11 Feb

5 Top Royalty Management Mistakes


Traditionally, royalty management systems were not high on the priority list of corporate decision-makers. When royalty management was simpler, the potential returns didn’t seem to justify the investment.

Several factors have combined to change that.

Digital storage has allowed companies to accumulate huge libraries of assets—and huge numbers of potential royalty obligations. IP has become more complex, touching a wide audience, numerous demographics, and a multitude of device types.

Without clear visibility into royalties, many companies are forced to overpay deliberately in order to mitigate the risk of a dispute. Those who don’t take that approach, or don’t properly track their obligations, face an increasing number of disputes, audits, and lawsuits.

To take a recent example, Jillian Michaels, the fitness trainer and former host of NBC’s “The Biggest Loser” reality show, filed a $10 million lawsuit against entertainment company Lionsgate over YouTube videos posted to its channel. Michaels alleges that Lionsgate posted more videos to YouTube than were permitted under her contract, and failed to pay her any royalties.

Implementing a royalty management system is not without its challenges. However, better systems can help companies achieve big efficiency gains, mitigate risk, and assist in identifying opportunities to monetize IP. By avoiding the biggest royalty management mistakes when putting in place a system, companies can maximize their chances of a smooth implementation and realize their desired return on investment.

1.       Failing to appreciate the costs of poor royalty management

This mistake is the most basic, and the most costly. Selecting, purchasing, and implementing a royalty management system—plus the cost of training employees—is a considerable upfront investment. It’s understandable that decision-makers might see the return on that investment as uncertain.

But persisting with a poor royalty management system is short-sighted. Companies that change systems realize that the potential cost of years of overpayments made, underpayments foregone, or litigation over royalty disputes, dwarfs the cost of a new system. When as much as 70% of self-reporting in licensing arrangements is inaccurate, the risk of mistakes is real.

2.       Lack of proper investment and executive buy-in

Adopting a new royalty management system is about human capital as much as software. Business processes need to be redesigned to take advantage of new tools. Employees need to be trained in the new system, and need to engage with the technology, adopt it, and actually use it as intended.

All of this requires buy-in at the executive level. In addition, there needs to be a team dedicated to resolving issues as they arise. In a survey of IT professionals by software company SolarWinds, 49% of respondents said that a “shortage of IT personnel to implement or manage the technology” is a top barrier to the adoption of a new system. Ineffective implementation will create additional costs and delays, and damage employee confidence in the new system.

3.       Use of custom software

In many parts of life, custom-made is better. A well-tailored suit fits better than a suit off the shelf. And there may be a perception that IP management is an unusual problem that requires a bespoke solution.

It’s not that simple. Custom software has a number of critical disadvantages. One of the biggest is the costs of additional maintenance and support, which have to be added to the initial development cost. Internal resources—especially scarce IP resources—have to be dedicated to keeping custom software running properly. Updates to the system require external support (and may create new issues as well as solving them).

Worse, custom software makes it harder for businesses to adapt to change. If you’re locked into custom software in a changing landscape—and the IP landscape is changing faster than ever—you might find yourself facing tomorrow’s challenges with today’s tools.

A royalty management system should have flexibility built in—rather than being a custom build for one kind of use, it should be configurable and modular, so that it can handle a range of uses and keep up with the pace of change.

4.       Too much ownership on IT

You might think that since a royalty management system is software, it’s fundamentally IT’s problem. While that’s true up to a point, that attitude can land you in trouble.

When too many high-level software functions require the intervention of IT to implement, the result is bottlenecks, frustrations, and delays. IT’s core responsibilities revolve around uptime and transactional systems, and many IT departments are overstretched—in the SolarWinds survey, half of all IT departments cited lack of resources as their biggest issue.

Royalty management systems should put high-level control into the hands of business users. They need simple, intuitive interfaces that make it easy to customize the application. Business users should have the ability to modify fields and drops down lists, as well as royalty calculations or rights definitions, without an IT request languishing in a queue.

5.       Lack of phased implementation

Finally, many companies fail to understand software implementation is never a once-and-done job. Imposing a new system on all employees, without time to get early adopters excited, take feedback, or iron out inevitable early issues, guarantees trouble. Also, a standardized implementation won’t take account of a business’s unique needs.

Phased implementation, with time for reflection, training, feedback, and internal marketing, instills confidence in both the software and the process, and makes employees feel included in the project.

The early phase of training should focus on employees who are most likely to advocate for the system internally. They might be a team or department who stand to benefit the most from the change, or will adapt most easily. They might be a handpicked group of more skilled users that will serve as resources in helping others learn the system.

After implementation, companies should also continue to take feedback from employees on how the system is performing and how it might be improved. Giving employees a voice in the process will not only promote active use, but will help to create a better system.

To speak to one of FADEL’s experts on implementing a royalty management system, get in touch with us. You can also learn more about IPM Suite, our royalty management system, by reading our Fact Sheet.

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Craig Morrow

Craig is a transformational leader with over 13 years of deep experience combining business strategy with the functional application and delivery of technology.

An evangelist at heart, Craig joined FADEL as the Director of Sales Consulting. Previously, he worked in both business and technology positions for high-growth startups as well as household names including Microsoft, Adobe, Apple, GE, PricewaterhouseCoopers and Nike. This breadth of experience gives him a unique perspective and the ability to understand the challenges of customers at all stages of growth.

In addition, Craig brings multiple years of publishing IP and Royalty experience from HarperCollins/News Corporation.

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