This major movie and television production company has recently expanded into the growing digital content space. The company has a strong, diversified entertainment presence around the globe, distributing its content internationally through a variety of traditional methods and new channel platforms. It has a large current library and operates a $1 billion per year home entertainment business specializing in digital, on-demand and packaged media. The company’s television presence includes shows on 20 networks, and its programming has won numerous awards. The company is on track to make over $1 billion in the U.S. box office this year and another $1 billion internationally.
The company operates on a global scale with a complex, decentralized business model. The situation is further complicated by the number of business partners and third parties with whom they regularly engage. Given the complex nature of their transactions, the company wanted to take a hard look at their revenue recognition program by conducting a royalty audit.
WHAT THE TEAM DID
The company’s director of royalty compliance approached Grant Thornton LLP and engaged the team to execute a consulting project to help them understand whether or not the royalties being paid by their business partners were accurate and complete.
This was an incredibly important project for the company because it generates revenue through royalties. The company makes movies or television shows and distributes the rights to theaters, home video reproduction houses, and even their digital content providers, and they get paid accordingly. Furthermore, the company is bound by their artists and performers, and flows monies to them through royalties. The company asked the Grant Thornton team to help them work with their business partners and third parties to make sure that all the relevant players were being paid properly.
Our mission was to leverage our international capabilities to help the company analyze its complete global portfolio and ensure that the correct royalties were being both received and paid. We worked with the company to ensure that there is a robust monitoring process and program in place for all the third parties from whom they collect royalties, and also in paying royalties to their artists. We developed an entire life cycle for the monitoring process.
The U.S. team was able to manage the international inspection, while partnering with our UK counterparts — who specialize in this type of consulting work — to execute the international portion of the royalty audit work. We were able to provide a seamless team to the company throughout the inspection process.
We also brought in professionals from the Grant Thornton FIDS practice to perform data analytics for the company. The world of digital distribution is relatively new and constantly evolving, which means that few players in the entertainment industry are prepared, with a plan in place, in terms of royalty compliance in the digital space. The industry challenge is to capture the enormous amount of metadata that is out there in the world — for example, how can they identify how many times a movie or video has been rented from an online store, or even viewed on the Internet? The FIDS team was able to bring their experience and unique skill sets to the company to help put a process in place that would enable them to digest this vast universe of virtual information by using analytical procedures to cut through the digital noise.
As a result of our work, the company was not only able to put an ongoing process into place to ensure that they are collecting the right amount of royalties, but also ensure that they can protect their artists and performers who are being paid for their work. Through the efforts of the collaborative Grant Thornton team, the company ultimately anticipates recovering more than $2 million for themselves and for their artists, and they continue to monitor their global partners and third-party providers for compliance and revenue return.
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