At its most basic, a contract is an agreement between one or more groups for the exchange of resources. The exchange could be time and skill for money, goods for services, property for future gains or any combination of those things. The best agreements exchange roughly equal resources. The worst ones have one side trading large amounts of resources for little or nothing in return.
This is the problem that freelance professionals run into with many of the contracts that I see. The most important service I provide is showing my clients what they are giving up in comparison to what they are getting. I’d like to provide an overview of the different types of rights and revenue streams as a general overview for creators looking to get their projects into the market. While independent artists will benefit most from this discussion, elements of it will be applicable to small business owners of all types.
Types of Rights
As discussed in an earlier post, copyright law gives the creator of an original work the right to benefit from the distribution of that work (See Image and Story, Copyright and Trademark). There are various types of ways available for creators to exploit their work. Some of the major distribution methods include:
- Publishing (Print, novelization and Digital)
- Public Display (gallery displays and public performances of some of the methods listed here)
- Theatrical (Movies whether live action or animated)
- Television (including network, basic cable, premium cable, subscription, and PPV whether live action or animated)
- Home Video (including DVD, Blu-Ray, etc)
- Live Performance (including Broadway performances and theme park performances)
- Interactive (including console computer or mobile video games)
- Merchandise (as discussed in last week’s post)
- Audio (soundtracks and audio novelizations)
As new forms of distribution are created, new rights are created for the artists. These rights are universal, but they can be divided or carved out by geographic area, time frame, distribution channel, language and other factors.
Types of revenue
Just as there are different rights that creators can use to get their work into the market, there are various ways that they can be paid. Creators need to focus on four ideas:
- A flat fee is a one-time payment that the artist earns upon the delivery of the finished work. For example, a copywriter might get a flat fee for work she does for a website or blog.
- A royalty is a percentage that the artist earns for every finished unit that is sold. For example, an artist might receive 30% of every one of their comics that is sold to the public.
- An advance is paid before the work is finished. For example, a writer of a novel might receive money up front for her novel based on the proposal not the finished product.
- A minimum guarantee (MG) is money paid up before the work is finished, based on anticipated sales. For example, if a toy company plans to sell a new licensed toy for $10 and the creator gets 10% of that sale, then the creator gets $1 per unit sold. If the company expects to sell 100,000 units, then the MG that the artist gets for this deal is $100,000.
These are broad revenue concepts. They are often altered and refined by concepts like gross, net, recoupment, offsets and other variables. (This is a complicated subject that I can talk about later.)
Choices that Artists Must Make
In certain creative circles, the types and amounts of revenue are fairly straight forward. Writers for some mediums often get an advance. A work for hire artist (See Creator Owned vs. Work for Hire) for comics often gets a page rate. There is more confusion for creators pursuing creator owned deals or multimedia works. There is often no advance, no MG and a blanket royalty rate for all forms of distribution. This puts creators in a dangerous position since the lack of upfront money and the uncertainty of any profitable sales in the future means that the creators are really working on spec while at the same time giving up all their rights to their property.
It is understandable why a publisher or other distributor would take this stance in their contracts. Publishers protect themselves from risk by limiting exposure to projects that might not be financially viable. At the same time, they maximize their potential gain by securing as many rights as possible for projects that could be financially viable. Artists need to learn the same lesson. They need to counter the publisher’s position by attempting to limit the rights that a publisher gets for projects that are financially viable and maximizing revenue for every project they do.
I know negotiating power is often limited for artists (See David vs. Goliath in Contract Negotiations). But having a clear understanding of the relationship between revenue and rights and clear goals of where they want to go can help maximize their limited negotiating power and increase their chances of success.
PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 ATgamalhennessy@gmail.com FOR A FREE CONSULTATION.