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Tuesday, June 28, 2011

Art Licensing Royalty Rates

The royalty rate for the entire licensing industry (brands & trademarks, entertainment, fashion, sports, publishing, celebrities, collegiate, art, etc.) is two to 20 percent. The entertainment and sports segments of the licensing industry earns a higher royalty rate than the art segment. Consumers seek out these desirable properties because of their prominent consumer visibility via advertising, events, appearance on television and other media. Therefore, manufacturers can charge more for the products and offer higher royalties to licensors. The average royalty for these licensing segments is in the 9 percent range but can be as large as 20 percent.

The average royalty rate for art licensing is six to seven percent. Although, royalties can be as low as two to three percent for products placed into the mass market and up to 12 percent in specialty stores by well known artists. Note: Not all art licensing deals generate income from royalties. Read "Licensing Art - There is no such thing as a typical deal" for a discussion on other types of art licensing revenues.

Royalty rates are dependent upon many factors such as the type of product, what type of retail store the product is sold (i.e. specialty, mass market, discount, etc.), whether advances toward royalties are offered, or if the artist is well known and the art is sought after by the consumer. Ultimately the percent royalties offered by the manufacturer is dependent on a profitable gross margin (difference of cost to produce product or cost at wholesale, and income from sale of product). In other words, if there is a big enough margin between the cost in producing the product and the net sale price then a higher royalty percent may be offered to the licensor.

Royalty Rates Publications
Licensing contracts are confidential and the reason why the royalty rates of individual manufacturers are not shared on the internet. However, there are several publications (see below) that conduct royalty surveys and publish yearly reports that show a range of royalties for specific product categories. But these publications are pricey and not affordable for many artists. Note: Because of the varying factors from industry to industry and manufacturer to manufacturer, there is not one set royalty rate per product category and therefore publications show a range of rates. Many product categories for art have a range of four to eight percent.

• "Graphic Artist's Guild Handbook of Pricing and Ethical Guidelines" 13th Edition (published by Graphic Artist Guild) Cost $39.99. ($22.35 at Amazon.com) The handbook includes SOME pricing and royalty rates.

• "The Licensing Letter Royalty Trends Report" (published by EPM Communications, Inc.) Cost $319. The report includes charts and tables of royalty rates per product categories for different licensing segments. You can download a pdf file of sample pages from the website.

• "Licensing Royalty Rates, 2011 Edition" by Gregory J Battersby, Charles W Grimes (Aspen Publishers) Cost $425. The book includes tables of royalty rates per product categories for different licensing segments. Click here to see several pages from the 2010 edition.

Reasons for Accepting Low Royalties
The answer to many questions in the licensing industry is "it depends." And that is also the case in signing a contract with a low royalty rate. Each artist has a different reason for licensing their art to manufacturers and it not necessarily to make money on EVERY contract. Below are some reasons why licensors may accept a low royalty percent.

• Large royalty is not always the most profitable
At first glance, you would think that licensing art to manufacturers that give high royalties would be the most profitable. But that is not always the case. Many times a lower royalty from manufacturers that have a high product distribution is better than manufacturers with a higher royalty and lower distribution. Art consultant Joanne Fink (now artist and product consultant) gave an excellent example of this during the "Creative Marketing Strategies for Art Licensors" seminar* of the Craft & Hobby 2008 Winter Convention and Trade Show. She recounted an example of a manufacturer that licensed art for their rugs at 6% royalties to specialty stores and different art to the mass market (big box stores) for 3% royalties. The artists that had their art on product in specialty stores received $3000 in royalties while the ones that had their art in big box stores received $20,000 in royalties. Now that is a huge difference. Note: The example that Joanne described happened during the heyday of art licensing. Retail sales and art licensing has declined during the last several years so it is harder to get licensing contracts with big box stores. Also these stores are doing more private label branding and purchasing art outright or using art designed in-house instead of licensing.

* An audio CD of this seminar can be purchased from Craft & Hobby Association for $16 plus shipping and handling. On it Joanne Fink shares excellent information about the art licensing industry and marketing art. Click on the topics tab to view all the 2008 seminars. "Creative Marketing Strategies for Art Licensors" is seminar number S102.

