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Thursday, October 1, 2015

Art Licensing: The Reality AFTER Getting a Deal

So you licensed your art and now the money will roll in! Well, not always OR right away OR maybe you do not receive any revenue. First of all, the products must be produced, then they must sell, and then you must wait for the quarterly report and check from the manufacturer. Believe it or not, after the licensing contract is signed, it can take 18 months or more before you can start earning revenue. Although, if the contract is for a flat fee or the contract includes an advance toward royalties, the fee will usually be paid within a month after the contract is signed and the art transferred to the manufacturer.

It is wonderful when a contract yields a substantial amount of revenue but it does not always happen. And worse, sometimes the contract does not yield any revenue because the products do not sell and/or the contract is cancelled. Below is a discussion about the causes of low licensing revenue and some contract statements that artists/agents may have difficulty enforcing.

Licensing Revenue
Ten years ago many artists could live on the money they earned by licensing their work. It is different now and fewer artists can live on the earnings of their licensed art. Consumers no longer purchase as many non-essentials as they use to. They continually want new products at a low price resulting in manufacturers limiting the production of their products, charging retailers less for the products, and retailers leave the products on their shelves for a shorter time. Thus, artists earn less licensing revenue.

• Reasons why low revenue
Art that is created with popular art styles and themes for the mass market usually sell more products than those that are better suited for niche markets. For instance, images of realistic African animals usually earn lower revenue than whimsical birds and butterflies with flowers because they are not as popular to a wide range of consumers. Below are more reasons why licensed art may receive low revenue.

– Niche market and themes
As mentioned above some themes are suited for a niche market and do not sell as well as themes for the mass market. Also art that can be used on products for everyday use earns more revenue than art for minor holiday themes such as Mardi Gras, Valentine's Day, and Saint Patrick's Day. The amount of revenue also depends upon the type of product. For instance, Valentine's Day art is more popular on greeting cards than on decorative flags.

– Type and number of products
Successfully selling different types of products (ceramic figurines, greeting cards, decorative flags, jig-saw puzzles, coloring books, calendars, etc.) often change as consumer interests change. So revenue earned from certain products is less than from other products.

For instance, collectable figurines were very popular 10-15 year ago but not so much now so the amount earned from a contract for figurines may be small. And, even though getting a contract for wall art has a large royalty rate of 10-15%, the amount of revenue received is normally small. The reason is because the amount of each image produced is not very large. Also, even if the wall art is framed, the artist often only earns royalties for the print and not the entire product.

Other products that are purchased as a collection such as dishes and associated tabletop items earns more revenue because more SKUs (stock keeping units) are sold.

– Use of text on products
Words on products can help sell the products but they can also limit the selling power that reduces the revenue artists earn. For instance, if a greeting card is aimed at a specific person and for example uses the word grandmother on it, the amount of cards sold will be low and thus the artist earns a lower revenue than cards that do not mention a specific person. Unfortunately, what words placed on cards and sometimes other products is out of the control of the artist because most manufacturers choose them and not the artist. The same is true if the art is used for a blank greeting card or another occasion instead of the more popular birthday occasion. Fewer cards will be sold and therefore less revenue earned.

– Mistakes made in art selection
Sometimes the manufacturer art director makes mistakes when selecting art to be put on products. The consumer may not purchase it if the art is not popular, the art is not well executed, or the art is too similar to other art all ready seen on the same products. Thus, the artist earns low or no revenue.

– Manufacturer's distribution small
If the manufacturer has a small distribution of their products, not many products are sold and hence the artist earns a small royalty fee. That is why many artists prefer getting a flat licensing fee when the manufacturer is a start-up and their distribution is not yet very large.

– Short shelf life
At the present, consumers are constantly demanding new products. Thus, products often have a short shelf life especially in chain stores resulting in less royalty revenue for artists than they use to earn. In large chain stores, the products may have a shelf life of three months or less and then the products are put on sale. In the past getting a licensing deal that places the product into large chain stores meant the artist received more revenue even though the royalty was smaller than if it was placed into "mom and pop" retail stores. The reason why is that large chain stores can sell more product because of the larger distribution. Now because of the shorter shelf life in large chain stores that may not always be true.

– Limited production of product
Many manufacturers produce products to sell for only one season even if the contract is for two years. The second year may include a sell off period of the products or to give the manufacturer time to reproduce the product if it is exceptionally popular. Thus, artists usually get the majority of revenue for the first year of the contract and maybe a little or none the second year.

