March 3, 2022
How Pipe works for media & entertainment companies
The Media and Entertainment industry is big business. In 2020–2021, the impact of the COVID-19 pandemic only sped up the growth of the industry: While your favorite theater or movie pub may have been temporarily shut down, streaming services flourished and spending on content by platforms like Amazon, Netflix, and Hulu skyrocketed. (Case in point: Global content spend from broadcasters increased from $189.1 B in 2019 to $220.2 B in 2020.)
Unfortunately, the people who make entertainment a reality often don’t see the financial fruits of their labor for quite awhile: Creators, producers, and rights holders of film and television content often find themselves waiting years to realize the full value of their contracts. The problems this presents to many creators and producers in the industry are real—and so are the solutions alternative financing has to offer.
The financing struggle in entertainment
When you think of doing business in the entertainment industry, what’s the first thing that comes to mind? Maybe it’s audiences binge watching Tiger King and devouring content at a rate never seen before. Or maybe it’s splashy headlines about streamers spending vast sums on television and film budgets (like Amazon spending $465m for one season of Lord of the Rings). The industry may seem constantly in motion, and streaming has fundamentally changed the game for audiences and creators alike. But behind the curtain, there are independent producers and rights owners who have to wait years to see their full payment come in, delaying their ability to produce or acquire the next movie.
The waiting game
Licensing agreements vary from one platform to another, but it’s well known that these agreements are often slow to pay out, even when they’re not tied in any way to the performance of the content. Streamers stretch their budgets to afford as much content as possible in order to attract subscribers, but this can create substantial lags for producers and rights owners who get paid slowly over the licensing period. From SVOD to cable to free TV, it can take anywhere from 2–5 years for licensing fees to trickle down after the content is delivered. In the meantime, creators and producers are starting work on something new with only a small fraction of the revenue from the last project available to finance the next.
Traditional financing for entertainment companies
When business owners need funds, they often take out a loan or even sell equity in their company. But in the world of media and entertainment, traditional financing options can be very hard to come by. Many lenders won't touch entertainment licensing revenue because they simply don't understand it. Of course, there are banks that specialize in entertainment, but these are few and far between if you live outside of major entertainment hubs like Los Angeles, New York City, or London.
Even if you can access traditional financing for a media or entertainment project, you still face the hurdles inherent to equity and debt. Loans can take several months to come through and often come with covenants and restrictions that constrain your choices when it comes to running or scaling your business. For example, they may forbid you from taking out future financing elsewhere, or dictate certain financial metrics you have to maintain to avoid default. Equity financing may not come with those terms, but involves selling off a portion of your ownership interest, which can have a major impact on your creative freedom—not to mention your future profits.
For most media and entertainment companies, loans and equity financing are a less-than-perfect fit with unnecessary costs, delays, and limitations. Creators and rights holders deserve an easier financing solution—especially considering the reliability of licensing fees and the positive trends in the industry.
How does Pipe work for media and entertainment companies?
Pipe makes it possible for creatives, distributors, and rights holders to fast-forward their future licensing revenue. With instant access to those funds, they can use it today to fund their next project and grow their business. So how exactly does it work?
We know how hard it can be to get funding in place—and how crucial it is to keep your momentum going into the next project while also taking care of your people. That’s why Pipe takes an approach that makes flexible financing available when you need it, so you can get back to the good stuff.
Pipe’s trading platform sees recurring revenue streams for what they are—a powerful asset class that’s both compelling and valuable for investors. Contracted licensing fees are a form of recurring revenue, and a very stable one considering they often come from established companies and industry titans like Netflix and Amazon. Revenues like this often move independently of—even opposite of—the stock market and institutional investors can find these future revenues an appealing means of diversifying their portfolios. Pipe works with many of the biggest entertainment companies in the world to make the process seamless and ensure all contractual obligations are met.
Access to capital without restrictive loans
With a loan, there are layers of middlemen taking a cut. The bank raises capital at a certain cost, marks it up for their own profit, passes it to the lender you’re working with, and on and on it goes. With all these costs stacking up, you’re left with a much higher cost—and the lender is incentivized to charge as much as possible to make a bigger margin.
While some revenue-based financing and factoring companies may work with the entertainment industry, and at first glance they may look like a “bank-free” alternative, they’re almost always tied to a bank or debt facility that provides the funds. That means that your capital may come with strings attached, and likely at a higher cost.
Because Pipe’s platform allows for an actual asset sale that exchanges future revenue streams for up-front cash, it’s not a loan—and because Pipe is a trading platform, you aren’t reliant on a bank, but are tapped into a marketplace of institutional investors who bid on your revenue streams. This trading platform model helps you get capital at a lower cost—and without the warrants and covenants that may come with traditional loans.
Spoiler alert: Get funded faster
You get the funds you need faster, at a lower cost, and with no surprise endings.
When you finance your media and entertainment company with Pipe, you can fast-forward your long-dated contracted revenue and use it today to grow your business and fund your next creative project.
Disclaimer: Pipe and its affiliates don't provide financial, tax, legal, or accounting advice. What you're reading has been prepared for knowledge-sharing and informational purposes only. Please consult your financial and legal advisors to determine what transactions and decisions are right for you and your business.