There’s No Free Lunch With Lew Henderson
April 2nd, 2008
Lew Henderson, who oversees the William Morris Agency’s digital business, is one of the most respected players in the digital entertainment business. And for good reason. He’s been making deals during every cycle of convergence fever: from the CD-ROM to Bubble 1.0 to the Dot Com Bust to Web 2.0 to Rise of the Social Nets to the M&A Frenzy of ‘05/’06 to Video Site Landgrab of ‘07 to today. That depth of experience translates to a sophisticated perspective of the ways things work. When Lew talks, I listen closely.
Yesterday, at lunch we discussed the challenging landscape of entertainment convergence. Lew said something that struck me as being inordinately important. The deals that are being made now are the foundation for the future business structure between content creators and distributors. Deal terms are being set and if they’re unfavorable today, you can forget about them getting better tomorrow. He’s right.
Why? Because it’s all about setting precedents in rights management and in negotiations, once something is off the table, it’s tough to get it back.
Right now, too much is being taken off the table for online content creators. Rights are being mismanaged to the detriment of the business.
How many independent producers are hyper-distributing their best content online, which they’ve deficit financed and own outright, with the goal of getting an upstream production deal with a studio or network for TV or theatrical development? We’ve established that there’s no money in hyper-distribution, so it’s a marketing exercise, but there’s no financial upside for the rights that are retained.
Now let’s say someone has a hit online and gets a development deal for a full series.
How many studios do you know that will give a first-time producer ownership in a fully financed property? Let me tell you.
None.
That’s how distributors make their money. I know because I used to be one. Unless you were a big time A-list talent, we had to own your show or we wouldn’t distribute it. Period.
Distributors manage their rights, specifically copyrights, and they do it really well. That’s why they’re big and have deep pockets. That’s why studios are so freaked out about copyright infringement. It’s the very core foundation of their business.
I recently looked at an online deal for a friend where a major studio was offering to finance his $500K sci-fi web series, but was only offering 5% net profits plus fees. The friend, an established TV writer, wasn’t even permitted to have an executive producer title. On a web series! That’s a bad deal and he knew it so he walked away.
So how do we set the right precedents? How do we heed Lew’s advice?
We can start by not giving our best stuff away for free. Because once it’s gone it’s gone. If you have a property that you believe in, own the upside as much as you can or walk away from the deal.
We can take a page from Mark Burnett, who took a haircut on the license fee for the first season of Survivor, but kept his right to participate in the upside such that when the show became a hit and ad revenue came in, Burnett raked in the cash. Then when CBS wanted the full rights Burnett was able to parlay that negotiation into a monster licensing deal and a long term development deal. Talk about outwitting, outplaying and out surviving.
Tags: free, lew henderson, lunch, mark burnett
Posted by: jake Posted in Business, Gift Culture, RightsYou can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
April 2nd, 2008 at 4:08 pm
Great blog! Very thought provoking posts. It makes me wonder, how does the new breed of professional content creators get less progressive minded companies, lawyers, agents, and distributors to value the multimedia disciplines and networks we bring to the table?
During my previous DVD negotiations, my sales agent, a veteran lawyer with many credentials, refused to aggressively challenge the distributor on many of the antiquated terms on the contract presented to me.
For example, I asked him and the distributor to justify why, in this era of real-time inventory management, a royalty statement or phantom check should be sent up to 90 days from the end of a quarter, as specified in the original contract.
As I told them, Google Adsense accounts for hundreds of thousands of merchants and delivers checks every month. Why can’t I get a statement every month?
I also asked why I should have to pay more than a wholesaler to receive copies of my DVD to sell direct to consumers and fans.
But I never received sreal answer, in fact after the third draft, my “sales agent” stopped pushing negotiations all together. It was my Executive Producer and I who drove the deal through 4 more draft to get the “best deal.”
Later it becomes clear that the agent was bringing several project to the same distributor, and therefore his relationship with them, was more valuable than the one with me.
It was more profitable for him to cash in on the current system than try to change it. Kind of like the oil economy companies.
April 3rd, 2008 at 1:13 pm
@Dayrron - great questions and your experience with the agent points to many of the pains that many innovators feel when they run up against stubborn, legacy roadblocks.
There are several ways to address your question, but the bottom line answer is that it will take time. But there’s an important distinction that should be made - entertainment video content for online isn’t a proven ROI and until the speculation on earnings is replaced with real financial progress, pushback from established retailers, theater chains, cable operators, MSOs and other outlets (not to mention studios themselves!) that depend on the windowing of content will overmatch digital distribution.
That being said, there’s a sea-change taking place where top-level management positions are increasingly being awarded to digitally experienced candidates who “get” it. Digital has come out of the tech-room and into the boardroom.
April 4th, 2008 at 7:22 am
I believe we are going to see a shift in hyper distribution where content creators will use it to market their shows and drive traffic to their websites where they will monetize through advertising and merch.
Super distribution will survive if the sites that are offering it can monetize through through advertising other people’s commercials. I’m just not sure how long that will last.
The next step I see is the development of an integrated advertising marketplace where independent creators who have integrated advertising inventory can sell their avails to advertisers interested in their inventory. But until we get there we need to build video advertising standards and a little birdie told me that we might hear something about this at Ad-Tech San Francisco.
If you would like a DEEP discount to Ad-Tech SF shoot me an email. I think I might be able to get you 50% off.