How to Build a Vertical Drama Co-Production Deal: Structure, Risk, and IP

The negotiation post covers how to structure a single-series licensing deal: what terms to push for, what to let go, and how to frame the IP ownership conversation. This post covers a different commercial instrument entirely.

Fox Entertainment Studios committed to creating and producing more than 200 vertical video titles for MyDrama over two years as part of a deal that included an equity stake in Holywater. That is not a licensing deal. That is a co-production relationship structured around shared production commitment, shared distribution infrastructure, and equity participation in the platform operating the content.

The GammaTime and Versant deal gave Versant a minority equity stake alongside a co-development commitment for IP from Versant's cable entertainment library. That is also not a licensing deal. It is a co-production structure built around IP contribution plus equity rather than production fee plus licensing revenue.

The vertical drama market's most significant commercial relationships in 2026 are not licensing relationships. They are co-production structures where each party contributes something the other does not have: capital, IP, production infrastructure, distribution reach, or market access. Understanding how these structures work, how risk is distributed between parties, and how IP ownership is established within them is the commercial knowledge that separates production companies that participate in the market's growth from those that supply it at licensing rates.

Nothing in this post constitutes legal advice. Every co-production deal requires qualified entertainment counsel with specific experience in vertical drama's contractual landscape.

What a Co-Production Deal Is and Why It Differs From a License

A licensing deal transfers distribution rights in exchange for a fee. The production company produces. The platform acquires. Risk flows primarily to the production company during production and primarily to the platform during distribution. IP ownership is typically transferred to the acquiring platform.

A co-production deal structures both parties as participants in the production's commercial outcome. Each party contributes to the production in the form of capital, IP, infrastructure, or distribution access. Each party participates in the production's commercial returns above a defined threshold. IP ownership is negotiated as a function of contribution rather than transferred automatically to the acquirer.

The specific commercial conditions that make a co-production structure more appropriate than a licensing structure:

When the production company has IP that the platform wants to develop but cannot develop alone. A production company with a catalog of performing AI-native series, documented paywall conversion rates, and a proprietary character asset library has production assets that a platform with capital but limited production infrastructure wants access to. The co-production structure gives the platform access to those assets in exchange for capital contribution and distribution commitment, while the production company retains equity participation in the commercial upside.

When the platform has distribution infrastructure that the production company cannot replicate. A platform with 15 million subscribers, proprietary recommendation algorithms, and user acquisition infrastructure at scale has distribution assets that a production company without platform infrastructure cannot build independently. The co-production structure gives the production company access to that distribution infrastructure in exchange for IP contribution and production commitment, while the platform retains the platform relationship that its investment built.

When both parties need risk sharing that a licensing fee structure cannot provide. A production company that cannot produce a $300,000 series without platform capital cannot close the deal as a pure commission, because the production cost exceeds what the production company can finance independently. A platform that is not certain the production company's content will perform at the quality level the commission requires cannot close the deal as a pure acquisition, because it has not seen the production company's output at this budget level. The co-production structure shares both the capital risk and the performance risk between parties whose individual risk tolerances cannot close the deal independently.

The Three Co-Production Structures in Vertical Drama

The structure you use determines your rights position, your risk exposure, and what you actually own when the project delivers. Three primary structures are operating in the vertical drama market in 2026.

Structure 1: The Minimum Guarantee Plus Revenue Share

The minimum guarantee plus revenue share is the structure closest to a conventional licensing deal while including co-production elements. The platform commits to a minimum acquisition fee that covers the production company's production cost floor. The production company contributes the production itself. Above the minimum guarantee, both parties participate in the content's commercial performance through a defined revenue sharing arrangement.

The commercial logic: the platform reduces its acquisition risk by paying only the floor fee upfront and accessing upside participation if the content performs. The production company reduces its production risk by securing the floor fee before production begins and retaining upside participation in strong performance.

The IP structure in a minimum guarantee plus revenue share deal typically assigns primary distribution rights to the platform for the exclusivity window, with the production company retaining sequel and derivative rights subject to a right of first negotiation for the platform. The production company's revenue share participation extends through the exclusivity window and may include participation in secondary licensing revenue generated after the exclusivity window.

The specific terms that require the most negotiation in this structure: the revenue sharing threshold above which the participation applies, the revenue calculation basis (gross versus net, including or excluding user acquisition costs), the exclusivity window duration and the platform's right to renew, and the sequel and derivative rights structure.

