The Hierarchy of Income Terms in a Contract

When configuring contracts in Curve, it's necessary to add Income terms which will specify the royalty rate which is to be applied to the different types of income. This article explains how Curve decides which term and its royalty rate will be applied to an income line. Particularly when there are several terms on the Contract which are a match, it has a logic to decide which royalty rate will be applied. Understanding this logic is key to ensuring the correct rate is applied to each revenue line during distribution.

If Multiple Terms Match the Revenue, Which Term Will Be Applied?

To any given sales line, the contract will always apply the Income term that is most specific. The order in which the terms are created on the Contract does not make a difference. The term that is deemed most specific is decided by three rules.

Which term has at least one condition that is highest up in the hierarchy. The hierarchy goes from left to right, so from Cat Type > Cat Group > Territory > Channel > Configuration > Source.
If two terms both have a condition that is equally high up in the hierarchy, which of these is a direct condition rather than a Contract Term Group? A Configuration condition for Stream will be deemed more specific than a configuration condition for an Online Contract Term Group. Similarly, a Territory condition for the US will be deemed more specific than a Territory condition for a Territory Group US & CA for example.
If two terms both have a condition that is equally high up in the hierarchy, and they both are direct conditions or both are group conditions, then Curve will look if the lines have another condition further down the hierarchy, to verify which Term is deemed most specific.

As an example, below, we are displaying six terms which are ordered from most specific to least specific. The first term is most specific, because it has a Cat Type condition. The 2nd and 3rd term both have a Territory condition, but the 2nd term is deemed more specific because it is a specific Territory rather than a Territory Group. The 4th and 5th term both have a Channel condition, but the 4th term is deemed more specific because it also has a Configuration condition. Finally, our 6th term is least specific because it does not have any conditions set.

Let's have a look at a real-life scenario. The following example contains a common pitfall. We have specified a term for Performance revenue, and a term for Streaming revenue. Our first term is more specific, which means that any royalty lines with a Performance - Streaming combination will be applied the top term of 70%. If that is what you were aiming to achieve, excellent. But you may have been aiming for all Streaming revenue to be applied an 80% royalty rate.

This discrepancy can be resolved as shown in the below example. By creating an additional term that specifies an 80% royalty for Performance - Streaming income, this term now becomes more specific than the first term. Income mapped to the Channel “Performance” and Configuration “Streaming” will now be applied an 80% of Net Receipts rate.