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Royalty Management:  Whether to Automate; How to Automate

Why concern yourself with royalty management?  Royalties are not the driving force behind your business, and when it comes to your long-term success, it is easy to prioritize many other operational areas, such as marketing and acquisitions, over royalties.

My name is David Marlin of MetaComet, and I have been providing royalty management software and services to publishers for over 15 years. In this article, I will share my experience and learnings with you to outline the business benefits to optimizing this aspect of your operations, and how to assess whether these benefits can provide you with true value.  For those who do see value in automating royalties, I will identify the key opportunities for automation, and how to assess their worth to your organization.  Finally, I will provide a broad overview of some of the options available.

There are several benefits to automated royalty management.  The most common are reduced risk and increased resource availability, but many also find value through enhanced vendor/licensor/talent relationships, or actionable reporting and business intelligence.

The benefit of reduced risk is hard to quantify – it's not particularly tangible.  The best analogy for understanding risk is to think of royalties as the proverbial monkey on your back.  The heavier that monkey feels, the more concerned you are about that risk and the bigger a problem it is for your company.
The weight of your monkey is typically determined by one of four related risk areas:

·         Legal Risk
·         Relationship Risk
·         Financial Risk
·         Audit Risk

Automating royalties reduces these risks.

The other primary benefit to automation is increased resource availability.  To put it simply, every hour an employee saves on royalties is an hour you can devote towards building your business.  This benefit is much more tangible than the monkey, and as we will soon see, a big factor in your decision process.

Assessing ROI

There are clearly benefits to automated royalty management.  The question now becomes whether those benefits justify the change to your current process.  First let's consider the risk factors.  If any of the following are an issue for you, then you may be carrying around a heavy monkey:

·         Late statements
·         Inaccurate statements
·         Confusing statements
·         Inability to provide reports which correlate to the numbers on the royalty statement
·         Concern about available cash for royalty disbursements

If any of the above are an issue, then the risk factors alone should justify some automation.

If the risk factors aren't a concern, then you need to look at the more tangible time savings benefits.  Based on our customers' anecdotal feedback, royalty automation can reduce the time spent on the royalty management process by 80% or more when moving from an Excel based, highly manual process. 

Royalty automation also provides the ability to report on all of your royalty related financial data.  Automation enables detailed knowledge of accruals and forthcoming payables.

Finally, how much value is there to your licensors?  Does having reliable, online royalty statements, for example, actually help attract and retain profitable talent and content?

How to Automate

If it does make sense to automate, then the question becomes how.  To help answer this, we developed The Royalty Management Lifecycle(tm) Process.  Royalty Management can be broken down into four functional stages:

·         Acquisition
·         Sales consolidation
·         Royalty calculation and reporting
·         Royalty distribution

By treating these as distinct challenges to solve and incorporate into your workflow, you can more easily address them.  Rather than dig into the details here, I will refer you to the extensive writing and analysis we have done on this topic at our website:  http://www.metacomet.com/the-royalty-management-life-cycle-an-overview/.

How does this mindset help automate?  Consider Sales Consolidation.  Many of our customers, before becoming customers, didn't look at this as a separate task.  They had complex macros that they fed each individual sales report into after extensive manipulation, costing them hours, days, or even weeks of effort.  By seeing and attacking this as a distinct problem, and focusing on sales consolidation without confusing it with the other aspects of the process, it can be performed much more efficiently, saving days of effort each month.


So what are your options for automation?

Let's consider one extreme of the spectrum:  Royalty Automation Utopia.  In this world, contracts are quickly and easily created, negotiated, and executed online.  The data within those contracts automatically interacts with sales data to email you regular reports, and when appropriate, to make online royalty statements available to your recipients.  Payment would be automatic, and little to no data entry would be needed.

This world does not exist, but you can get close.  We at MetaComet are committed to getting as close as possible, and our online, easy-to-use, highly scalable tools provide you with one of your many options. 

Other options do exist.  One set of options are desktop royalty applications that run on a PC and are typically available from that single PC.  The downsides are limited availability (only usable on that single PC, no Macs), limited accessibility, and lack of automated backups and disaster recovery.  There may also be issues of scalability.  And support is more difficult to provide.  The upside is the cheap cost.

Another set of options are the full-featured enterprise solutions.  These provide multiple functions with a core focus on product management and/or accounting.  The obvious downsides are that royalties are not typically a primary focus.  They also tend to be much pricier.  On the positive side, their feature sets and scalability should be adequate for your needs.

The final option is development of an in-house solution.  I recently spoke with a customer switching from a home-grown system.  As she said (slightly paraphrased):  “It added so much complexity and so much came out wrong, that we had to re- do it all by hand.”  Royalties are deceptively complex.  The devil is in the details, and getting those right is rare. 

My company, MetaComet, is one of the few dedicated publishing royalty providers online, putting us in a somewhat unique class.  We are proud members and sponsors of the APA, and offer a special discount for APA members.  For more information please visit us at http://www.metacomet.com/publishing-royalty-software/.

There you will also find substantial additional information about MetaComet, our products, and royalties in general.

I hope you found value in this article.  If you have any follow-up questions, please reach out directly to dmarlin@metacomet.com.