Risk assessment in contract signing for intellectual property trading in the entertainment and media industry

Abstract

In the content licensing business, content owners license rights to platforms and broadcasters outbound, utilizing agreements as a medium of transactions. In transactions, risk is perceived differently among contracting parties. This study provides empirical findings on how risk is perceived by licensors and licensees based on factors derived from transaction cost economics theory (TCE) and relational contract theory (RCT). The survey results indicated that licensors tend to perceive low risk from transactions if licensees have high role integrity, mutual practice, and joint problem solving, which are factors in RCT, while licensees perceive low risk from transactions if licensors propose low transaction costs, specific governance structure, and agreement structure, which are factors in TCE. In addition to the TCE and RCT factors, high risk avoidance also influences the perceived risk of transactions by licensees, but not licensors. Nevertheless, the perceived risk does not directly influence decision making of the transactions, but rather serves to expedite or prolong the decision-making process. Based on the interview data, decision making was influenced by controllability over risks and operations of the transactions and expected returns from the transactions.