Addition by Division (Separation of Licensing Rights for Creator Owned Deals)

September 14, 2012 Gamal Hennessy

by Gamal Hennessy

Most of the contracts that my clients send me from publishers are fairly broad blanket licenses. Although the language of each one is different, it boils down to the same concept; the publisher looks for the artist to license all of the rights to all of their property in exchange for one fee. While this simplifies the contract for both parties, it also limits the earning potential for the creator by reducing the number of licenses his comic can exploit. A more experienced and profitable approach is to divide the property into as many licenses as possible to maximize the revenue and minimize the dependence on one licensing partner.

Separation of Power

As I discussed in an earlier post, creators can use the trademarks created from their work to license to product manufacturers. Instead of granting blanket rights to the publisher of the print comic, a more granular division of rights gives the creator more options and potentially more revenue. Licenses can be divided in the following manner:

Property: or what title or characters you are actually licensing. A license could be for all the characters and settings in a particular book, but it could also be limited to just one character or a group of characters or in some cases just a particular image from a particular book (like a cover image)
Licensed Good: or what you are permitting the licensee to create. You can be as specific as you like with the type of license you are providing. For instance you could grant a broad license for “clothing” or make it narrower by limiting it to “T-shirts”, “men’s T-shirts” or “men’s short sleeve cotton T-shirts”
Term: The time limit on how long the license will last. This is usually measured by years, but it could also be as short as a few months.
Territory: The geographic area that the license is limited to. This could be something as broad as a worldwide license, or it could be limited by countries (i.e. USA), groups of countries (NAFTA or the English speaking world) or continents (Europe)
Outlet: This is the type of venue that the licensed can be sold in during the term in the territory. It could be a broad concept like “retail outlets” or “online sales” or it could be a specific type of store (high end, mid market or discount chains)

For every license granted, there is a separate fee and a separate royalty for every item sold. There is also a separate negotiation for rights.

Example

Let’s suppose you have a popular title and you start negotiations with a clothing company to produce T-shirts with your main character. There are several approaches you can take including:

You might have granted the merchandise rights to the publisher, which means you get a portion of what ever he reports to you for a deal you had little or no input on.
If you kept the rights for yourself, you could grant the T-shirt company a world wide perpetual T-shirt license for a $10,000 advance and an 8% royalty off the suggested retail price.
If you split the rights up, you could grant the T-shirt company a two year, US only, mass market T-shirt license for a $5,000 advance and an 8% royalty off the suggested retail price. You could then go to a Canadian company and do the same thing. And do it again with a European company, and an Asian company. Instead of one advance of $10,000 you could be looking at $20,000 in advances from four companies for the T-shirt rights alone. You could potentially have dozens of clothing, toy, game, poster and other licenses for your property with licensees all around the world that generate revenue that dwarfs what you make from the actual book, all because you separated the licenses to increase the revenue.

Enforcement

While it is a giddy thought to think that your character could be on licensed products from New York to Cairo to Hong Kong, keep in mind that there is significant work involved in keeping track of a vast licensing empire. You not only have to keep track of what license you granted to which company, you have to monitor each one to make sure they don’t violate the agreement. It is not easy to make sure your American licensee isn’t shipping goods to South America, selling them and then not reporting the sales to you or paying for them. It is even more difficult to monitor and keep track of counterfeit knock off goods in far flung countries that will reduce your revenue and dilute your license. The cost in time and money to manage a diversified licensing plan is huge, but think about it; if your book was that big wouldn’t it be worth it to manage and control the licensing program?

Negotiating Power

I have already pointed out that new artists are often not in a position to reject a blanket license and negotiate divided license rights. When you are trying to get enough money to pay your bills, you can’t worry about holding onto the bobble head doll rights for South East Asia. But if you want to make the most of your creator owned deals or you are in a position to choose between a partner who wants a blanket license versus one who is more flexible with the rights structure, you might be inclined towards addition by division.

Best

Gamal