Structure 2: The Equity-for-IP Structure

The equity-for-IP structure is the deal type that the GammaTime-Versant deal exemplifies. One party contributes IP library access, franchise rights, or content development relationships. The other party contributes capital, production infrastructure, or distribution access. The IP-contributing party receives equity in the entity that will distribute and monetize the content rather than a licensing fee.

In late 2024, Fox Entertainment acquired an equity stake in Holywater and committed to producing at least 200 vertical series over two years for distribution on MyDrama. This is the equity-for-IP structure: Fox contributed IP relationships, Hollywood production expertise, and institutional credibility. Holywater contributed the platform infrastructure, distribution reach, and the production technology for scaling to 200 series. Fox received equity in Holywater rather than per-series licensing revenue.

The commercial logic for the IP contributor: equity participation in the platform's total commercial performance rather than per-series fees means the IP contributor participates in the platform's growth rather than only in the revenue generated by the specific series produced under the deal.

The commercial logic for the platform: IP contributor's institutional relationships, genre expertise, and content library provide a content supply advantage that user acquisition spending cannot buy. Fox Entertainment's writers and producers provide creative quality signals that Holywater's existing production team cannot replicate at scale.

The IP structure in an equity-for-IP deal is the most complex of the three structures. The IP contributed by the IP-contributing party typically remains owned by that party, with the platform receiving a license to use it within the deal's scope. The equity that the IP-contributing party receives is equity in the platform entity, not in specific productions. The relationship between the IP license and the equity stake must be specified precisely: what happens to the IP license if the equity is sold, if the platform is acquired, or if the deal terminates before the committed production is complete.

Structure 3: The Joint Venture Production Entity

The joint venture production entity creates a new legal entity, owned jointly by both parties, that produces and owns the content. Both parties contribute capital to the joint venture in agreed proportions. The joint venture owns the IP. Both parties participate in the joint venture's revenue according to their ownership stake.

This structure is the most protective of both parties' interests and the most administratively complex. It is the correct structure for co-production relationships where both parties intend to produce content for multiple platforms rather than for one party's existing platform.

UK film productions may qualify for government-backed tax incentive schemes that can provide a significant rebate on eligible UK production expenditure, reducing overall production risk by returning a portion of the budget to the production company. The joint venture structure is particularly appropriate for co-productions that involve cross-border capital contribution, because the joint venture entity can be established in the jurisdiction that optimizes tax treatment for both parties.

The IP structure in a joint venture entity is cleanest: the joint venture owns the IP it produces. The parties own the joint venture in proportion to their capital contributions. The joint venture's IP is licensed to distribution platforms under terms that both parties negotiate together through their shared governance of the joint venture.

How Risk Is Distributed

The risk distribution in a co-production deal reflects each party's contribution and the deal structure's design. Three categories of risk require explicit allocation in any co-production agreement.

Production Risk

Production risk is the risk that the content does not reach the quality standard required for distribution. In a conventional licensing deal, production risk rests entirely with the production company: if the content does not meet the platform's acquisition standard, the platform does not acquire it and the production company absorbs the full production cost.

In a co-production deal, production risk allocation depends on which party has the production infrastructure and which party has contributed capital:

If the production company has the production infrastructure and the platform has contributed capital, the production risk allocation must specify what happens to the platform's capital if the production does not meet the quality standard. A completion bond or quality approval process before capital is fully deployed protects the platform's capital against production failure. The production company's equity position in the deal may be reduced if the production does not meet the agreed quality threshold.

If both parties share production infrastructure, the production risk is shared proportionally to each party's production contribution. A joint venture entity in this structure may purchase a completion guarantee from a third-party completion bond provider, shifting production risk off both co-production parties and onto the completion guarantor.

Performance Risk

Performance risk is the risk that the content does not generate the commercial performance required to make the deal commercially viable. In a conventional licensing deal, performance risk rests primarily with the platform after acquisition: if the content does not convert at the paywall, the platform's commercial outcome suffers but the production company has received its licensing fee.

In a minimum guarantee plus revenue share structure, performance risk is shared: the platform bears the production risk of the minimum guarantee, and both parties share the performance upside above it. The production company that has contributed to the content's commercial quality through arc design, paywall mechanics, and character investment bears some performance risk because poor performance means no revenue share participation.

In an equity-for-IP structure, performance risk is significantly shifted to the IP-contributing party: if the platform fails commercially, the equity that the IP contributor received is worth less than anticipated. The IP contributor's performance risk exposure is the entire platform's commercial performance, not only the specific series produced under the deal.

