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How to Negotiate a Content License

By on June 21, 2013
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This is part of a series of guest posts by David Garth, President of brand licensing consultancy The Parallax Corporation. You can read the full white paper at the Parallax Corporation website.


The numbers outlined in Part 2 of this series look quite rosy, but not just any old license (or licensing deal) will have that degree of impact. Part of the beauty of licensing, however, is that a genuine measure can be taken of the popularity and target demographics of a prospective licensed property – something that cannot be done with a title and characters newly created by a developer.

For example, just doing a little free market research on Facebook can uncover how many “likes” and followers a prospective licensed property has, as well as their age, their geographical locations, education level, related activities and likes, and so on. And this is barely scratching the surface.

Hovever, developers and publishers don’t just have to find the right license. They have to find the right licensor too, and negotiate the right deal, neither of which is easy. A few pitfalls were mentioned in previous installments, and we will revisit some of those, as well as other points of due diligence that should be part of negotiating a successful agreement.

The bottom line, always, is that the developer should not be so enthralled at the prospect of an exciting license that they fail to obtain a good agreement or ignore warning signs of possible troubles ahead.

What A Good License Looks Like

It’s important to understand that there are many types of licensed properties available. One key distinction is between new properties (for example an upcoming movie) and existing properties, whether current (in theaters or on television now, for instance) or older ‘catalog’ properties). New properties, while they may seem exciting, are usually more risky and are often significantly more expensive than older ones. Even if a developer is convinced that an upcoming movie is a “sure thing,” it may flop (and, unlike current or catalog properties, there’s no way to conduct meaningful market research on its popularity).

Developers and publishers should bear in mind that movie studios like to create a marketing buzz around new movies by trying to license as much merchandise as possible in time for the launch. But if a licensee is shouldering all the costs, as well as paying some portion of royalties upfront to the movie studio, then the licensee is taking all the risk upon itself, and is also paying the studio to market that studio’s own products. All in exchange for the chance at some upside. It’s risky, and it can be hugely successful. The rule here, though, is definitely caveat emptor – let the buyer beware!

Maximizing a licensed property’s potential for PR and advertising buzz is one of the main reasons for licensing in the first place. What the licensor contributes to this effort is an important part of that. Thus, prospective licensees should always obtain specific contractual commitments from the licensor for the whole range of marketing activities, everything from press releases and PR in print media, getting the game featured on the licensor’s website, Facebook and Twitter activity, inclusion in events and fan promotions etc.

Game developers and publishers can also encourage active marketing participation from the licensor by negotiating an agreement with a tiered royalty structure. The tiered structure can work in two different directions, depending on the circumstances: (a) the royalty percentage payable to the licensor increases when sales of the game reach certain specified levels. The idea here is that the licensor has an added incentive to help make the game a success; or (b) the licensor signs off on a specific marketing spend to assist with customer acquisition, and the licensee pays a higher royalty rate until some agreed-upon portion of that spend has been recouped.

Working With Licensors

Developers should not forget that the brand owner has the right to protect the quality and integrity of its content. This is certainly desirable, as the brand will only continue to have any value if it is properly cared for. On the other hand, the licensor may have a rather different vision for their property than the developer, so it’s important to ensure upfront that both are on the same page in a number of respects.

  •  It is crucial to gauge whether the licensor will work well and in a partner-like spirit with a developer or publisher. If the developer is working with the brand owner’s licensing department or their licensing agent, it should be possible to talk with existing and previous licensees to determine whether their experience was positive. (This is not always easy to do, however, as content licensing for games may be new for many licensing departments and agents, or else game licenses may be handled by a different internal business group that has little or no experience with licensing).
  •  The licensor may want to be more involved in the creative process than the developer would prefer. If the process is clear and well-understood by both parties, though, this involvement can be turned into a distinct advantage rather than an obstacle. (It may even be possible to get help from the licensor in creating content, such as story lines. After all, the brand owner probably knows its stories, characters and fans better than anyone). As mentioned earlier, licensed content can help strengthen players’ emotional connection to a game and thereby increase retention and monetization rates. Getting the licensor’s help in unlocking this value from within the license can be a useful part of the development process.
  •  Licensors may have a multi-layered approval process, and developers should not be surprised when this slows them down. Some licensors are notoriously slow and even obstructionist (although this is unlikely to be deliberate), and it’s an important part of a developer’s or publisher’s due diligence to be sure to avoid getting into such situations. The written agreement should clearly lay out time frames within which approvals need to be granted (plus specific mechanisms for the correction of disapprovals and automatic approval for failure to respond) and perhaps contain penalties if the licensor fails to meet its deadlines.

Summary

The gaming landscape has changed. Games played on mobile devices capture an ever-increasing share of that market, and the number of such games is proliferating at a tremendous rate. Regardless of a game’s creative qualities and whether it’s well-designed for successful retention and monetization, it’s becoming much harder and ever more expensive to attract the attention of prospective customers.

This new landscape has created a new role for content licensing, which has historically had a bad rap and is often (mistakenly) assumed to have a prohibitively high cost. Using licensed content, and the marketing buzz that it brings if utilized correctly, can provide the edge needed to solve mobile gaming’s discovery problem. It can also significantly lower customer acquisition costs at the same time.

Not any old content license will do, of course. Developers and publishers have to pick the right license and the right licensor. They have to do their due diligence to make certain the relationship will be successful, and to negotiate a good agreement.

About David Garth

David Garth is the President of The Parallax Corporation, a boutique licensing and consulting firm focused on brand licensing for mobile games and consumer products