• Build art / brand awareness
As a licensor new to licensing, an artist may wish to build awareness of her / his art by getting contracts with key manufacturers. Thus, they may be willing to accept a low royalty percent with the understanding that if it does well she / he will negotiate a higher royalty when the contract is renewed.

Also a licensor may be willing to accept low royalties if the manufacturer is willing to help build the licensors brand by advertising in various medias, arrange artist signings, interviews, etc.

• License to a particular manufacturer
A licensor wants to license her / his art to a certain manufacturer because they like the quality of the products, think that the art is a perfect fit, and think the art will be successful. The licensor is willing to take a low royalty to test the market and will negotiate a higher royalty when the contract is renewed.

Consider all the ramifications before accepting or rejecting a licensing contract based on the royalty percent offered by the manufacturer. A high percent royalty is not necessarily profitable. A low royalty percent may payoff over the long haul if the reason for accepting it match the artist licensing goals.

Read the comments to this article.  Agent Lance Klass of Porterfield's Fine Art Licensing shared important information about royalty rates, low royalties when stores have high sales volume, and advances toward royalties.

I welcome any suggestions and comments. Please write them in the comment section below.

Monday, June 20, 2011

Computer Technology Helps Art Licensing Agency

In this technology age, computers and the internet is indispensable in running any business. That is especially true in art licensing. Manufacturers want art in digital format, most art submissions are sent via the internet, art images are manipulated into collections with a computer, and the variety of records needed to license art is done on the computer. Read how the advances in computer technology have helped mother / daughter team Parker Fulton and Laurie High of Creative Connection, Inc. manage their art licensing agency.

A Responsible Rep

By Laurie High, V.P. Creative Connection, Inc.

The Art Licensing business has dramatically changed over the last ten years with advances in computer technology. Most communication, record keeping, and information gathering is now handled via computer. Utilizing Photoshop to rework art and sending digital files over the Internet is expected by manufacturers. Also, many social media venues are now available and can create additional opportunities in this field.

As an Artists' Rep., keeping up with an array of tasks is important to the health and growth of the organization, including: marketing, advertising, creating promotional materials, follow-up, trade shows, contracts, job orders, billing, royalty processing, social media including website, blogs, Twitter, Linked-in, Facebook, and more.

Here at Creative Connection, Inc., there are just two employees: Parker Fulton, President and myself, Vice President. My days are spent handling all of the above except for the majority of follow-up and blogs and twitter. Parker manages the follow-up. In addition, she is an illustrator herself so she must spend considerable time at the drawing table.

I did set up a twitter account some time ago but only managed one tweet so that account is currently dormant. According to seminars we have sat in on, a blog is a must as is Twitter and Facebook, but then so is an up-to-date company website and Linked-in. Marketing can be a full time job in itself, and I have not yet mastered the art of not sleeping so that I can participate in all of the other necessary social media. I do find a few minutes to read through the Linked-in comments each day and find them invaluable. The links posted to personal blogs and industry related articles have been very helpful to me in my business. Finding out what works and doesn't work by reading and participating in the various discussions also saves me research time.

So, if Linked-in helps our business this much, I can only imagine how branching out into other social media would be helpful too. Perhaps Linked-in will teach me how to manage everything. I'm waiting! I've just recently created a company Facebook Page, so that is in the preliminary stage and time will tell the value of this venture.

Parker and I are very thankful for the rapid technological advances of the past few years. We used to print hundreds of color copies for promotions, manually recording everything being mailed out to our clients. Current technology allows us to easily condense 100 images in a zip file and send immediately with the touch of the send button. Thumbnails are quickly printed out for reference of what has been sent. The expenses and time saved between yesterday and today are hard to grasp.

But, with the technological advances comes the expectation for more, so time is not freed up; it's filled up. Since we are able to and everyone else is able to, we must market more often and more creatively. In addition, the talent pool is immense so if we do not keep up with the expectations then we are going to fall behind. That includes the necessity for a presence in the social media available to us.

Comments are welcome. Please write them in the below comment section.