Print on Demand (POD) licensing deals often earn low revenue for artists but of course there are exceptions. Many POD manufacturers depend upon consumers purchasing their products from their Internet website while others sell only wholesale to retailers. In any case, the artist does not earn any revenue unless the product is sold and the amount earned depends upon how the manufacturer markets their products, how large their distribution, and whom they sell to (consumer or retailer).

• Reasons why no revenue
– Products do not sell
Sometimes products just do not sell and the artist does not receive any revenue unless the manufacturer gives an advance toward royalties. Also, some manufacturers license art either for their catalogs to be shown to retail stores OR to present to their key accounts. If art is licensed for key accounts and the manufacturer is unable to sell the product(s) to them, then the products are not produced and the chance in earning revenue is dead.

– Test the market
Some manufacturers license the art, makes a small production run of the product, and then tests the market to see if it sells. If it does not, further production runs are not made and the product is dropped.

– Cancelled contract
Sometimes manufacturers change their mind for whatever reason and decide to cancel the contract. Or sometimes the art was licensed for a manufacturer's key account client and the client decided they do not want it and thus, the contract is dead.

Unfortunately, manufacturers do not always inform the artist/agent that they are not going forward in producing the product. Thus, the contract is not cancelled so that the artist can try to license the art to another manufacturer that sells the same type of product. Artists/agents need to be vigilant when the quarterly royalty statement does not arrive and should find out why. It may be that the manufacturer is not going ahead in producing the product.

Difficulty Enforcing Some Contract Statements
• Samples
Most artists love to have products of the art they license. However, not all manufacturers offer artist free samples of the products such as manufacturers who produce products for fund raising organizations or POD. And, sometimes it is like "pulling teeth" or impossible to get the samples from manufacturers even when the contract states the artist will receive samples. Not all manufacturers automatically send the samples and the artist/agent must ask for them. But even asking for them does not always mean they will be received. For instance, if the manufacturer produced the product for a key account and forgets to include the number of samples the artist should receive in the amount being produced then the artist will not get any samples.

• Royalty statements and payments
Royalty statements and payments are usually quarterly and sent the month after the end of quarter. However, they are not always sent on time because the manufacturer is waiting for its clients to pay for the products they purchased. Sometimes it takes months before the manufacturer is able to pay the royalty fees. Or, the manufacturer has major cash flow problems and eventually files for bankruptcy.

Note: The above discussion is not meant to discourage you in licensing your art but to inform you on the reality that as in every business not everything is a bed-of-roses. 

Artist Comments About Licensing Contract Realities
Artist Jill Meyer

"Once again, Joan, spot on with every point! Art Licensing is by no means a straight path. I think I have had all or most of the situations mentioned in the article happen to me. One learns, from these things to be sure. Often licensing is a question of a "good news" bad news" sceanario. I just received word that one of my paintings had been licensed with Walmart for Halloween, 2016. That is the good news, the bad news is that it will be almost an entire year before the painting is on the shelves, and as Joan points out, it is a seasonal painting, so although the distribution is large, the shelf life will be short! In licensing, you always need to adopt the long view as your perspective, keep your sense of humor, and definitely be prepared to take the "bitter with the better"! Off my soapbox now! :-)"

Artist Collene Kennedy
"Joan! Great article if not a very pragmatic perception! It's a loooong lead business and when it works, it works well. But one thing that can also happen and did to me when I was doing very well with greeting cards is a company can mismanage their funds and therefore not pay out royalties! Yikes! I learned a lesson... tooo late of not allowing so many eggs in one basket! Live n' learn ...n' create!"

Artist Sue Zipkin
"I think it’s great that you are sharing so many realities of the art licensing industry. So often new artists don’t know some of these things and are very shocked and become discouraged when they learn that things do not always unfold according to the way a contract is written.   A perfect example is when an artist creates a lot of artwork for a project, then samples are made and shown at a trade show and to store buyers.   The artist automatically assumes that the products will go into production and then sold in stores. Unfortunately when it’s time to get paid they wonder what’s going on when they see no income. Then they find out that their project was killed on the vine. If an artist is aware of these realities ahead of time they won’t be as discouraged. No matter what level you are in the industry  It’s still frustrating when this happens.  I find it happens often with some products and companies more then others."

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