Boosting Media and Entertainment Subscription Business

Use Continuous Accounting to Enhance Competitiveness and Customer Satisfaction

Managing Subscription Accounting

The subscription or recurring revenue business model has grown in popularity over the past decade because it can create a tighter relationship between organizations and consumers while providing a predictable revenue stream. However, there are accounting challenges associated with this business model because it introduces layers of complexity in managing subscription transactions with activations and billing over time in addition to one-time sales.

Ventana Research strongly recommends that organizations in the media and entertainment industry with a subscription or recurring revenue business model adopt a continuous accounting approach to manage these transactions. Technology has made it possible to not only remove operational constraints that once limited sales and marketing flexibility but also streamline back-office processes, shorten the accounting close and improve customer satisfaction. Automation improves data quality and strengthens controls by substantially reducing human error in the process. Continuous accounting is an elegant approach that uses technology to measurably improve a company’s operational and financial performance. We assert that by 2026, fewer than one-third of subscription companies will have adopted continuous accounting, giving those that do a business advantage.

The Benefits of Continuous Accounting

Continuous accounting enables media and entertainment companies to achieve five main objectives in subscription or recurring revenue businesses. First, to manage the flow of business and financial data in a straight-through, end-to-end process to ensure data integrity. Ensuring the fidelity of the subscription and billing information cuts accounting workloads by eliminating the need for checks and reconciliations that always arises when data is transferred manually across existing systems and modern subscription management systems.

The second objective is to eliminate period-end bottlenecks that prolong the close process. This is achieved because data from multiple systems do not have to be reconciled, and transactions data can be reviewed and corrected whenever necessary throughout a period. Shortening the close enables the finance department to perform management and financial accounting tasks sooner, thus promoting agility in company operations. Our Office of Finance Benchmark Research found that 62% of companies that close within six business days have timely information compared to 39% that take longer.

The third objective aims to improve reporting and responsiveness by using technology to provide individual executives and managers the ability to track progress and performance with dashboards and reports tailored to their specific needs, rather than requiring business analysts to produce reports manually. Business unit leaders can explore the data by drilling down into underlying detail and pivot the data to view it from multiple perspectives, such as by product, subscriber or region.

Fourth, companies gain immediate, automated access to real-time transaction data in order to improve situational awareness and promote organizational agility in responding to business conditions, enabling them to be more action-oriented rather than reactive.

Lastly, organizations in the media and entertainment industry that utilize continuous accounting enable marketing and sales to dynamically structure offers and promotions without affecting the accuracy of customer billing or increasing accounting workloads. This greater flexibility provides a competitive advantage and increases customer satisfaction.

Five Benefits for Media and Entertainment

Ensuring Financial Data Integrity

Data integrity is an often-overlooked issue driving unnecessary workloads in finance and accounting departments.

Data integrity is an often-overlooked issue driving unnecessary workloads in finance and accounting departments. There are two related sets of issues here. First, a lack of integrity results in the need to check and reconcile numbers that are in every customer’s bill (which is generated by an accounting or financial management application) with the source system. The alternative—not reconciling data—almost guarantees billing errors that are harmful in two respects: overbilled customers are annoyed by the mistake and underbilled customers are a source of revenue leakage. Second, it is essential that as data moves from the front office to the back office, the systems automatically maintain a consistent record of the nature of each revenue element in a subscription contract to ensure accurate treatment under revenue recognition accounting standards. The alternative unnecessarily multiplies departmental workloads and misses the opportunity to eliminate a potential audit and compliance issue at the source.

Media and entertainment companies with subscription or recurring revenue business models are in a more difficult position because the amounts billed change from one period to the next, new revenue elements may be added to the contract and the terms negotiated differ from one customer to the next. Businesses and consumers routinely add or remove services and increase or decrease the number of subscribers. Promotions, discounted introductory periods and other terms that can complicate billing are common. Moreover, companies incorporating a mix of subscriptions, products and consumption-based services must be certain that the data from the system responsible for metering the service is accurately reflected in the invoice, so that revenue is properly calculated and recognized accurately.

Furthermore, the integrity of the data in a customer’s bill cannot be guaranteed whenever data is taken from one system and then manually uploaded into another, especially if (as is common) adjustments and transformation of this data are performed manually before it is uploaded. Ensuring accuracy is only achieved when the data is passed from machine to machine programmatically. Today’s information technology makes this possible and practical.

