So you’ve sold your tv show to a broadcaster in territory x. The hard part is over. Now your thoughts turn to licensing. It seems like such easy money: you charge manufacturers a fee granting them the rights to create a toy or t-shirt featuring your show’s characters, and every time someone buys one of the toys, you receive a percentage of the sale. With no overhead costs, you watch the money roll in, right?

Wrong. Kids entertainment licensing is a highly sophisticated and competitive industry, and new kids shows are toughest to sell. Even if you can convince companies to produce merchandise, those products will have to battle a universe of well-entrenched brands backed by deep-pocketed entertainment behemoths like Disney, Warner Bros. and Nickelodeon.

Numerous potholes await producers who set off on the road to licensing.

The first step for producers, of course, is to evaluate realistically their property’s licensing potential.

To license or not?

tv rules! Although there are some exceptions, if you haven’t sold your show to a broadcaster, don’t bother trying to set up a licensing program. If they exist, a property’s performance numbers from another territory – such as ratings or product sales, for example – can help you market your show to the trade in a new territory.

A show based on a book property that’s well-known in the territory will also help your cause, but ultimately, ‘you’ll need the media engine of tv to drive your merchandise program,’ says Sid Kaufman, executive vp of worldwide merchandising at Nelvana in Toronto.

The better the broadcast agreement you’ve secured for your show, the more licensing interest it will generate (and the more leverage you’ll have when it comes time to negotiate deals with an agent and, by extension, your licensees). Ideally, a producer needs to have sold 26 half-hours of the show to a strong broadcaster (in a good time slot) before potential licensing partners and agents will want to get involved.

Hiring an agent

Once you’ve sold the show to a broadcaster, your next step as the producer or owner of the property is to make the important decision to hire an agent to help manage the licensing programs in specific territories.

Join the queue trying to find an agent who specializes in your property’s niche, but who doesn’t already rep cookie-cutter propositions or have vested interests in competitive titles. Though some of the larger studios handle their licensing in-house, most will at some point also require the services of an agent, especially in foreign territories.

When looking for agents, there are several sources producers can consult. Industry trade organization International Licensing Industry Merchandisers’ Association publishes an annual resource directory containing listings for agents, as well as the properties they represent. (Members can also access this info from lima’s website – www.licensing.org.) Also on the Net, there are B2B sites, like the WHN Exchange and FastTrends.com, which list names of indie agents.

Another good place to shop are trade shows that agents attend regularly, such as mipcom, The Licensing Show and Toy Fair.

Mary Graziano, manager of licensing at Montreal-based Cinar, suggests asking broadcasters for recommendations. If an agent already has a close working relationship with your broadcast partner, says Graziano, it helps when you’re trying to co-ordinate your merchandise program with the launch date of your tv show.

Increasingly though, broadcasters are nominating themselves to manage the merchandising program, which can both pose problems and present benefits for producers.

It’s crucial that producers select the right agent to avoid causing possible long-term injury to their property down the road. The dead-obvious route is to get references from broadcasters, retailers and other licensors they’ve worked with in the past.

Early in the interview process, ask the agents for a marketing plan, if they haven’t already provided one. Comparing marketing plans allows producers to weigh the agents’ thoughts on how they would sell the property in their territory, what sorts of products it might translate into best, possible promotional opportunities, and what demographic group the property and the products would appeal to.

Producers should try to get as many plans – replete with sales projections – as possible, says Graziano. By having competing proposals, you’re more likely to land a better agent (not to mention gleaning more info on the various territories).

Producers need to determine if the agents are the right fit. Have they represented a similar property in the past? If they have, that may work in their favor. Then again, a show that’s too similar may impede your agent’s ability to sell your show. Or, if an agent manages too many properties, he or she may not be able to dedicate enough time to yours.

There are pros and cons to using agents. On the plus side, you’re not dealing with the overhead that accompanies putting your own people on the ground. As well, agents are presumably familiar with local tastes and can help incorporate that knowledge into the strategy for your licensing program. On the minus: all agents are hired guns. They represent other licensors, many of whom are your competitors.

The surest way to keep your agent in check is to spell out clearly the strategy you want them to follow in your agreement. Speaking of which, it’s time to sit down and hash out the terms of the agent’s contract.

Agent contracts

Known as the representation agreement, the contract with your agent stipulates what they will provide you, the licensor, and under what terms; it is here that serious attention to detail and awareness of what’s happening in the market literally pays off. While no two contracts are likely to be the same, each will have several key sections in common, starting with:

Agent services: Typically, it includes signing new licensing and promotional agreements for your property, collecting royalties from licensees and co-ordinating marketing efforts with licensees, retailers and broadcasters, so the launch of your merchandise program coincides with, or follows, the tv debut of your show.

Territories: This clause lists the territory(s) in which your agent is allowed to sign new licensees. Increasingly, this can be a contentious area, especially for agents based in Europe, where trade between countries has become more liberalized. (For more, see ‘Licensing your property,’ p. 20.)

Rights: This section of the contract details the rights to the categories you’re allowing your agent to sell in the territory, along with a list of ones the agent can’t sell. Known as the reserve rights clause, it will include rights that you as the licensor either don’t own or don’t want to give to the agent, says Tonya Lindo, who, as manager of international licensing at Nelvana, oversees contract negotiations with the prodco’s agents.

For instance, if your show is based on a publishing property, the publishing rights would be owned by the underlying rights holder, in this case, the publisher or the author. Similarly, live theatrical rights, which agents may request because they want to launch a musical based on your property, may not be available either. Often those rights are tied up with the musicians who wrote the score for your show, says Lindo.

As for unencumbered rights you as the licensor should hold on to, toy and interactive top the list.