Tuesday, June 14, 2011

Editorial: The Effect of Cotton Prices on Licensing Art to the Textile Industry

The price for cotton has jumped over 250 percent in the last year. The cost in April 2010 was $0.88 per pound and went to an all time high of $2.30 per pound in March 2011. And even though the prices are decreasing ($1.65 in May 2011), analysts do not expect the cotton prices to again reach the low 2010 values. Below is a discussion on the reason why cotton prices have increased so dramatically, the impact it has on the retail prices of textiles (fabric, cloth),* and ultimately the impact it has on licensing art to the textile industry.

*Read the definitions and subtle differences of textile, fabric, and cloth in Wikipedia.

Surge in Cotton Prices
The 2010 surge in cotton prices was because of a global cotton shortage. This shortage was caused by a variety of events such as lower cotton production, loss of cotton crops, higher energy and labor costs, weakening U.S. dollar, and placing export quotas on cotton in India while the demand for textiles and cotton products rose (mainly in China). In 2009, the switching of cotton production to other crops that were more profitable than cotton started the impetus for escalating prices in the U.S. It was followed in 2010 by loss of cotton crops due to bad weather in Pakistan (flooding), China (drought) and India (monsoon) that affected one quarter of the global cotton crop. And the multitude of events and reasons for the cotton shortage goes on. To find out more, read Textile Forecast: "High Cotton Prices: How Did We Get Here?"

Impact at Retail
Most manufacturing of textiles takes place in mills around the world and not in the U.S. Because the U.S. textile industry is small, it exports much of the cotton it produces and imports most products that contain cotton from other countries. China is the largest producer and consumer of cotton. To find out more cotton information and statistics, read "Cotton" sponsored by E*Trade.

Last year, there was no significant increase in textile prices because manufacturers* either still had the cotton that was purchased at lower prices or they absorbed the higher cotton cost. They were worried that their customers would not pay higher prices. And they were right because earlier this year India cut their textile production because of the sinking demand for cotton.

Some manufacturers will offset the higher cost of cotton by reducing the cotton content in the products by introducing other materials such as a polyester for a poly-cotton blend or even switch to other materials like Lycra. But the higher costs of cotton will eventually be passed onto consumers so manufacturers and retailers can maintain a profitable gross margin (difference of cost to produce product or cost at wholesale, and income from sale of product). Read the following articles for additional information.

• from CNN Money: "Cotton prices heat up this summer"

• about bath textiles: "Rising Costs a Concern For Bath Textiles Suppliers"

• about scrubs: "What's Up With Cotton Nursing Scrubs?"

• about quilt fabric companies: "What's Up With Cotton?"

* In the licensing industry, many companies that are called manufacturers do not actually manufacturer their products but outsource them to companies that produce the products. Thus, they are really suppliers of products and not manufacturers.

Impact on Licensing
Not all textile products use licensed art. But pillows, throws, scrub clothing, fabrics for quilting, kitchen and bath textiles, rugs and mats, needlework kits, etc. use licensed art somewhat. And unfortunately, the rise in cotton and labor costs are bound to affect licensing art for those products.

At Surtex, I heard several artists and an agent say that the amount of licensing deals for kitchen textiles is down from previous years. They attune it to the escalating costs in producing textiles. Manufacturers gross margins are smaller and they are looking for ways to cut costs so that they do not have to increase the price beyond the point consumers are willing to spend. One method of cost savings is not to license art but to either buy the art outright or not put art on some textile products.

The drop in sales of cotton fabrics with the rising cost has already impacted the quilting industry as many consumers are reluctant to pay over $10 a yard. Quilters are no longer willing to purchase huge amounts of fabric to add to their fabric stashes for future projects. They are either buying just enough for an immediate project or using fabrics from their existing stash that was purchased years ago.

The Future
In the long run, the reduction in textile sales will affect manufacturers. It could cause those manufacturers that license art to go out of business and give artists less licensing opportunities. It sounds gloom and doom doesn't it?

Well, artists that design mostly for the textile industry can wait and see if the prices come down as the economy improves or they can be proactive. Be proactive by creating designs or convert existing ones (if suitable) for other industries such as the paper industry (journals, greeting cards, scrapbooking, party, etc.). And for those artists that only create patterns, take that extra step and create central images that complement the patterns. That will give additional opportunities for licensing art to more industries.