IP Risk

IP risk is the risk that the content's IP generates disputes about ownership, usage rights, or derivative rights that create commercial complications after the deal closes.

The deal structure you use determines what you actually own when the project delivers. IP risk allocation in co-production deals requires explicit chain of title documentation, clear consent provisions for any AI-generated character likenesses, specific sequel and derivative rights specifications, and explicit provisions for what happens to the IP in scenarios where the deal terminates, the platform is acquired, or one party becomes insolvent.

The specific IP risk provision that most co-production deals fail to address adequately: what happens to the IP when the deal's economic relationship ends but the IP continues to have commercial value. A production company that contributed IP to an equity-for-IP deal and then sold its equity stake three years later needs the IP license to terminate with the equity sale, or it has contributed IP to a platform it no longer has a commercial relationship with.

The Minimum Viable Co-Production Agreement

The minimum viable co-production agreement for a vertical drama deal contains eight provisions regardless of which structure it uses. These are the provisions that most commonly produce commercial disputes when they are absent or imprecise.

1. Contribution schedule. Each party's contribution is specified in time, amount, and form. Capital contributions specify the disbursement schedule and the conditions that must be met before each disbursement. Production contributions specify the deliverable, the delivery timeline, and the quality standard that constitutes accepted delivery. IP contributions specify the rights being contributed, the duration of the contribution, and the compensation structure for the contribution.

2. IP ownership allocation. Who owns the produced content? Who owns the characters? Who owns the story world and derivative rights? The allocation must be explicit for each IP category. The conventional television industry defaults of series ownership by the commissioning entity and character ownership by the commissioning entity are not the only options, but they are the defaults that co-production agreements need to explicitly override if the parties intend a different allocation.

3. Revenue waterfall. How is the deal's commercial revenue distributed between parties? The waterfall specifies the order in which each party recoupts their contribution before revenue is shared, and the sharing proportions above the recoupment threshold. A production company that contributed $80,000 of a $200,000 production should specify that its $80,000 is recouped before revenue sharing begins, not after the platform's full $200,000 contribution has been recouped.

4. Governance structure. Who makes decisions? The joint venture entity structure requires explicit governance: who has approval rights over production decisions, creative decisions, distribution decisions, and financial decisions. The equity-for-IP structure requires explicit governance: what is the IP-contributing party's voting rights on the platform's decisions that affect the contributed IP?

5. Sequel and derivative rights. Which party has the right to develop sequels, spin-offs, merchandise, and format adaptations? Does the other party have a right of first negotiation on those developments? What are the economic terms if the sequel right is exercised? This provision generates more post-deal disputes than any other in entertainment co-production agreements.

6. Termination provisions. What triggers the right to terminate the deal? What happens to the IP, the contributed capital, and the in-process productions when termination is triggered? A production company that terminates the deal mid-production needs to know whether it retains the partially produced content, receives a return of contributed capital, or loses both.

7. Change of control provisions. What happens if one party is acquired by a third party during the deal? The acquiring entity may have different content strategies, different competitive positioning, or different geographic ambitions from the original party. The change of control provision gives the non-acquired party the option to modify or terminate the deal in response to a change that fundamentally alters the co-production relationship's rationale.

8. AI-specific provisions. For co-productions involving AI-native production, the agreement must address ownership of AI-generated character models, the consent framework for any real performer likenesses used in AI generation, the AI training prohibition that prevents either party from using the production's footage to train AI systems beyond the agreed scope, and the deletion timeline for any digital replicas created in the course of production.

The Capital Stack: Who Contributes What and When

The capital stack in a vertical drama co-production specifies which party contributes which portion of the production budget and at what stage of the production. The stack design determines each party's risk exposure and liquidity requirements.

The conventional capital stack for a vertical drama co-production:

First position: Platform minimum guarantee. The platform's capital contribution, typically 50% to 70% of the production cost, is disbursed in staged payments aligned with production milestones. The first payment is disbursed on deal signing. Subsequent payments are disbursed on script delivery, production commencement, and delivery acceptance. The staged disbursement protects the platform against total capital loss if the production fails at an early stage.

Second position: Production company equity contribution. The production company contributes the remainder of the production cost, either in cash or in the form of deferred fee from the deal's revenue participation. The production company's cash contribution creates its risk position in the deal: if the production fails, the production company loses its contributed capital alongside the platform.

Third position: Tax incentives and regional grants. Productions in specific territories, particularly the UK with its production tax relief scheme, can access third-party capital in the form of tax rebates on qualifying production expenditure. This third-position capital reduces the total cash contribution required from the first and second positions without diluting either party's equity position.

