The Streaming Evolution: Lessons in Monetization, Opportunities, and Myths

The entertainment industry’s transformation over the last decade, driven by the rise of streaming, has illuminated three critical areas attorneys and their clients should monitor: advertising, licensing models, and content strategies. These areas represent immense opportunities for those who understand the shifting landscape.

Advertising Renaissance

Streaming platforms once touted ad-free content as their premium offering. But in recent years, the introduction of ad-supported tiers by platforms like Netflix and Disney+ has reshaped revenue models. Certain insiders claim that, contrary to early fears, ad-supported subscriptions often generate higher Average Revenue Per User (ARPU) than their ad-free counterparts, premium subscription services. This trend, combined with the advent of sophisticated targeting tools, marks the beginning of a new advertising golden age.

However, as a profit participation auditor, I am skeptical. While industry leaders point to higher Average Revenue Per User (ARPU) for ad-supported tiers than for premium subscriptions, I’ve yet to see a single case where this holds true. Premium subscriptions consistently outpace ad-supported ARPU when all factors are accounted for.

In any case, despite insider optimism, ad-supported tiers are not a guaranteed financial boon. ARPU from ad-supported services relies on robust targeting technology, a consistent influx of high-quality ads (i.e., ad inventory quality) and on advertisers paying market rates (currently Amazon is charging below-market rates as a loss leader, making it difficult for video streamers to sell advertising at market rates). 

Further, for clients producing content, ad-supported models can represent a double-edged sword. While they expand audience reach, they often necessitate stricter content guidelines to ensure “brand safety.” Navigating these constraints requires careful contract negotiations to protect creative integrity while maximizing revenue opportunities.

This and the discrepancy between insider optimism and real-world evidence demands scrutiny. Attorneys representing creators should be prepared to question ad revenue forecasts and insist on transparency in revenue-sharing agreements and prepare to negotiate both for:

1. Ad revenue shares, ensuring equitable participation in this growing segment
2. Detailed audits and data-sharing provisions to verify claims (a subject best addressed by a consultant at my firm, Boschan Corp., as there are many considerations)

The Case for Windowing

Exclusivity defined streaming’s first decade, but the pendulum is swinging back toward the traditional windowing model. Licensing content to multiple platforms has proven its value, as demonstrated by recent success stories like Suits, which found a massive new audience years after its original release.

Clients with legacy content libraries should explore licensing opportunities with ad-supported platforms or free streaming services. These platforms are hungry for proven content that can attract viewers without the development costs of original programming. Moreover, content that has outlived its exclusivity period on one platform can enjoy a second (or third) life elsewhere, creating new revenue streams.

Attorneys advising studios and production companies should prioritize flexibility in contracts, ensuring that exclusive rights revert to their clients after a reasonable time. This allows studios to pursue licensing deals that benefit from the growing appetite for library content.

Cost Control and Strategic Incentives

One of the most pressing issues in streaming today is the unchecked rise of production costs. Expensive, sprawling productions were standard when the likes of Netflix was competing to gain market share. But now that Netflix is established and the industry is going through consolidation on its path in the direction of an oligopolistic marketplace, the industry is waking up to the reality that financial sustainability requires moderation.

Attorneys should ensure that contracts reward clients who produce high-quality content within reasonable budgets. For instance, performance-based incentives tied to efficient production could foster a healthier balance between artistry and fiscal responsibility.

Moreover, the return of contingent/performance-based compensation models aligns incentives between platforms and creators. Attorneys must advocate for transparent success metrics and fair back-end deals that reward efficiency and audience impact, rather than sheer budget size.

Embracing Opportunity

The entertainment industry stands at a crossroads. Advertising is making a comeback, the windowing model is ripe for revival, and cost control is no longer optional. Attorneys have a pivotal role to play in shaping these trends, ensuring their clients navigate this evolving landscape with clarity and confidence.

By asking tough questions, negotiating strategic terms, and leveraging data-driven insights, attorneys can turn challenges into opportunities for their clients—and themselves.

Most Favored Nations Provisions & Damages

What is a "most favored nations" provision in a contract? Why are they important? What happens if they're violated? These are questions that many attorneys may be asking themselves, and for good reason. Most favored nation provisions can have a significant impact on royalty and profit participation calculations, especially in entertainment and intellectual property licensing deals, as well as investment deals and international treaties, to name a few examples. In this blog post, we'll take a closer look at what most favored nation provisions are and how they can lead to audit or other damages claims.

What is a "Most Favored Nations" Provision in a Contract? 

