Filtering by Category: "legal analysis"

Do You Want to Create Merchandise for Your Comics?

Added on March 29, 2013 by Gamal Hennessy.

Much of the popularity for famous comic book characters doesn’t happen because people read comics. Only a small percentage of the people who are familiar with Spider-Man, Superman and the Hulk have ever been inside a comic book store. A lot of exposure comes from licensed media (TV, film and video games) but just as much of it comes from merchandise (clothing, skateboards and toys0. In the past, only the major companies could support a merchandising program. But times are changing. Is the independent comic book industry ready for independent merchandising?

The Opportunity

The key elements of a merchandising program are:

Distinctive and popular images or characters
Design and Production
Marketing and Advertising
Distribution and Fulfillment
Revenue Collection

With an independent merchandising plan, the independent creator owns the characters and images. They decide what products fit their plan. Design and production, distribution and fulfillment can be outsourced to custom merchandising companies that can produce a wide variety of goods on demand without the need for warehousing or creating bulk orders. Marketing and advertising costs can be scaled to budget, with much of the main outreach occurring online or offline at conventions or local shops. Revenue collection can be funneled through a variety of sources including Amazon, Paypal and Kickstarter. The increased exposure of the underlying property supports the comic and vice versa. Ultimately, a larger licensing company could see the potential in your work (based on the sales) and provide you with a much larger platform (and potentially much more revenue).

The Problem

There are two main problems with launching your own independent merchandising program; time and expertise. Many independent creators have day jobs, families and they spend what little free time they have on their craft. There is no extra time available to decide on the cotton weight on a T-shirt line or whether iPhone cases need to be part of the product offering. Even if they did have extra time on their hands, few of them would be interested in dealing with the legal, financial and marketing duties that come with managing a merchandise line. They want to spend their time creating the next great comic.

The Solution

I was once the general counsel for a Japanese animation company called Central Park Media. After that, I was the international publishing manager for Marvel. Since then, I have been advising private clients for publishing and new media contracts. Finally, I have also run my own independent publishing company called Nightlife Publishing for the past six years. I think the combination of my skills and the current level of DIY technology creates an opportunity for independent creators to make money from the sale of their merchandise. The main question now is ‘does anyone want this service?’

What do you think?

Would you be interested in selling a line of clothing, posters and tech related merchandise based on your comics? I am in the process of developing the business model now, but if no one is excited about the idea, I might have to sit on the idea for a while.

Let me know what you think in the comments section.

Have fun.

Gamal

Catastrophe and Contracts (Understanding the “Act of God” Clause)

Added on November 1, 2012 by Gamal Hennessy.

Imagine you’re sitting at home one day, making comics and minding your own business. You are working at a steady pace and you plan on finishing long before your publisher’s deadline. All of a sudden, the sky goes dark, the wind begins to howl and the lights go out. A couple days later you have no power, no water, no heat and there is a tree in your living room. On top of all that, you missed your deadline and your publisher is claiming you breached the contract. Now what?

The answer to that question depends on the force majure or “act of God” clause in your contract. If the language is written well, you shouldn’t have a problem. If the language is written poorly (or doesn’t appear at all) you might have to deal with a business dispute at the worst possible time.

What does it mean? Basically, a force majure clause extends the period of performance for the artist and the publisher if certain events occur. Most force majure clauses include events like fire, natural disaster, accidents, act of government, war, terrorism, industry wide shortages or any other event beyond your control and that directly impact you. For example, if you live on the East Coast, Hurricane Sandy probably qualifies as a force majure. If you live in Seattle, it probably doesn’t because you are not directly impacted. Keep in mind that a hangover is not a force majure, even if it does feel like an act of God when you are recovering. Getting the hangover wasn’t beyond your control, so force majure can’t save you here.

What do you have to do? When a force majure event occurs, you usually have to notify the publisher of the event’s impact on you and then follow whatever terms are specified in the force majure clause. Terms can range from an extension of time to cancellation of the agreement. While it is impossible to anticipate every potential force majure event and write a solution into the contract, it is better to have some guidelines in place that work for both sides, instead of waiting until your basement is full of water and the National Guard comes rolling in.

Often, a publisher or colleague will understand your situation during a crisis and won’t try to use it as a way to avoid paying you or to get out of your contract. However, it is always prudent to make sure there is a good force majure clause in your contract when you sign it. You never know when the lights could go out and you never know when your relationship with your publisher could fall apart.

Best

Gamal Hennessy, Esq.

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.comFOR A FREE CONSULTATION.

Meet with Creative Contract Consulting at New York Comic Con

Added on October 3, 2012 by Gamal Hennessy.

I will be attending the New York Comic Con this year. If any artist, writer or comic professional would like to set up a meeting for business consultations or the inevitable drinking to discuss future projects, please contact me at gamalhennessy@gmail.com to set up a meeting.

I’ll see you on the Exhibition Floor.

Have fun.

Gamal Hennessy

Related Articles

An Introduction to Creative Contract Consulting

Gamal Hennessy Biography

The Current C3 Client List

Your Slice of the Pie Part 1 (Gross and Net Profit Concepts in Creator Owned Deals)

Added on September 26, 2012 by Gamal Hennessy.

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

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

Added on September 14, 2012 by 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

Image and Story (The Role of Copyright and Trademark in Comics)

Added on August 9, 2012 by Gamal Hennessy.

By Gamal Hennessy

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

Before we talk about the relationship between copyrights and trademarks, it would help to define what we are talking about.

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.

The easiest way to show the difference between the two is with an example. Let’s say someone (we’ll call him Bob) writes a story about a boy whose parents are killed right in front of him on the way home from the theater. This boy grows up obsessed with fighting crime and making criminals feel the same fear he felt in that alley. He takes a secret identity and creates a persona modeled after an animal associated with the night (just for the sake of the example, let’s say this guy decides to use a bat). He creates a series of tools that utilize his symbolic totem. While many people see this mysterious man as a vigilante and a criminal, he becomes the one thing that keeps the city from descending into chaos.

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.

When your stories create a strong emotional connection with the readers, many of them will choose to associate themselves with your creation. In modern societies, that association is expressed in material goods, especially with younger audiences. The reason that licensing and merchandise programs are tied to film and television releases is because the owners of the intellectual property are attempting to profit from the emotional creation that their stories create. In many cases, the licensing program for a character can generate far more revenue than the actual stories, if only because the potential number of merchandise products is far greater than the media outlets and they can be accessed at a far lower cost. But there will not be any demand to create merchandise if there isn’t a strong story creating a meaningful connection.

Legal and Business Impact

When a comic creator is trying to get their stories published, many of them are focusing exclusively on the terms and conditions for the actual publishing rights. Very few of them take into account the potential impact of the secondary media and merchandising rights. This makes a certain amount of sense, since very few comics ever produce a meaningful merchandise program.

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

Early in the development of comics, it might have been accidental that so many characters have distinctive symbols prominently displayed on their chests. It might have been pure coincidence that every item or tool that they used related back to an image that could easily be affixed to a wide array of products. But creators can be more deliberate now. The development of a story with a strong image system could improve licensing potential of a creator owned property down the line. I’m not suggesting that you compromise your art by forcing a logo where it makes no logical sense in your narrative. But there is a commercial reason why so many heroes have a symbol on their chests. It helps to sell T-shirts later.

Have fun.

Gamal