When you think of Hollywood, you probably picture the glamorous movie stars, paparazzi, and red-carpet premieres that characterize the vibrant industry of Tinseltown. But behind all that glitz, Hollywood is a real and thriving business, fueled by complex negotiations made by some of the savviest dealmakers in any industry. And tracking those deals — which are both numerous and complex — is the unique challenge that falls on the movie studios’ finance teams.
“Hollywood accounting is fabulously complicated because we manage data across many different dimensions of information and distribution channels,” says Leo Collins, CIO of entertainment studio Lionsgate (pictured above). “We have to have very accurate numbers, by title, for every single movie in our growing library.”
In the complex world of Hollywood finance, each movie title that a studio produces or buys for its catalog must have its own individual budget that takes into account a very long list of multi-tiered, long-term deals for distribution rights in various markets and languages around the world.
For example, a film’s US distribution rights may be sold at a certain price, but only for the period of its theatrical release. After that period, the deal’s terms may change. And the DVD rights for the same title are sold separately, as are the rights for Blu-ray and on-demand formats. The fact that a title may be translated into various languages and involve different regions makes each deal even more complex. And the more revenue a title makes, the more complicated the deals get, as terms may change based on the performance of the title.
In addition, all of the expenses for each title must be billed against the title’s individual budget for its entire lifetime. The real challenge, then, comes in trying to roll up the various levels of financial information for all of the individual titles. Lionsgate currently has 12,000 titles in its library, and this number continues to increase.
The finance team has to sift through all of this data to create extremely detailed reports, such as profit and loss (P&L) statements that provide an accurate view of how the business is performing overall as well as specifically in various sectors and regions. Studio executives often consult these statements when deciding whether or not to produce similar titles. And just as important, the finance team must be able to develop an accurate forecast of future performance across the business.
Casting the Starring Role in Finance
Given the complexities of Lionsgate’s accounting, it’s no surprise that the studio was an early adopter of a financial consolidation solution. “We realized that we needed a new, modern financial system that could handle Hollywood’s all-important title-level accounting,” says Collins. After looking at what systems other Hollywood studios were using, it became clear to Lionsgate that the system of choice for the complex deals dominating the entertainment industry was SAP software.
“We bought SAP BusinessObjects Planning and Consolidation in 2002, which was called OutlookSoft then, and bolted it onto the financial system that we had at the time,” says Collins. In those days, the studio was called Artisan Entertainment. Then, when Lionsgate purchased Artisan in 2003, the studio realized that the SAP ERP infrastructure in place at Artisan was optimal, and the newly merged company standardized on SAP software.
Today, Lionsgate is leveraging SAP solutions across a variety of business areas, but finance remains the functionality’s starring role. “That’s mostly because SAP software allows us to do that title-level analysis required by companies in this industry,” explains Collins. “In our SAP system, we can book revenue and expenses to any particular movie for any particular distribution channel, and then have it summarize up into the lines of business and the profit centers.”
To accurately manage budgeting and planning processes at Lionsgate, each title in the studio’s extensive library has an “ultimate” — its own spreadsheet that includes updated revenue and expense numbers for the title. The ultimates are built by SAP BusinessObjects Planning and Consolidation, pulling current financial data out of SAP ERP, with Microsoft Excel as the front end.
“Using the Microsoft Excel front end makes it much easier to train new users on this system, because most people in finance are very familiar with it,” says Scott Mills, Senior Analyst & Architect, Financial Systems, at Lionsgate (pictured to the left). “Business users have a single interface to pull up a given title and review all of its associated information — whether it be an older, current, or upcoming title. And from a budgeting and forecasting perspective, they can quickly iterate through a certain slice to focus on the specific titles they are concerned with.”
The integrated SAP environment allows Lionsgate to ensure its reports and forecasts are built on updated financial data and the most current deals and models for each individual title. If a business user requests a five-year revenue projection for a title’s DVD release, pulling that data through SAP BusinessObjects Planning and Consolidation will incorporate all of the necessary calculations to provide the most accurate forecast, reflecting the various terms that may affect that specific forecast.
“We don’t have to ask if the data reconciles to our financials because it’s coming right out of our financial system — so we know it does,” says Collins. “It is just unparalleled capacity and strength for our financial team to truly understand how the business is living and working.”
SAP software has brought value to other parts of the enterprise, aside from finance. For example, another business challenge Lionsgate has met involves its intellectual property management, the cornerstone of the film and television business. “When you get down to it, we don’t sell the titles — we sell the rights to show and view the titles,” says Collins. And keeping track of each title’s current status — no small task, considering the various windows that each title goes through — and who owns the rights to what during each period is extremely complicated.
Lionsgate uses the SAP Intellectual Property Management application to manage its titles and their associated information, including the basic metadata for each title. “This application has become one of the backbones of our world because all of the details and deals are maintained in it,” says Collins. “It tells us what we can sell in which regions during which periods.”
The SAP Intellectual Property Management application integrates with SAP Customer Relationship Management (SAP CRM) to function both as a rights inventory management tool and a rights sales tool for Lionsgate. Its “Rights In” function allows business users to load all new titles into the system, including metadata such as the name, genre, credits, and terms of the various deals that are assigned to an individual title.
And the “Rights Out” function allows salespeople to show potential customers (mostly distributors) which titles are available and when. Combining that functionality with SAP CRM can streamline the way a company like Lionsgate does business.
For example, Lionsgate representatives typically attend major film festivals where they come across many distributors looking for available titles to distribute in certain regions. “Using this solution, we can show them the movies we have available for their territory and sell them the rights on the spot,” Collins explains. “Then, once that right is reserved by someone, it’s put back into SAP Intellectual Property Management so that now the inventory of available products reflects the sale.”
“We don’t have to ask if the data reconciles to our financials because it’s coming right out of our financial system — so we know it does. It is just unparalleled capacity and strength for our financial team to truly understand how the business is living and working.”
— Leo Collins, CIO, Lionsgate
Taking the Show on the Road
Of course, mobility makes the abovementioned film festival scenario all the more powerful. “Imagine being able to cut deals right on the patio at the Cannes Film Festival,” Collins says. Lionsgate is currently working on mobilizing its SAP solutions onto Apple iPads for its salesforce. To start, the iPads will include information and metadata about Lionsgate’s titles, including trailers, clips, and even full-length films to show potential customers. So if a customer is, for example, interested in distribution rights to a Western film in the European market, that information can be accessed immediately on the iPad.
The next step will be to have bi-directional capability so representatives can make sales and then input the data right on the iPad, updating all of the necessary systems with the new sales information.
“That capability will be a tremendous competitive advantage because the product we sell is, after all, entertainment. And the iPad and other tablets are just phenomenal environments for people to be able to see, touch, and experience our entertainment products.”
According to Mills, Lionsgate is eagerly anticipating an upgrade to SAP BusinessObjects Planning and Consolidation 7.5 in the next year, mostly because it will provide tighter integration with other SAP BusinessObjects solutions and allow Lionsgate to offer the planning and consolidation functionality to a wider user group in the business.
That upcoming rollout seems to confirm what Collins claims is the most important part of Lionsgate’s IT strategy: It’s all about the talent. “One of the big benefits we have at Lionsgate is our very seasoned and flexible users,” says Collins. “They have believed in this technology from the beginning, and that has made our journey much easier.”