Most of all, work harder at creating art than you have ever worked before. Artist Paul Brent stated during his May 25, 2011 "Ask Paul Brent" call with Tara Reed** that the poor economy has definitely impacted the amount of his licensing contracts. So what did Paul do? He worked harder and created an impressive 40 art collections last year (30% more than normal) so that he will have a better chance in licensing his art this year. As he said, licensing is a volume business and the more good art you have the better your chances in getting licensing deals. Kudos Paul! You are a true PAL (Positive Art Licensor).

** A downloadable audio file of the May 25, 2011 "Ask Paul Brent" call that answered artists licensing questions and discussed Surtex 2011 can be purchased at ArtLiceningInfo.

I welcome any suggestions and comments. Please write them in the comment section below.

Thursday, June 9, 2011

Trends spotted at NSS 2011

The National Stationery Show (NSS) is a trade show that sells stationery and associated products for retail. Not only are greeting cards found at the show but wall clocks, calendars, coasters, gift bags, journals, totes, digital products, and stationery goods of all kinds. From reading the many blog and magazine articles written about the 2011 show, it seems that the largest trend was all kinds of products using Letterpress printing.* Personalizing and customized stationery was popular. Products for weddings and parties were prevalent. And brighter colors seem to be immersing for paper products with a lot of bright pink which is not surprising because Pantone announced that the 2011 color of the year is honeysuckle (bright pink).

*Letterpress printing definition from Wikipedia: Letterpress printing is relief printing of text and image using a press with a "type-high bed" printing press and movable type, in which a reversed, raised surface is inked and then pressed into a sheet of paper to obtain a positive right-reading image.

Read the following articles for more information on trends that were seen at NSS by publication editors, buyers, and others attending the show. Many of the articles include photographs showing the latest designs on paper products.

• Gift and Decorative magazine: "Direct from Market: National Stationery Show"

• Design Sponge (4 articles):
"national stationery show 2011: part 1"
"national stationery show 2011: part 2 (bright colors)"
"national stationery show: watercolor washes + gold"
"National Stationery Show 2011: the final roundup"

•Always a Blogsmaid: "National Stationery Show Overview!"

• B. Nute: "National Stationery Show 2011 Round Up"

•Felt & Wire: "National Stationery Show 2011: Lights, action, color ..."

• GCU Community: "Guest Blog: Mindyrosso, National Stationery Show 2011"

• Mom Trends: "2011 Stationery Trends"

• Oh So Beautiful Paper: "National Stationery Show 2011 - Part1: Big Debuts" (first of 12 posts)

• Post Boutique: "Trends at the 2011 National Stationery Show"

When reading the above articles, it must be remembered that writers may have specific objectives and background when viewing trends so that her or his impressions may be perceived differently from other writers. For instance, the writer(s) for Design Sponge blog concentrate on contemporary designs so the articles that were posted on the blog were about contemporary. Although contemporary designs for paper products is presently very popular so their trend observations are most likely correct. This was very apparent when looking at the New Product Display at NSS. Most of the products had either no designs or were very simple and contemporary looking.

Comments are welcomed. Please click on comments and write them in the comment window at the bottom of this article.

Wednesday, June 1, 2011

Predicting Licensing Trends by Francesca Ash

Publisher Francesca Ash of Total Art Licensing magazine moderated the "Trends in the Art Licensing Business" seminar at Surtex 2011. The panel included Susan January (VP Product Management, Leanin' Tree), Mary Beth Freet (Creative Director, Pink Light Designs), Gus Walbot (Co-owner, Mosaic Licensing), and Francesca Ash. Francesca has graciously agreed to share her thought provoking introductory speech made at the seminar about the inherent complexity in predicting licensing trends. Francesca resides in the U.K., has been involved in licensing since 1978, was an officer of LIMA (Licensing Industry Merchandisers' Association) for two years, and presently the publisher of the Total Art Licensing magazine plus other Total Licensing publications.

Predicting Trends in the Licensing Business
by Francesca Ash, publisher of Total Art Licensing

Predicting trends in any business isn't particularly easy. If it was easy, let's face it, we'd all be billionaires! But in the licensing business, somehow, it seems even more difficult. Because the industry covers such a wide spread of product lines, there is so much affects trends in the business. The crossover from art and design to entertainment, fashion and even technology is significant and all this gets put into the trend 'melting pot' from which we make, in theory, rational, measured and sensible decisions. The purpose of this is to set the scene on the business of licensing trends and give you a few personal thoughts on the whole area.

