Rule #19

12 12 2011

Learn to read and understand contracts.

Let me start by asking you, “Do you know what a deal looks like?” This is an important first step in entering and being successful in the licensing business. You need to be prepared to discuss and negotiate opportunities, which include flat fee offers, work-for-hire contracts, and royalty-based licensing agreements. And you need to understand both the contractual obligations, as well as the financial risks and potential rewards of the actual deal.

Manufacturers often hope to pay you a flat fee for your art.  In fact, there are many manufacturers who only pay a flat fee. There are also manufacturers willing to pay royalties, so that you can share in the profits of your joint venture. And, contrary to what you might think, any type of contract can request to own your art outright. So be wary. Learn to read and understand your contracts, even when using an agent.

If you are an artist who has done business on a flat fee basis before, I challenge you to tell them you are now moving on to a royalty-based model. If the manufacturer isn’t willing to move to a royalty basis, then you must negotiate a higher flat fee or be committed to moving on. No one is going to transition you out of the flat fee, or work-for-hire business models, except yourself.

With manufacturers who only work on a flat-fee basis, you need to evaluate whether the deal is right for you. Gather information from the manufacturer and compute the potential revenue for the product(s) with your art. There are actually flat fee deals that bring in more revenue than a royalty-based licensing deal would have generated; it just depends on the royalty percentage rate and volume of sales.  Then there are times the offer is so low it’s a joke, and you’re probably better off working with somebody else. You need to learn how to evaluate offers and decide on an individual basis whether a deal works for you.

If you want to work on a royalty basis and get licensing revenue, then you need to go to manufacturers who do licensing deals with artists. Since you cannot expect to change a manufacturer’s business model, it is best to look for manufacturers who are already working with artists on a royalty basis.

In this industry, licensing revenue and income are closely held secrets because most companies are privately held and this financial information is not publicly disclosed. I know artists who make in the tens of thousands of dollars, and in the hundreds of thousands of dollars each year from art licensing revenue. And there certainly are the icons of the industry that make millions. You can bet they know how to read and understand contracts.




2 responses

22 11 2012
katy burns

very good advice…..i just turned down 2 offers from licensing companies who wanted exclusive representation…… of them wanted permanent rights!

13 12 2011
Bob T Panda

Excellent advice.

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