UK film productions may qualify for government-backed tax incentive schemes that can provide a significant rebate on eligible UK production expenditure. For co-productions that can be structured as UK productions, the tax relief creates a third capital source that benefits both parties without additional equity dilution.

How AI-Native Production Changes the Co-Production Economics

AI-native production's compression of production cost changes the co-production deal's economics in ways that make the structure more accessible for smaller production companies than conventional co-production economics would allow.

A conventional live-action vertical drama co-production at $150,000 to $300,000 requires a production company capital contribution of $45,000 to $90,000 at a 30% share. That is a significant capital requirement for a production company without external financing.

An AI-native vertical drama co-production at $60,000 to $100,000 requires a production company capital contribution of $18,000 to $30,000 at the same 30% share. That capital requirement is achievable from operating cash flow for a production company with two or three active platform licensing relationships generating recurring revenue.

The reduced capital contribution requirement makes co-production accessible to production companies that previously could only participate as pure licensing suppliers. The production company that crosses from pure licensing supplier to co-production participant has crossed from receiving per-series fees to building equity participation in the content's commercial upside. That transition is the commercial position that franchise development, sequel rights, and long-term platform relationships depend on.

Axis AI Studios Perspective

The co-production deal is the commercial instrument that converts a production company from a content supplier into a content owner. The licensing fee pays for the production. The co-production structure pays for the production and builds equity in the franchise.

The vertical drama market's most commercially significant relationships in 2026, Fox and Holywater, Versant and GammaTime, Harlequin and Constantin, are co-production structures rather than pure licensing relationships. They are built on the recognition that the parties each have something the other needs and that the correct commercial structure shares both the risk and the upside rather than transferring one to the other.

At Axis AI Studios, co-production conversations are approached with the deal structure as the primary question before any creative conversation begins. Which structure serves the specific combination of contributions that each party brings? How is production risk distributed against each party's capital commitment and production infrastructure? What IP ownership allocation emerges from the contribution structure rather than from negotiating leverage?

For production companies who want to understand what a co-production structure would look like for their specific situation, qualified entertainment counsel with vertical drama co-production experience is the required first step. For production partnership conversations, reach out at business@axisaistudios.com.

FAQ

What Is the Minimum Capital Contribution Required for a Co-Production Deal?

There is no minimum capital contribution threshold that defines a co-production versus a licensing deal. The distinction is structural rather than financial: if both parties participate in the production's commercial outcome above a defined threshold, and if both parties share IP ownership or revenue participation rights, the deal is a co-production regardless of contribution size. A production company that contributes $20,000 to a $100,000 AI-native production and retains 20% revenue participation above the platform's recoupment is in a co-production structure even though its capital contribution is small.

Can a Production Company Enter a Co-Production Without Contributing Capital?

Yes, when the production company's contribution is in the form of IP, production infrastructure, or demonstrated track record rather than cash. The Fox and Holywater deal's structure included Fox's contribution of production relationships and institutional credibility alongside its equity acquisition. A production company with a proprietary character asset library, a trained generation operator team, and documented platform performance data is contributing production infrastructure that has quantifiable commercial value, even without cash contribution. The co-production agreement assigns a valuation to this infrastructure contribution and treats it equivalently to capital for purposes of equity and revenue participation allocation.

How Does a Co-Production Deal Interact With an Existing Platform Licensing Agreement?

If the production company has an existing exclusive licensing agreement with a platform, the co-production with a different party may conflict with the exclusivity provisions of the existing agreement. The co-production agreement must be reviewed against all existing platform agreements before signing to confirm that the co-production's distribution arrangements do not violate existing exclusivity. A production company that signs a co-production with a new party that distributes through a channel excluded by an existing platform's exclusivity agreement has created a breach of the existing agreement that may void both the existing agreement and the new co-production.

Further Reading

For the single-series licensing deal negotiation that precedes most production companies' first co-production conversation, the guide to negotiating your first platform deal covers which terms have the most movement, what first-time production companies consistently give away, and how to frame the IP ownership conversation.

For the Q2 2026 funding rounds that include several co-production structures described in this post, the vertical drama funding rounds Q2 2026 guide covers the Versant-GammaTime, Fox-Holywater, and GammaTime-Idilio deals in their market context.

For the SAG-AFTRA Verticals Agreement provisions that affect co-production AI usage rights, the SAG-AFTRA Verticals Agreement one year on guide covers the AI training prohibition, digital replica provisions, and consent framework that co-production agreements involving AI-native production must address.