Outsell’s been getting a ton of questions recently about content licensing and partnerships. As the world has gone ‘platform’ (see our Outlook 2009 about the emergence of platforms vs. products), publishers and information providers are catching up and realizing that owning a platform or a workflow means thinking ‘user and application first’ which often leads to big fat hole in the content portfolio needed to provide holistic solutions and compelling products.
Many publishers have licensed content for years but the rules of engagement remain wide open even while the issue heats up. As we get questions, we thought we’d share Outsell’s top 10 considerations for licensing. These guidelines apply to both licensors (you are licensing your content to third-parties) and to licensees (you are seeking to use another parties’ content in your products and services.)
To develop this top 10 list, we worked with Outsell affiliate, Rich Kreisman, one of our resident experts on licensing who has been at the forefront of licensing content and software for years, understanding issues for publisher’s licensing-out or aggregators and websites who are licensing-in. So here are some of the critical rules of the road:
1) Be Clear on Target Market -Yours and Theirs. At Outsell, that means clearly understanding both the user roles and the vertical industry associated with your own product roadmap as well as adjacent markets that your content may be serving. Then, start your conversation with a licensee about their target markets – both current and future markets.
At the core of channel strategy is target market, and while this sounds basic, we have seen publishers create unnecessary channel conflict or spend time in licensing conversations with firms that really don’t add relevant incremental markets (thus revenues) that build a brand. These efforts are dilutive rather than accretive. In a worst-case scenario, where proper analysis and consideration is not given to channels, you may be facilitating a dangerous competitive entry into your business.
2) Business Models Guide Pricing, Not the Other Way Around – Probe and explore your licensees’ business models before entering into a specific discussion on pricing. Whether to use a royalty or a fixed fee when licensing content or data can frequently best be determined by looking at how the content will be used in a partners’ products and by understanding how those products are priced. Is the partner adding third-party content thru a direct upsell to their own customers or blending your data into an existing offering with the hopes of charging more or simply staying competitive?
These first two rules of the road are really important distinctions and matter in terms of how best to structure a deal: Should you wholesale your content to the partner? White-label it so that you are transparent to their end-users? Or, should you be the ‘Intel inside’ or “Powered by XYZ firm” because extending your brand presence in the licensees’ markets is valuable?
3) Fully Understand Why The Partner Wants the Content - Is it to remain competitive or, because the content creates something unique in their application. Most importantly, do they want 20/80 – the 20% of the crown jewels that drive 80% of an originator’s’ value to the end-user?
Knowing how the data will be used – straight pass-through, in a mash-up or as part of a new content set — is critical to determine how to play in the licensing negotiation. Knowing whether you are part of a partner’s COGs or part of an important new value-added revenue stream are important distinctions to make prior to entering full-on negotiations. And, always remember: You will always think your content is more valuable than anyone else, so be prepared with facts to make a good argument as to its value in a partner’s model.
4) Recognize the Amazing Array of Potential Uses for Your Content. Most publishers create their information with a clear user or market, in mind. However, inevitably, if the data is of high-quality, others will find it to be of great value, too. You are not likely to always understand all of those alternate users, so licensing your content to others who do find it of use is an essential part of growing your business.
5) Be Clear on Who Will Own the Customer and Who Will Get Customer Data - This is often the most critical – and contentious — item for licensing arrangements, and it is where deals can be made or lost. The closer to one’s target market the licensee is, the more branding and ownership to want, is Outsell’s general rule of thumb. Having direct access to customer data and how end-users are consuming your content is increasingly critical in an analytics driven world as well. It may be preferable for you to be white labeled in someone else’s product, but critical to your own model to understand what a partner’s users are doing with your data.
6) Set Expectations Upfront on Key Terms. Is the deal an experiment or something to go into for the long-haul? Do you see it as a 1 year deal or a 5 year commitment? Are you seeking to find an exclusive partner in a particular channel – and getting compensated for exclusivity?
If a long-term partnership is preferred, it’s important to structure the deal so that it can be supported when the people who make the deal leave the firm or change roles. Deals are often people-dependent but , turnover is significant in the information industry and deals have to live on or languish. Understand this point going in and be clear on how the deal could logically conclude if and when it must.
7) Get Clear on the Cost of Execution. Some licensing deals are highly profitable – quick data feeds to new markets bring additional revenue at enormous margins. Others require IT, staff, process re-engineering, content re-indexing — and seemingly — lifetimes to execute.
The ROE (return on effort) is sometimes grossly underestimated when ROI is being calculated, and dollar-signs are twinkling in everyone’s eyes. Deal execution is fraught with realities. Be sure to conduct enough due diligence during the deal development process to fully understand your partners’ requirements – and then make sure you can deliver on them.
Be aware of the opportunity costs for your organization, as well. Will spending four to six months to develop a winning content license agreement give you the ROE you expect, or help you to achieve some other important strategic goal, such as obtaining a marquee new partner in advance of a fund-raising event?
8 ) Have an Expert in the Room. Too many publishers and information providers handle channel strategy like a stepchild who never was fully socialized with the rest of the family. While it’s often a smaller revenue stream, the reality is that content — however it’s licensed — sets precedent. There are a lot of complexities to licensing and it’s often done without someone who knows channel strategy, pricing, licensing terms, contracting and deal execution.
9) Leave the Lawyers Out Until The End. As with most transactions it’s best for the business people to agree on the terms and then have the lawyers translate those terms into agreements. Protecting your intellectual property and drafting license grants that exploit full value from the licensed content is an essential legal role. Lawyers can bring up the ‘gotchas’ that might be missed but having them drive the deal making is a mistake. This is where the experts come in.
10) Recognize Everything is Negotiable. Every licensing arrangement brings a clean slate based on who wants what, who needs what and what the benefits are to each party. Set pricing that dovetails with your current schemes to avoid cannibalization or confusion in the market. Follow the rules of engagement and recognize everything else is open season.
When it’s all said and done Your New Content Licensing Partner Is Exactly That…A New Partner. It is easy to work hard on negotiating a data licensing deal, then work very hard on delivery of content – and then move on. Big mistake: Once you do the deal, your partner is now part of your ecosystem.
Take a portion of the profit from your new licensing arrangement and invest it in nurturing your existing partners. Treat them as new accounts that require regular contact. Introduce them to your new products and services as you would any customer. Stop in on them when you are in their city on other business.
Licensing partners frequently have the keenest insights into your content because they have to understand it very well to execute on their product plans. Let them help you improve your current products and spur ideas for completely new products. And, then turn around and license those products back to them.
Content licensing represents an amazing eco-system within the industry and we’re here to help. We can advise into clients’ content licensing process and questions via analyst access privileges or support custom engagements where we map out potential target markets and use cases, develop licensing strategies and assist you as you execute. Let us know what you need and we’re here to help.Discuss