Revenue Share: Don't Set it and Forget it

Don’t let revenue share payments become an afterthought.  You worked hard to negotiate financial incentives from your provider(s) – with some regular monitoring, you can ensure It in turn works for you.

There are really two ways you can positively impact your revenue share payments.  First is executing on the marketing responsibilities in your agreements.  While leasing apartments is the focus of your staff, make sure they are knowledgeable about your provider’s products and take an active role in educating residents about their options.  This can drive service penetration and in some cases higher revenues.

Second, is monitoring your revenue share payments to ensure you are being paid correctly – with regard to product sets and payout rates.  In my experience, most providers honestly try to account for and pay revenue share correctly.  Having said that, the finance and accounting teams responsible for doing so often have disconnects with the MDU team, which is of course responsible for the contracts and relationships.  In my experience, this disconnect can lead to accounting decisions that can negatively impact your revenue share.  While in some extreme cases, taking advantage of your audit rights may be necessary, in most cases, some simple regular reviews of payout statements and interaction with your provider can solve most issues.

So what do you look for?  The first step is understanding the terms of your contract, as it pertains to product sets and payout rates.  In my experience, the most common errors are excluding a product set or subset.  In other words, a product set example would be video.  A product subset example would be digital video or basic video.  Excluding product subsets within video is quite common.  The second common error is payout rates, especially if your contract calls for payout scales that are independent across product sets.  In other words, if your video penetration is 50% and the corresponding payout rate is 5%, applying that same 5% payout rate on Internet and telephone services even if the payout scale is different for those services.

Once you understand your contracts, some simple quarterly or semiannual reviews can uncover most errors.  Timing is key – discovering the errors while your provider’s data is still readily accessible will allow for a more timely correction.

About the author:  Rush Blakely is the principal of Blakely Broadband Group, LLC, a full service MDU telecommunications consulting firm.  Blakely has over 15 years experience in the telecommunications space serving the MDU client base.  www.blakelybroadbandgroup.com.

Should it matter to an MDU owner if your telecom provider(s) are executing on their marketing rights?

Should it matter to an MDU owner if your telecom provider(s) are executing on their marketing rights?

So you have granted marketing rights to one or more telecom providers that serve your property.  Should you care whether or not those providers are executing on those rights?

In my experience, not many providers take advantage of marketing rights and even fewer providers maximize the value of the marketing rights that in most cases they paid dearly for.  If this is the case at your property, should it matter to you?  Yes.

First, let’s review how providers can execute on these marketing rights and why most fail to do so.  Chances are, your exclusive or non-exclusive marketing agreement granted some of the following rights to your provider(s):

·         Right to market services on property, door to door
·         Right to host marketing or sales events on property
·         Right to have sales literature handed out by your leasing professionals

Many providers do a fine job of door to door sales, but proper door to door sales are done through area sweeps.  This means that your property is swept only once in a quarter or more.  Door to door sales is a necessary component in an overall mix of marketing tactics, but unfortunately in most cases, it is the only tactic used by a provider.  

To drive higher service penetration, other more organic tactics are required.  These tactics require more hands-on work by a provider, and more oversight from someone within the provider responsible for driving penetration.  Some of those tactics include hosting onsite events, working with your leasing professionals to ensure they are knowledgeable about products, creating onsite sales campaigns or contests within your leasing staff or insightful direct mail campaigns.  Hosting events onsite can be as simple as handing out bagels, doughnuts or breakfast tacos as residents leave the property to drive to work in the morning or can be as elaborate as you want.  In the end, these tactics serve to form a relationship between you, your resident and your provider.  Sure, relationship might be a stretch, but certainly more of a bond then can be formed in a 20 minute pitch at your front door. 

The bottom line is that most MDU teams at providers are compensated to secure marketing rights, not execute on them.  In fact, I would argue that some MDU sales teams are really interested in securing access to your property, with marketing rights being an afterthought.  Sure, there are a few very good examples of providers that are the exception.  Some go so far as to assign an account manager to a group of properties to ensure certain benchmarks of sales, service and penetration are met, but again, these few are the glaring exception.

