The owner/licensor of digital content is typically in the driver’s seat when it comes to structuring the terms of a content licensing arrangement. To that end, licensors will be better served using their own form of agreement, rather than relying on that of the licensee. Licensors can determine everything from the scope of use and amount of control they retain over their content to the terms of compensation. With respect to the latter, compensation is often a variable amount based on either a percentage of advertising revenue earned on pages containing the licensed content, or some other metric such as the number of clicks, unique visitors or page views.
Despite these contractual advantages, the licensor can undermine its position when compensation is performance-based by failing to accurately track/measure the performance of licensed content. In addition to implementing some form of digital asset measurement and analytics system, I regularly advise clients to include 2 key provisions in a content licensing agreement, which are intended to protect their revenue stream: (1) reporting obligations and (2) audit rights.
Reporting Obligations
With variable compensation arrangements, the licensee should be required to provide regular reporting upon which monthly invoicing will be based. This provision should:
- define the type of reporting console or a minimum of daily reporting with real-time (or 15-minute delay) statistics for each page containing the licensed content.
- specify the metrics to be included such as number of unique views, page views, and clicks, total advertising revenue, and net revenue due to the licensor. You might also include a sample report in the Agreement.
Audit Rights
Most licensors will track performance metrics on their own, usually with the help of third-party providers (e.g., comScore, Omniture, Google Analytics, etc.). However, it is equally important for the licensor to reserve the right to inspect and audit the licensee’s records in the event they disagree with any of the licensee’s calculations. An audit provision should address the following:
- the right of the licensor to access and inspect the licensee’s books and records tracking amounts payable to the licensor under the terms of the agreement.
- the process for notifying the licensee of a suspected reporting discrepancy
- the frequency with which a licensor may request an audit, as well as when the licensee is expected to comply with such requests.
- who will be responsible for the cost of an audit. Normally, this is the licensor’s responsibility, unless a material (i.e., 5% or higher) discrepancy is found, in which case it becomes the licensee’s obligation.
- when the licensee is required to pay the amount of any discovered deficiency (typically, within 30 days of notice from the licensor).
By including these reporting and auditing rights in your outbound content license agreement, you will help to ensure that you receive the most value for your licensed content.
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