Introduction
Television production companies often engage in high-value series production for streaming services. The nature of these transactions typically involves long-term payment plans with quarterly installments, reflecting the subscription-based revenue model of streaming services. However, this payment structure poses a challenge for production companies, as their operational model demands immediate reinvestment into new productions. To address this cash flow dilemma, many have turned to the concept of securitization, a financial strategy involving the sale of future receipts.
The Role of Treasury in Securitization
The treasury department plays a pivotal role in implementing securitization. By selling the rights to future receipts from production contracts, television production companies can receive a lump sum payment upfront from investors. This influx of cash bolsters their ability to fund new projects promptly.
Cash Flow Management and Special Purpose Vehicles (SPVs)
An essential aspect of this process is the management of cash flows. Even though the rights to future payments are sold, the production companies continue to receive cash from streaming services. However, this cash is now pledged to the investors. Often, a Special Purpose Vehicle (SPV) is utilized to manage these cash flows and the associated risks effectively.
Calculating the Borrowing Base
A critical task for the treasury department is to determine the borrowing base – the value of the underlying assets, which in this case are the future receipts from sold contracts. This valuation must account for various risks, especially the time value of money, as receipts expected further in the future are inherently riskier and thus discounted.
Configuring the Treasury Management System (TMS)
To streamline this process, production companies often seek the expertise of Treasury Systems consultants like CASHMEASURY to configure their Treasury Management Systems (TMS). These systems are tailored to store all future cash flows from sold contracts, providing a detailed forecast. The TMS then uses this forecast to calculate the borrowing base, ensuring that the assets sufficiently cover the borrowings from investors.
Automation and Payment Instructions
An advanced TMS also automates the generation of repayment instructions to investors as installments are received from the streaming services. This automation ensures accuracy and timeliness in fulfilling financial obligations.
Benefits of Securitization and TMS Support
The securitization process offers television production companies much-needed liquidity, enabling them to reinvest in new projects without the wait. Simultaneously, a well-configured TMS supports the treasury department in managing complex cash flows and financial obligations, thereby maintaining a stable financial foundation.
Conclusion
In summary, the securitization of long-term contracts between television production companies and streaming services offers a viable solution to liquidity challenges. With the support of a robust Treasury Management System and expert consultancy, companies can navigate the complexities of this financial strategy effectively, ensuring a steady flow of funds for continuous production and growth.
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 | About the Author: The author of this blog, Peter Quarré RT, is co-founder and principal consultant at CashMeasury, a boutique firm specializing in Advanced Treasury Technology Consulting based in the Netherlands. With a solid background as a certified Treasurer, Peter brings a wealth of expertise in multiple treasury management systems. Peter's career is distinguished by a deep understanding of treasury operations, enabling the delivery of tailored solutions that optimize financial processes and system functionalities often underutilized by clients. At CashMeasury, Peter focuses on implementing robust treasury management systems and enhancing client experience through advanced technical skills in TMS, SQL, PowerBI, Crystal Reports, and AI. Peter's approach is always client-centric, aiming to provide immediate and effective solutions to the complex challenges faced in treasury operations. Through this blog, Peter shares insights and expertise that help organizations navigate the intricate world of treasury management and leverage technology for strategic advantage. |
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