First of all, in my mind, whilst you can be fortunate enough to predict accurately what's coming next, bear in mind that there are always exceptions to the rule! We publish not only Total Art Licensing but also a weekly online newsletter and a mainstream licensing magazine, Total Licensing, which covers the high-profile entertainment and brand industries amongst others. Our readers come from more than 100 countries and so does our editorial input which makes it easy to see how a trend in one territory may absolutely not be a trend in another.

I'll give you an example. Last year, I traveled to two trade fairs within three days of other other. The first was the Children's Book Fair in Bologna in Italy. The second was a licensing forum in Paris. Geographically, according to Google, there is only 675 miles between them. That's quite a lot less than the distance between New York and Chicago. In reality, though, there might as well have been light years. In Italy, colour was everything and specifically lime green and a rich purple. From clothing, to housewares, bedding and home d├ęcor and tableware – purple and green ruled. In Paris, three days later, there was absolutely NO purple and green. A lot of black and white and a lot of red but no purple and green. So you can see, if you are trading within the EU for example, it's impossible to generalize across national borders in terms of trends and styles. What trends in one place may well not trend in another.

Another example, this time from the entertainment industry. A few years ago, a property was launched, to great success in the US which was then taken across the Atlantic, stopping first in the UK. The licensor took it around various of the larger agents who turned it down flat. That property was the Teenage Mutant Ninja Turtles. Why did they turn it down? Apparently, because the UK doesn't have turtles (it has terrapins instead), children wouldn't relate to pizza-eating reptiles with Brooklyn accents and, finally, because green wouldn't sell at retail! As you probably all know, the Turtles became one of the biggest licensing successes in decades, generating literally billions of dollars in revenue.

Hopefully from this you can see and will appreciate that there are always exceptions to the rule. But you need to understand and appreciate the rule to realize these exceptions. In our new issue of Total Art Licensing (Summer / Fall 2011), we have more than 140 companies featured, a large number of whom are here at Surtex. To try to understand if the art display in the magazine would give indications of trends in terms of popular subject areas, I did a brief analysis of the content. The results made interesting reading. There are five key themes that really stand out in the magazine this year. Holidays and Christmas (there are images of more than 25 snowmen and over 30 Santas. Another is animals and birds (from fine art depictions to illustrative. Then comes floral and fruit followed by food and drink – specifically coffee and cupcakes. Last but not least, we have teddy bears. None of these sectors are particularly surprising. But isn't that a trend in itself. In the entertainment industry, classic movies and brands predominate. New movies tend to be sequels or prequels. Retailers continue to veer towards the tried and tested rather than risking something new. The same, in many ways, can be said for art. And the traditional sectors that I mentioned, bear out this trend.

Comment by Joan Beiriger
Francesca's viewpoint and observations are made with many years of licensing experience but as stated in the conference program, trends in both art and business can be perceived differently depending on who you are, your strategies, and your specific objectives. That was very apparent during the session as the panelists answered the questions: Can trends be accurately predicted across different product categories? Where can you get trend information? Who is responsible for trend analysis? Is it the licensor? The licensee? Or the retailer? What is more important - color trend or theme? Is there a shift in emphasis towards 'brands' rather than art on product? How is the changing landscape of retail effecting what works or doesn't on product? Will an expansion of on-line retailing affect art licensing trends? Can one actually design for trends predicted out beyond 12 months? Is there classic 'trends' that do not evolve over time? Crystal ball time - Any predictions for content, theme or color for 2012? Do other variables affect trends? Economy? Consumer psychology? Note: I am sorry but the answers for these questions are beyond the scope of this article so they will not be discussed. :(

What was obvious during the seminar is that trends may not be the same in different industries, regions, and countries. Also the importance in following trends may be important in some industries but not in others. So artists need to know the industry and the particular manufacturer they are submitting art to. For instance, Does the manufacturer use trend forward colors and themes or do they use traditional ones. Otherwise, the artist is wasting her or his time as well as the manufacturer if the art submitted is not what the manufacturer is looking for.

I welcome any suggestions and comments. Please write them in the comment section below.