier. g) If you think the show you are licensing may become a viral hit, consider negotiating long-term renewal rights in advance. h) Runs; this is a holdover concept from the linear world where stations and networks would typically get 5 to 25 ‘runs’ of a show. The concept has no meaning in the online world where programmes are usually streamed on-demand to individual viewers. You want ‘unlimited streaming’ rights for the duration of the license period. i) Some of the rights and warranties may require the services and review of an experienced entertainment attorney (not just a contract lawyer) but make sure you get proper representations that copyright is clear of encumbrances, residuals have been paid, music has been cleared, etc. j) If you want to promote the series, make sure the contract specifies that you can use name and likenesses of stars and show graphics and clips in marketing and advertising. k) Make sure the contract specifies the format in which you want the masters delivered. In most cases you will want to host the content on your server, not link to theirs or a third party, such as Vimeo or YouTube over which you have no control. l) I’m not an attorney and most likely even if you are, reviewing programming deals is something best left to someone experienced in doing so before you sign the dotted line.
Lesson #5: Now that the behemoths like Apple, Amazon, Netflix, Goggle, Hulu, Yahoo and others have entered the OTT fray, the rest of us are opportunistic scavengers at best when it comes to acquiring mainstream fare rights from major studios and syndicators (another reason to invest in original content you control first). As one major syndication executive patiently explained the new facts of life to me: “We are looking to develop long-term relationships with partners that will spend significant sums with us. We don’t want to do just one deal to help you get started. If we do that, you will likely put out a press release saying ‘Studio XYZ just licensed us their Hit Show!’ We just helped put you on the map and aren’t going to be paid for helping you get a leg up into the programming big leagues and participate in your success. Come back when we can discuss deals that start with how many millions (emphasis on the ‘s’) you want to spend and we will be a supportive partner.” I appreciated his candour. There is content to be had, but it requires a lot of digging, sometimes in unlikely places.
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