Most licensors will try to sign on global licensees for both categories, for two reasons. First, companies require long lead times to create both products. Often a toyco will need info on a show’s plot lines and characters up to two years before it airs. For competitive reasons, the fewer parties you divulge this information to, the better.

(It’s important the categories you list in the reserve rights clause are clearly defined, to avoid hampering your agent’s ability to sell licences down the road. ‘Interactive, for example, is often an ambiguous category when it comes to merchandising because you can have an electronic handheld toy, which is interactive, but that’s obviously not the same as a cd-rom you’d use with your computer,’ says Nelvana’s Lindo.)

The other reason for holding on to these rights – no doubt to the chagrin of agents – is money. Companies pay large sums – in the millions – for global toy and interactive rights, and selling them yourself means you don’t need to pay your agent a fee.

Additionally, it’s also common for producers/licensors to retain home video rights, which they will use as leverage when they’re trying to sell the broadcast rights to their tv show.

Agent compensation: All agents work on commission. Though it can range from 25% to 40%, the average is usually 30% on all monies the agent takes in on deals they sign in the territory. There is an exception to this. As the licensor, if you sign a deal that impacts your agent’s territory, you will have to pay them a fee.

In some cases, licensors are demanding agents pay them an up-front fee for the right to represent their property. If there’s enough buzz surrounding your property, you can yield an advance from agents. Some licensors, like Nelvana for example, are starting to make this mandatory for all agents, as a way of ensuring that they will remain committed to selling its properties for the duration of their deal. Depending on the rights the agent has, this fee can range from $15,000 to $1.5 million, says Lindo.

Also near the section on payment, the licensor should include a list of thresholds the agent needs to meet whereby they’re bringing in enough sales through the deals they sign in the territory. The section will also include protocol agents need to follow, for things like administering agreements with licensees, collecting royalties and product approval. It’s basically a performance or an out clause, which allows you to terminate the contract if you’re unhappy with your agent.

Trademarks: A list of trademarks for your property should be attached to your agent’s contract. It’s important that you have registered your trademarks before your show airs, and well before you start thinking about licensing.

You’ll need to register on a country-by-country basis, which can get expensive, but the alternative is often more costly. If you haven’t registered the trademarks in a territory, companies can create product using your property’s likeness without having to pay you a dime. Or worse, someone could register the trademark for your property in their territory, and make you buy it from them or force you to change the name of your property in that territory.

Other clauses: Internet. Increasingly, agents ask include these rights in agreements, which allow licensees to sell their products on the Net. Many licensors have refused to grant them though, because they lead to territorial rights problems. If a licensee in the u.k. produces Snoopy socks and sells them on the Internet and someone in Canada buys them, the Canadian-based sock licensee’s exclusive rights to make and sell Snoopy socks in Canada have been infringed upon. That licensee could demand compensation from the licensor for lost sales.

Product liability insurance: A request u.s. licensors make of their licensees, liability insurance protects the property owner from being sued out of business, should a licensee create a product that injures a child or a consumer, and they decide to take legal action.

The problem: most countries outside of the u.s. (including Europe and Latin America) don’t have laws covering product liability insurance. Understandably, licensees are reluctant to pay the insurance, which is an added cost on top of the monies they’re already forking out to the property owner for the rights. If licensees refuse to pay, some licensors will allow them to opt out.

Miscellaneous: As the licensor, you’re responsible for supplying your agent with style guides on how your property is to appear across a variety of product categories, as well as the deal memos that agents give potential licensees to fill out.

Since agents work on commission, it’s in their interest to land the best deal possible for their clients. That said, it’s to your benefit that an agent favors potential licensees that have a solid credit history and a strong working relationship with retailers in the territory.

What licensees pay you: For the right to create product using your property, licensees pay a minimum guarantee (mg), which is the minimum amount of money you agree to accept for the rights to the licensed merchandise they sell. Depending on the category, mgs can vary from a minimum of $15,000 (ties, for example) to millions of dollars (toys, for example).

The licensee will either pay the full mg, or depending on the size of the deal, a percentage of it up front, and the remainder within the first 12 months of holding the licence or the first 12 months that product hits retail. Also, licensees also pay a royalty, a percentage on the product’s sale price they charge retailers.

Some licensees will source product directly from factories in the Orient, which means they’re getting the merchandise at a cheaper price than they would have in their home territory. In such cases, ‘we’ll tack on an additional four percentage points to the royalty on their net sales because the licensee is getting that product at a discount,’ says Lindo.

Currently, the royalty range for tv entertainment properties for all categories is 10% to 12%, but this can vary.

‘If your show’s going in with 13 half-hours, you may ask for a lower-than-average royalty rate, and then raise it if the show is stripped or meets certain performance guidelines,’ says Nelvana’s Kaufman.

Also, licensors will also ask licensees to pay into a marketing or advertising fund (mf), which is usually a couple of points on top of their royalty. Often agents are required to pay into the fund as well. Licensors will match whatever licensees and agents put up and use the money to fund retail promotions.

This is a negotiable point: if agents and licensees are resistant to paying into the mf, some licensors will allow them to chip in on one-off promotions, although that makes it tougher to plan initiatives far in advance.

Launching the merch

With your licensing program solidified, it’s time for your agent to hold a meeting with your property’s key partners: your broadcaster, key licensees (toy, video, interactive and publishing), and major retailers in the territory. Topics range from basics such as the date your show will debut on tv and when the licensed merchandise will be available to retailers, to what marketing initiatives are in the works and how each partner can participate. Even after your merch hits retail, you must keep in touch with licensees and agents regularly. *

A version of this article appeared in the October 2000 issue of KidScreen (www.kidscreen.com).