A "most favored nation" provision (also known as an "MFN") is a clause that is included in contracts to ensure that one party receives the same treatment as other parties which may have leverage to negotiate more favorable terms. The "most favored nations"  provision in a contract is based on the principle of equality. It is designed to promote fairness and to prevent one party from taking advantage of parties that may not know the extent of the most favorable terms it can negotiate. MFNs are commonly used in international trade agreements, but can also be found in other types of contracts, such as investment agreements, licenses, and other agreements covering for musical works and sound recordings.

With respect to licensing transactions, the MFN clause protects a licensor from receiving less favorable terms than other licensors. For example, if Licensor A has an MFN clause in its contract with Licensee B, and Licensee B separately gives Licensor C more favorable terms, then Licensor A is entitled to receive the same, more favorable terms as Licensor C. The same principles can be applied to other sorts of transactions including investment agreements and treaties between nations (from where the term "Most Favored Nations" originates).

Why are Most Favored Nations Clauses Important?

By requiring that all parties be treated equally, the most favored nation provision helps to level the playing field and to protect the interests of all involved.

The purpose of most favored nation provisions is to encourage free and fair trade - and encourage parties to feel comfortable signing off on a license or other contract - by ensuring that all trading partners are treated equally and by mitigating the risk that a more favorable deal could have been negotiated. Most favored nations clauses can also be used as a tool to pressure licensors to lower their royalty rates (or pressure countries to lower their trade barriers, such as tariffs, and improve their labor and environmental standards). Most favored nation provisions are an important part of the global trading system and help to promote free and fair trade.

What Happens if The MFN Clause is Violated? 

When a most favored nations clause is contravened, it can have a number of serious consequences. First, it can damage the relationship between the parties involved, creating an atmosphere of suspicion and mistrust, making future agreements more difficult to negotiate. It can even lead to economic retaliation.  As an example concerning treaties between nations, countries who discover a counterparty failed to honor the MFN provision in a treaty may impose punitive tariffs or other trade barriers in response to such breach. As another example, music publishers may refuse to grant reduced rate licenses - or any licenses - to a licensee who is found to have double crossed the licensor by failing to increase royalty rates in accordance with the terms of the MFN clause.

Second, when a "most favored nation" provision is contravened, the party (e.g., a licensor or country) which suffered less favorable terms than agreed is damaged and can bring a law suit, enforce contractual trade sanctions, or take other enforcement measures to claim actual and possibly penalize the licensee or other party that did not honor the MFN agreement. (Actual damages are amounts to make a party "whole" for the injuries it sustained as a result of a contractual violation. In addition, sometimes courts award punitive damages to punish or penalize the party responsible for the violation, and many contracts provide for penalties in the event of a breach).

How to Enforce "Most Favored Nations" Provisions

MFN clauses are typically identified through an audit process (one reason why it is important to carefully negotiate the audit clauses in your agreements), although violations can be disclosed in other ways.  For example, if two parties are in litigation, as part of the discovery process documents produced by a party may disclose the terms of its agreements with other parties, allowing MFN clause compliance to be evaluated. As another example applicable to international trade agreements between nations, a government official or designated third party reviews individual countries' customs data to ensure that it is providing the same benefits to all trading partners with MFN status. 

If an audit finds non-compliance with an MFN provision, or such non-compliance is disclosed in another way, I find in my experience working with legal counsel that the best approach is to first try to settle the claims through diplomacy and/or the audit and breach notice provisions set forth in the agreement. For example, as an auditor, my audit report will disclose my findings and the legal team will demand payment for the damages I identify in the audit report.  Given that may failures to comply with most favored nations clauses are the result of inadequate royalty reporting systems, non-compliance is often unintended, and this gives the parties a chance to fix the problem and maintain a business relationship.

However, if the party that failed to comply with an MFN clause is uncooperative, enforcement can be challenging.  Generally, the damaged party will need to pursue legal action such as arbitration or a trial in court or a tribunal in order to procure a legal order to the violating party to pay damages and, potentially, other consequences (e.g., termination of the underlying contract).

Actions for Attorneys to Take to Help Clients:

If you have a client who has suffered damages as the result of an MFN violation, please call my consulting and forensic accounting firm, Boschan Corp., at (424) 248-8866. We have experts on staff who can help you determine (based on the available information or through auditing or litigation support) whether your client may have a viable damages claim and, if so, what that claim might be worth. Better yet, when you are negotiating your clients' contracts, it can be prudent to get our feedback on some of the language including the audit provision and definitions. Please don't hesitate to contact us to take advantage of our expertise in most favored nations provisions, audits and damages claims. Thank you for reading.