And why you may need an intermediary
Financial models in the audio visual content industry assume revenue generation via copyright exploitation. Yet the biggest difficulty producers of content have is pricing, why? It’s because they can’t accurately predict the revenues their content will generate.
For this reason, in major international content markets intermediaries are used.
The model below attempts to estimate sales revenues
where:
p = price
q = quantity
oc = overhead costs
dc = direct costs of production
fc = financial costs
ic = insurance costs
comr = completion risk
techr = technical risk
legr = legal risks
unsr = unsold or stock risk
The intermediary helps achieve sales revenues derived from the model. This may involve negotiating higher prices, making cost efficiencies or treatment of risks. They may also be able to sell to wider markets they have experience dealing with. Wider sales can result in the offering of better prices which in turn can lead to even greater sales. So slowly each element of the above model can be optimised to the benefit of the producer.
One may think of it like a football club buying a player direct from another club at one price. Then being offered the same player via an agent at a more favourable price. Obviously there maybe other factors at play, the players wages maybe higher when buying via the agent. However if the overall package is lower, the second option would be the more favourable one. Often this can happen when buying in overseas territories where an agent/intermediary has a relationship with a club.
There is of course room for realising revenues in advance of production. For example where an excellent script and A-list cast for a production has been agreed and pre-sales take place. Somewhat like a property developer selling properties off-plan and using the proceeds to help fund the build.
Problems arise however when selling TV shows as opposed to movies. The model changes to that shown beneath. A failure to sell to a broadcaster can lead to heavy losses with limited opportunities to recoup them. There are many cinema outlets but not so many broadcasters. A broadcaster can push back on what they are prepared to pay. Due to their ability to create revenue being limited by rates they can charge for advertising, or public funds they receive from government.
A cinema group on the other hand can show films for extended periods to fully exploit revenues. Not to mention pre-sale of copyrights and discounting future revenues. As some OTT operators become more like broadcasters, they also retain advantages over broadcasters. Operators like Netflix can attract vast numbers of paying subscribers to maximise revenue. They can also raise subscription rates and offer varying subscription rates based on different membership levels.