When licensing content for a digital product (whether a book, music recording, film, perfume ad, TV show) the owner of the content will have high aspirations for their wonderful IP. They may even be demanding, and use that wonderful phrase, 'Well, if you want the Rolls Royce of content, if you want our content, well it is expensive. We like that. That is why we are so successful. You need our content, and you must pay the right price for it.
How does a business forecast the commercial value of IP in an electronic format? Electronic generally has destroyed the value of IP which brought enormous revenue as physical product (books, newspapers, music recordings, video releases).
So the product development has a large licensing cost from inception. This means in addition to all the technical costs and product development, design and production costs the licensing must be paid as a fee and most likely a royalty on sales as well.
How does the publisher juggle this? For example Spotify have to pay very, very large sums of money to the major record labels which own the recordings, and to the publishers which represent the authors of the songs (from the Beatles and Rolling Stones to Adele and new artists).
There is a great commercial tension. The owners of the IP can increase their absolute fee, and increase the percentage of gross sales they demand. This means that the distributor when successful can push back to try and maintain their margin. But all too often it is the IP owner with the power, and the IP owner can take the lion's share of revenue, leaving the distribution channel in their debt.
But the distribution channel also has power, a new type of power. This is because the distributor knows the customer. The distributor clearly knows the customer better now than at any time in the history of the planet. Knowing the customer is power, because algorithms will show what types of product they will like, and that enables the distributor to create the right kind of new content.
So the Distributor bites back at the IP Owner. Look at the way in which Netflix and Amazon have funded films based on their knowledge about customer tastes.
So the license fee is a duel. It is a permanent fight, between the IP content owner and the distributor. In some cases there are interesting ways of dealing with the commercial tension. For example with a major IP content owner, one distributor offered a new model on a take it or leave it basis. You can see the potential revenue, IP owner. Look on the revenue and we can uniquely deliver this revenue. But we will only do so if you lower the content fee. Without a lower fee for the IP we cannot survive, and you get nothin. Therefore IP owner, please play ball, and let's keep the commercial opportunity survive.
See further posts on the pattern of the new IP deals.
See further posts on the coopetition of distributors creating new content, and competing with their suppliers.
See further posts on strong-arm techniques of sites re-posting content they did not develop, but they get the advertising revnue (eg. Google News and it's controversy)