- Distinctive and popular images or characters
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- Revenue Collection
Filtering by Category: "comic book industry"
Catastrophe and Contracts (Understanding the “Act of God” Clause)
Ninja Turtles: From Comics Parody to $60 Million Dollar Property
Meet with Creative Contract Consulting at New York Comic Con
Your Slice of the Pie Part 1 (Gross and Net Profit Concepts in Creator Owned Deals)
A couple of weeks ago I introduced the different types of rights you could license as a creator and the different types of revenue you can get from a licensed work. In that post I hinted that there were specific concepts that impact how much you’re paid on any given deal. This post (and probably the next few posts) will go into more details about the economics of creator owned deals.
Types of Revenue
As a refresher from the earlier post, I need to point out that the various ways that creators are paid in creator owned deals. The three major ones are:
A royalty is a percentage that the artist earns for every finished unit that is sold. For example, an artist might receive 30% of every one of their comics that is sold to the public.
An advance is money that is paid before the work is finished. For example, a writer of a novel might receive money up for her novel based on the proposal not the finished product.
A minimum guarantee (MG) is money paid up before the work is finished, based on anticipated sales. For example, if a toy company plans to sell a new licensed toy for $10 and the creator gets 10% of that sale, then the creator gets $1 per unit sold. If the company expects to sell 100,000 units, then the MG that the artist gets for this deal is $100,000.
Definitions of Revenue
In general there are two ways that revenue is calculated for your royalty or minimum guarantee. There are gross profit and net profit.
Gross revenue or gross profits is the pure income that a product or service generates.
Net revenue or net profits is the income that a product or service minus certain expenses.
In the vast majority of cases, publishing deals are calculated by net revenue. The key for a creator is to know what is being included in the definition of net revenue and avoid situations where the expenses are always greater than the revenue generated.
Examples
Question: Let’s say you produced a comic called the Greatest Comic Ever (GCE for short). A publisher says they are willing to make a deal with you to publish GCE. They offer you 50% the wholesale profits as part of the deal. The comic sells for $2 wholesale. Is this a good deal?
Answer: That depends. The truth is there is no way for you to know if this is a good deal or not until you understand how the contract defines profit.
If the contract says you get 50% of the gross profits then you get $1 per book sold.
If the contract says you get 50% of the net profits then you have find out what is deducted from the gross to calculate the net.
The Net Revenue Trap
It is a fairly common business practice to deduct the cost of goods sold from the gross to determine the net. Cost of goods sold means whatever the publisher has to pay to produce and distribute your book. Those costs can include editing, printing, shipping, advertising, returns and a few other items. Most publishers track their costs in a document called a profit and loss sheet, so they know what percentage of every book goes into the cost of goods sold. Many publishers will list exactly what goes into the net calculations. This is helpful for figuring out where the money is going.
The problems occur when the creator has no idea what goes into the net calculations or the definition of net is so broad that it wipes out any potential profit for the creator. In the most unscrupulous contracts, the publisher will creatively expand the definition of net revenues to the point that the creator never gets any profit for his work even if it sells millions of copies. For example, if the wholesale price of GCE is $2 but the net deductions are $3 per book then the net profit is -$1 per book. That means you get $0 no matter how many copies the book.
Playing Your Position
It is unrealistic for an artist or creator to understand the nuances of licensing revenue, especially when they first enter the market. You need to focus on your craft and create the best property you can. You also need to have access to financial and legal professionals who can explain potential deals to you and allow you to make informed choices. That is why it pays to break down each contract and understand its implications before you move forward.
Next week, I’ll try to explain the concepts of recoupment and payment cycles to give you a better idea of when you can expect to get money from a deal.
Best
Gamal Hennessy
PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 AT gamalhennessy@gmail.com FOR A FREE CONSULTATION.
Addition by Division (Separation of Licensing Rights for Creator Owned Deals)
- 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)
- 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.
Get What You Give (Rights and Revenue for Creators)
- Publishing (Print, novelization and Digital)
- Public Display (gallery displays and public performances of some of the methods listed here)
- Theatrical (Movies whether live action or animated)
- Television (including network, basic cable, premium cable, PPV whether live action or animated)
- Home Video (including DVD, Blu-Ray, etc.)
- Live Performance (including Broadway performances and theme park performances)
- Interactive (including console computer or mobile video games)
- Merchandise (as discussed in last week’s post)
- Audio (soundtracks and audio novelizations)
- A royalty is a percentage that the artist earns for every finished unit that is sold. For example, an artist might receive 30% of every one of their comics that is sold to the public.
- An advance is paid before the work is finished. For example, a writer of a novel might receive money up for her novel based on the proposal not the finished product.
- A minimum guarantee (MG) is money paid up before the work is finished, based on anticipated sales. For example, if a toy company plans to sell a new licensed toy for $10 and the creator gets 10% of that sale, then the creator gets $1 per unit sold. If the company expects to sell 100,000 units, then the MG that the artist gets for this deal is $100,000.
Making Comics Isn’t Really About Making Comics Anymore (Comics, Movies and Merchandise)
by Gamal Hennessy
Image and Story (The Role of Copyright and Trademark in Comics)
The storytelling method of comics primarily involves using images to tell a story. The writer and artist (and others) work together to create narrative sequential art. In a business and legal context there are two legal creations formed with every comic; a copyright and a trademark. Knowing the difference between the two and their complimentary roles will help you grow your business and might help improve your stories.
Definition and Examples
Basically, a copyright (normally represented in the US with the symbol © ) is the intellectual property right that gives the creator of an original work the ability to control how that work is used. In its most basic form a copyright gives the owner the right to make a copy, but it also governs who can use or exploit the work for any type of gain.
By contrast, a trademark (normally represented in the US with the symbols TM or ®) is a symbol or word used to identify a particular individual, organization, product or service in a commercial context.
Perhaps the story is a little far fetched, but as an example it works very well. There is a copyright created for every story of the masked crime fighter. The images associated with him and his story becomes trademarks.
Relationship between © and ®
Legal and Business Impact
The result of this lack of focus often creates a situation where a creator gives away most or all of the trademark rights to their story to a publisher that may not have any ability to exploit them properly. Even worse, the publisher may have a significant licensing program that excludes the creator from any future profits. It is beneficial for creators to protect their potential trademarks with the same diligence that they protect the copyright to the underlying story.
Impact on Story Development
Have fun.
PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 at gamalhennessy@gmail.com FOR A FREE CONSULTATION.