So back to my original question, should it matter to you if they execute on these rights or not?  Yes it should,  Not executing on these marketing rights could lead to lower than expected penetration which in turn results in lower than expected revenue share, more unsightly dishes on balconies or dissatisfied residents.  The bigger question is, what role should this play in your decision making process BEFORE marketing rights are granted.   That is a question that will be addressed in a subsequent post.

More providers = more choice = less provider investment or more owner investment…..where is the balance point?

More providers = more choice = less provider investment or more owner investment…..where is the balance point?

It is very typical that one provider is granted exclusive marketing rights at an MDU.  In doing so, an owner can maximize the available financial incentives from that provider and/or the provider will maximize the amount of capex it is willing to dole out on a new build property.  If your exclusive marketing agreement is with an incumbent cable operator or alternative private operator, chances are the telco is also providing services to your property.  Whether or not the telco has deployed or will deploy advanced services depends largely on property demographics, construction costs and demand.  In many existing properties, residents in this situation are left with triple play services from an incumbent cable operator and telephone/dsl from the telco.  In those instances where a telco would slowly build out advanced services based on demand and demographics, the property owner would be left both without financial consideration on those advanced services and without an agreement that controls their access and marketing rights.

 The opposite can also hold true.  In situations where a property owner grants marketing rights (in this case non-exclusive) to more than one provider, they can ensure that they have triple play advanced services available to their residents from two or more providers, for example the incumbent cable operator and incumbent telco.  This adds an additional element of complexity, while at the same time adds more choice for your residents.  You can layer on even more complexity, by bringing in a DirecTV or Dish Network reseller, to install one or more dishes to serve your property, thereby eliminating the need for unsightly dishes.  Unfortunately, the byproduct of all of this added choice is likely less provider financial incentives or capex a provider is willing to assign to building out the communication system at your new build property.

So the obvious question is:  where is the balance point.  This question is not so easily answered, and must be addressed using both objective and subjective criteria.  In the end, a property owner needs to find the delicate balance between multiple providers/more choice and the corresponding financial constraints that makes sense for their specific situation

Consultant's and Client's Goals Need to be in Lock Step

To have a successful consultant/client engagement, the goals of the consultant must be in lock step with the client.

There are several basic steps to consider to accomplish this:

(1)  Have frank conversations about the client's needs with respect to potential engagement.  (2)  The Consultant should provide regular feedback during the course of the engagement, allowing the client to request course corrections as necessary.  (3)  Perhaps most importantly, the consultant's compensation should be tied to the client's goals.

Verizon / Big Cable Spectrum Deal - Far Reaching Implications

Some interesting reading on the near and far term implications of this non-merger merger.

Gigaom Blog Post
Forbes Blog Post
Gigaom Blog Post #2

Sharing Article on Needed Bandwidth for the "Internet of Things"

I am sharing this informative article from Multifamily Technology 360 regarding bandwidth usage and needs.

http://www.multifamilytechnology.com/2011/10/how-much-bandwidth-does-your-property.html

Staying Relevant

The telecom landscape has changed immeasurably in the last 15 years. Likewise, how MDU owners, developers and management companies ("MDU's") interact, negotiate and contract with telecom providers has also changed. It’s not as simple to say that new technologies and new providers are the primary change.

One of the largest changes I see is the focal point of negotiations between MDU's and telecom providers.

Early in my career, the focus seemed to be only on increasing ancillary income. Let's be honest, that is still a primary driving force, but it is no longer the only focus nor the most important focus.

MDU's focus on increasing ancillary income, limiting their risk of provider/service obsolescence, increasing resident choice, limiting access, wire ownership, wire use and marketing rights just to name a few.

The point is, MDU telecom negotiations are far from one-dimensional.

As subject matter experts, MDU telecom consultants need to stay relevant and ensure that their mission is in lock step with their client - and in many cases, provide the insight and advice to help focus a client's.......well, focus.

Enjoy your week.