Licensing Basics

Screen Shot 2014-04-07 at 8.31.04 PMArt Licensing is an exciting area in the licensing market and can possibly supplement and artist’s income and increase exposure. Licensing is defined as leasing the right to use a legally protected name, graphic, logo, saying or likeness in conjunction with a product, promotion, or services. It is usually accomplished by a formal agreement between the owner or agent of the mark (the Licensor) and the prospective Licensee who is either a manufacturer, supplier of services or an agent on behalf of them.

Licensing is an industry that now produces over $15 million worth of retail sales every hour, 12 hours a day 365 days a year. Little more than a decade ago, the licensing industry generated $4.9 billion worth of goods and services at retail. In 1982, the figure grew to $13.6 billion. This volume doubled only two years later to $26.7 billion and again by 1985, almost doubled to $50 billion! The 2003 LIMA Licensing Industry Survey estimates retain sales of licensed merchandise to be a $110 billion (based on royalty revenues of $5.831 billion) for North America alone. It is difficult to find another industry generating this rate of growth and sustaining it year after year.

When people think of licensing, usually sports or entertainment licensing is the first thing that comes to mind, but there is far more to the licensing business than that. Licensing is no longer simply the domain of a few specialized people. Nowadays all major companies and the media consider licensing a significant marking tool. One could even say that it has become one of the most powerful contemporary forms of marketing and brand extension and that it is being used in ever increasingly sophisticated ways. Before clarifying what the business of licensing is all about, there is a clear need for some primary information. Therefore some definitions and basic terms will be given and explained.

Licensing is the process of leasing a legally protected (that is, trademarked or copyrighted) entity known as property which could be a name, likeness, logo, graphic, saying, signature, character or a combination of several of these elements, in conjunction with a product or a product line. Artists often license their work for greeting cards, posters, book covers, internet graphics, clothing, or fabrics.

Licensing is usually based on a contractual agreement between two business entities: the owner or agent of the property, also known as the licensor and the renter of the rights, and the prospective licensee, in this case, the artist. The formal permission to use the owner’s property is subject to certain terms and conditions, such as a specific purpose, a defined geographic area, and a finite time period. In exchange for granting the rights for a certain property to the licensee, the licensor obtains a financial remuneration. The basic component of this payment is the royalty, which is a percentage of the product sales involving your image. A less attractive offer is the outright purchase of the image. In addition to a royalty agreement, a guaranteed minimum royalty, the guarantee, is usually required. The licensee has to pay this guarantee even in the face of total failure of the property. A percentage of this guarantee is normally paid as an advance.

Today there are overwhelming licensing opportunities that did not exist a little more than a decade ago. The availability of licensed merchandise has proliferated over the last decade, and corporate America has finally recognized the value of its brand names and unique products developed over decades. Now these invaluable, easily identified markets are licensed as a cost-effective mans of brand extension and additional consumer awareness for the primary brand. It is the popularity and familiarity of these marks that help otherwise undistinguished products to stand out from the crowd.

As mentioned previously, licensing is a marketing tool. It generates recognition, maintains ongoing brand awareness and can also reinforce brand image. By bringing the brand and its message into retain environment “a nontraditional venue for publicizing” and by using various other promotional and advertising vehicles, merchandise licensing is primarily a means of multiplying viewer impressions and expanding consumer association. For example, a strong brand often evokes consumer associations that also might be desirable in other project categories. In order to take advantage of this value, a company may license its name, logo, or other facets of its brand to another firm for use on their products and merchandise. The artist will need to be comfortable with his or her image being used in this manner before entering into any such agreement. Merchandise licensing can offer opportunities and benefits to both the artists as well as the manufacturers of the licensed goods.

The rationale for the artist to license a product is linked to increasing market exposure and image or name recognition at a consumer level without having to develop, produce, or market a new project. Furthermore, the artist as licensor receives legal protection, since licensing a “brand” or image for use in certain product categories prevents potential competitors from legally using that image to enter those categories.

The greatest economic advantage for the artist-licensor lies with the profits from royalty payments. Spoken in financial terms, an artist receives from the licensee and average royalty payment of about 5 percent of the wholesale price of each sold product. Due to the fact that there are no manufacturing or marking costs, these revenues translate directly to profits.

Our best advice to you is to thoroughly look over the details of the contract before you sign it. We have seen contracts which request the transfer of a copyright, or exclusive use of your image in perpetuity. We have also seen contracts lead to positive returns and mass exposure.

Good luck!

This article was abstracted from LIMA with authors’ permission, www.licensing.org. We thought it might be useful to artists who are considering licensing their work for print or fashion. We also have a sample licensing agreement you may wish to study in advance.

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