Eliminating Closing Bottlenecks and Restructuring Work

Most of what are considered “normal” accounting procedures are rooted in centuries-old limitations imposed by paper-based systems and manual calculations.

What is regarded as a regular set of monthly, quarterly and annual routines of the accounting cycle is not set in stone. Most of what are considered “normal” accounting procedures are rooted in centuries-old limitations imposed by paper-based systems and manual calculations. At the time, they were the best approach to handling accounting when tasks were performed manually. Organizations waited to have a sufficient volume of entries to justify taking the time to perform manual summations, adjustments and consolidations, while not waiting so long as to jeopardize financial control. Until recently, limitations of digital accounting systems offered no improvement because these routines had to be handled in batch mode.

However, today’s business applications are capable of continuously processing data end-to-end through a process to allow organizations to restructure work schedules to increase operational efficiency and even up workloads to eliminate the period-end “crunch” time. They do so by eliminating the need to use spreadsheets for moving data from one system to the next and by automating revenue recognition in a method that ensures consistent accuracy.

Continuous accounting removes constraints when accounting and billing processes are performed. In addition to eliminating the need for period-end reconciliations to ensure agreement between the systems, other checks and validations can be performed on an ongoing basis to eliminate month-end bottlenecks that can prolong the accounting close. Eliminating the need for reconciliations means that the finance staff has time to perform more valuable work such as deeper or broader analysis of customer behavior, the effectiveness of marketing campaigns or measuring the true profitability of customers, channels or specific subscription offers.

Improving Reporting and Responsiveness

One way a finance department can improve its effectiveness is by gaining efficiency in daily operations, especially in reporting. Working from a single authoritative source of data eliminates the need to spend time on data preparation and reconciliation. Our Next-Generation Finance Analytics Benchmark Research finds that analysts typically spend the biggest share of their time (69%) on data-related tasks, such as assembling and transforming data, rather than doing what they are trained to do: analyze.

Configurable dashboards that present real-time data provide executives and managers with actionable information and make self-service, up-to-the-minute reporting a reality. When ad-hoc reports are necessary to investigate a situation, analysts spend almost no time assembling and transforming the data and so have more time to explore and assess the data for useful information and insights. Companies and departments can compare actual results to their plan continuously and create immediate alerts when significant deviations occur. In doing so, they can act upon what may be temporarily advantageous market conditions or address issues early in the month rather than two weeks into the next month.

Enabling Real-Time Visibility

Straight-through transaction processing and real-time aggregation of authoritative data from multiple systems make it possible to give executives and managers access to immediately available accurate information for actionable analysis and alerts. Real-time visibility into both operational and financial performance enhances agility in responding to market events and economic signals. Subscription or recurring revenue businesses are challenged by the greater complexity of revenue recognition—a mix of advertising, subscriptions and licensing fees, for example—and related metrics compared to one-time-sale models. Because of the new accounting standards, it is usually necessary to measure “real” events and conditions, such as bookings and cash flow, in parallel with the accounting numbers because the former are essential for internal management purposes, while the latter are used by external stakeholders to evaluate the media and entertainment company's condition and performance.

Unleashing Marketing and Sales

A lack of data integrity and the resulting need for checks and reconciliations before invoicing and billing often has the underappreciated impact of limiting the flexibility of sales and marketing as they create and, crucially, change offers and terms. To make accounting workloads manageable, companies either try to limit their complexity and variability or they put up with some degree of inaccuracy in billing. However, it is possible for both the front office and back office to get what they need when the media and entertainment organization deploys a billing system that delivers data integrity using straight-through transaction processing. Rather than always finding themselves behind the curve, sales and marketing can respond to better- or worse-than-expected results, even during the middle of a month, by expanding an offer or increasing some incentive without having an impact on back-office workloads.

Get the Right Tool for Subscriptions

Today’s subscription and recurring revenue businesses can use technology to address the back-office complexities that have a negative impact on marketing, sales and operations, as well as, ultimately, customer satisfaction. Continuous accounting is a methodology that eliminates unnecessary accounting workloads by enforcing data integrity. It eliminates constraints on sales and marketing teams in creating and revising offers to better address market and competitive opportunities while ensuring billing accuracy to support customer satisfaction and reduce revenue leakage. Industry executives in media and entertainment should investigate the practical and affordable technology now available for continuous accounting that can improve the performance of their subscription and recurring revenue businesses.