"The Minimum Guarantee" Part II

There are numerous other factors to consider and familiarize your self with. Contracts may differ severely in length; a small company may compose one that is two pages, and a large company, 40 pages. However, each licensing contract will include basic terms such as minimum guarantees, royalty rates, channels of distribution, liability insurance the licensee must have and more. Liability insurance coverage, from my experience, can range from $1,000,000 and up. The company also wants to protect its image and will need the list of vendors you work with, so they may periodically audit their practices (in order to insure that no labor laws are being broken, etc.) They will also issue a standard credit check, generally with Dunn and Bradstreet. If you aren’t listed within that system, do so. There is a small cost, but it’s a necessity.

Royalty rates are another subject of contention. Many variables affect how high or low they are, though the degree by which they change is minimal. Rates differ by category, how “hot” the current property you seek to license is, and the economy at the time. For example, I recently was able to “bundle” properties. Bundling is the term used to describe gaining access to multiple properties under a single contract. In my experiences in the past, I had to create a new contract and a new minimum guarantee for each additional property. Although it always highly unlikely the licensor will grant you access to all their properties, take full advantage of bundling. If, after a certain period of time, it is evident that your product is selling well, then the company will be more likely to discuss offering you new properties.

Exclusivity. You may not have to fight as hard for it as you imagine. The licensor isn’t stupid – he recognizes that if numerous players in a small market are all offering the same product (with his property), they are unlikely to do well. It’s too competitive. However, being granted an exclusive is still rare. Companies hate the language. If you have a very small niche product, your chances are higher. In my contract, I was able to gain the language that the property would not be licensed to “another third party”, which helped give me some protection, but still not an exclusive. If you have a product that they currently do not license on, your chances of some exclusivity are higher. T-shirts? Mugs? No way.

I offer a recommendation against pursuing a license on a new product. If you do not have a track record of being on the market, working with distributors, vendors, your chances of being rewarded with a license are very low. It makes sense to license a product to an individual that can quickly and efficiently plug the property into his business. My guitar picks were in thousands of stores before I pursued getting a license. If you are not established, the risk is much higher for the company, and you will pay the price for that risk.