Ten things you need to know about licensing contracts.
1. A licensing contract grants another entity permission to use your artwork/imagery on specific products for a specific length of time for a specific royalty rate. Those are the three main points a contract needs to be outline.
A fellow artist once sent me a contract someone had offered her, wanting me to review it and give her my opinion of the terms. The royalties paragraph blathered on about economic circumstances being impossible to predict, and that certain rates can't be guaranteed, and yadda, yadda, yadda - just one of the many red flags that popped up in a contract I advised her not to sign. Licensees don't get to adjust royalty rates willy nilly during the term of a contract. A rate is set and that's that.
2. A licensing contract needs to specify that you, the Artist, retains copyright ownership of your artwork.
3. I once read a contract from a fairly well-known company that said itemized royalty reports would not be provided, and when the artist (a colleague) pushed back on this, the owner claimed it would be "too complicated." I advised this artist not to sign the contract. No itemized reports means you, the Artist, don't know how many of what items sold, which means the licensee may or may not be paying all the royalties you've earned. A contract should specify exactly when you will get paid (usually quarterly), and that you will receive itemized sales reports. It should also specify that you have the right to audit the licensee if you believe royalty reports are inaccurate.
4. The contract should specify the copyright notation and any other information that will be shown on all of your products - your full name, website, etc.
5. Royalty rates can vary - I've received as low as 2% and as high as 10%. Each of those extremes is rare, and I've experience an array of royalty negotiations, each time following my intuition. I have accepted the first rates offered without negotiation, and I've also turned contracts down because a potential licensee refused to budge. Most of the time a contract is offered, the royalty negotiation goes like this: they make an offer, I counter, they counter again, and we meet each other somewhere in between.
With each negotiation, I try to balance a number of factors - how large the distribution is, how expansive of a product line the company is creating with my work. Also - do I have a good feeling about the company? Is there potential for something more significant beyond the first contract?
This is why a contract needs to be specific about what products artwork and imagery will be used for. Perhaps your first contract with a new licensee is for journals and bookmarks, and a 4% royalty rate is accepted. And maybe this feels a wee bit on the low side for you, but you decide to go for it because this company has an expansive product line and the potential for growth is significant. Then let's say those journals and bookmarks sell like crazy, and the company wants to add more products. In that second round, you have the opportunity - should you feel inspired - to request an increased rate.
My goal is never to simply wrestle the biggest royalty rate I can out of companies; I try to create a contract that gives me enough of what I need on a variety of issues.
6. Not all contracts will include an advance on royalties, but if you feel inspired to ask for one, ask for one. What's the worst that can happen? They can say no. On the one hand, it is entirely fair to request compensation in the form of an advance because you are going to be doing work for this company for royalties that might not start coming your way for months. On the other hand, remember to balance this point of the contract with other factors - distribution, the royalty rate, etc.
One other thing to keep in mind - are you an artist new to the licensing scene? Or do you already have a string of successes under your belt? A proven track record is definitely an asset when it comes to the issue of an advance.
My experience? When I haven't been offered an advance, I've usually asked for one, and anytime I've asked for one I've received it. I think the main reason is because what I've asked for is fair. Again, it isn't about trying to grasp as much as I can, but about requesting what feels fair for the work I will be doing.
7. If you do request an advance, and it is granted, the contract should specify that it is a non-refundable advance. Guess who learned that one the hard way?
8. Once a contract is secured and your products are flying off the shelves, don't be shy about continuing to present more ideas to your licensee. The company may or may not have specific ideas about what to do beyond the initial release (my experience with this has been a mixed bag), but even if they do, share other concepts and presentations with your licensee. You already have their attention, give it all you've got!
9. Be prepared that companies will likely give you deadlines that are something along the lines of, "As soon as possible", or "Yesterday." My experience is that companies don't necessarily keep Artists in the loop of impending company deadlines, marketing meetings, etc. I'm not trying to bust on anyone here, just letting it be known that long stretches of time aren't necessarily granted to Artists. This is not always the case - I have, at times, been given plenty of advance notice for artwork that will be due - but not usually.
10. Consider your licensee your partner - both of you have the same goal, which is to sell your products. This is the bottom line. Yes, you also might want to share inspiring gifts and messages with the world, there is likely a deeper mission behind what you are doing together. But at the end of the day your licensee is running a business, and they need your products to sell in order to keep their business - and your line - going.
I've experienced both sides of the spectrum when it comes to designing a product line. Some companies have given me free reign, saying, "Here are the product specs - do whatever you want!" and others have given me product specs and precise instructions as to where what design element should go where, what the PMS colors should be, etc. I've enjoyed both for different reasons, which I suppose means I've been incredibly fortunate not to have had to create anything I didn't like. Either way, I don't lose sight of the fact that my licensees need my best work and my best efforts, because if my line doesn't sell, the relationship will be over quickly.
As always, go with what feels right in your gut - give in on issues you don't feel strongly about if necessary and don't be afraid to stand your ground on something that is important to you.
Have any questions or stories to share related to this topic? Send them to me at firstname.lastname@example.org.