What Stephen Colbert Teaches Us About The Value of Intellectual Property

Aug 04, 2016

In case you missed it, late-night talk host Stephen Colbert was under hot waters from some lawyers this week. The reason: Intellectual property.

Colbert took over The Late Show from David Letterman in September 2015. When it was announced, he was the host of Comedy Central’s “Colbert Report.” On that show, he played a satirical Conservative anchor that was influenced by Fox News host Bill O’Reiley.

When Colbert left Comedy Central, he left behind the character and has played the Late Show as his comedic self. But last week, Colbert played his Comedy Central character for a short segment.

After that happened, Comedy Central contacted CBS, and said that Colbert’s character was actually the intellectual property of Viacom.

Colbert has worked around it. He introduced a new character with many similar qualities. However, the case highlights an increasing trend in the business and entertainment world.

The interest in intellectual property. Colbert's previous character was an important asset for them. They still generate revenue from past sales of merchandise, advertising, syndication, and sales of the now defunct show.

And its not just lawyers who are pushing intellectual property into the spotlight.

This is becoming a serious asset for investors and companies as spending has surged over the last 15 years.

Intellectual Property Investment Surges

In the last month, we’ve seen a handful of mega deals that centered on intellectual property.

In fact, intellectual property investment has been the fast-growing segment of business spending over the last five years.

Real Private Investment in Intellectual Property Line Graph

As this chart indicates, private software investment roughly doubled from 1999 to 2014 from a little less than $150 billion to are than $300 billion. Meanwhile, research and development in the intellectual property space has steadily increased in the same period.

That was on full display two weeks ago when ARM Holdings sold itself to Asian investment firm SoftBank for $31.4 billion. The chip design and manufacturing giant has been at the center of the mobile phone revolution for the last decade.

If you own an iPhone, ARM's technology is inside. Each time someone buys an iPhone, the company receives a royalty payment.

But it's not just Apple devices. ARM has driven the technologies of Samsung Electronics, Qualcomm, and Nvidia. Almost every consumer device - every smartphone, mobile phone, and tablet — operates on an ARM chip. By some accounts, ARM technology is the most used consumer product on the planet.

More than Coca Cola. More than McDonald's.

And every time one of their devices sells, a royalty payment is made to compensate for the use of their intellectual property.

Revisiting Entertainment, Literary, and Artistics

Over the last decade, entertainment and artistic originals has shown slow, steady interest from investors.

But that is starting to change significantly.

First, the technological shift toward more paid distribution vehicles is set to make the royalties tied to intellectual property in entertainment far more valuable. The last decade has seen the remarkable rise of Netflix, Apple Music and iTunes, Spotify, Amazon Prime, and other outlets. Whenever the intellectual property of a song or television show is purchased or streamed on these platforms, the owner receives a royalty for its use.

(That is — in the end what the Colbert story was about. Colbert did not have permission to use the intellectual property of his former employer. Had he wanted to do it on a regular basis, perhaps a deal to pay Viacom money for each appearance would have been possible.)

Second, the entertainment industry lacked a true marketplace for the sales of intellectual property and their royalty streams. Sales of this intellectual property was either reserved for large megadeals between private equity giants and music publishers. Or, these back-room deals existed but offered less favorable terms to the owners of this intellectual property.

But Royalty Exchange has emerged as the world's leading marketplace for buyers and sellers of music and entertainment royalties. This platform brings thousands of interested investors to daily auctions and provides sellers with an opportunity to receive a purer market price for their intellectual property.