In looking for new ways to partner with local Artists and Designers, it became necessary to investigate the idea of Licensing. Most of the readily available information is geared toward the Artist and not the Licensee. This article provides the low-down on how to find Art work to License, the process, and the payment requirements.
What is Art Licensing?
Visual Artists are often geared toward selling original work, and it may seem that reproduction does not fit their ethos, however many have an additional stream of income from licensing. This allows their images to be reproduced by other entities in exchange for royalty payments. Many organisations and agencies are assisting the licensing process for Artists. This is important as not all royalty contracts are created equal. Negotiating a good deal and then being able to monitor the ongoing process is key for the financial success of many creatively talented folk.
How to Purchase Art for Reproduction
If your core business is the manufacturing of products requiring printed images i.e. posters, tote bags, t-shirts, you may consider hiring in-house designers who are paid a salary to design art specifically for your products. Alternatively, you can purchase the art by assignment, where the piece is sold upfront and the manufacturer can then do whatever they like with the image. More often than not the art is used under a Licensing Agreement.
The Advantages of Licensing Art
• No salary, benefits, or annual leave to pay.
• Royalties are paid according to sales, with payments based on the success of the product.
• Allows the manufacturer to work with many different artists without having them on the payroll.
• A cost-effective way of accessing a variety of styles and techniques.
• Can piggyback on the artist’s name and reputation if they are well known.
There is significant variation when it comes to royalty percentage and specific use. Below are some examples of percentages you’d expect for manufactured products:
Greeting cards and gift wrap: 2% to 5%
Household items such as cups, sheets, towels: 3% to 8%
Fabrics, apparel (T-shirts, caps, decals): 2% to 10%
Posters and prints: 10% or more
The artwork may only be used by you, (licensee/manufacturer), and the Artist may not reproduce, sell, or give the artwork away for free. An exclusive license can be time-bound, for example, three years duration.
You receive the right to use this artwork, however, the artist can also license the artwork to other people, and can use it for their purposes.
Once a licensing agreement has been signed, royalty payment is either in lump-sum or a continuing payment (monthly, quarterly), based upon the percentage of the income contract. An example might be 20% of gross revenue paid to the Artist. The manufacturer, which paid for production and sales, would retain 80%. It is also possible for the copyright to be “assigned.” In this instance, the Artist would sell their intellectual property in its entirety to the manufacturer, who could then do whatever they wanted with the image without further royalty payments being incurred.
Advance Against Royalties
An “advance” may be paid at the time the license agreement is signed. It is almost always recouped against future royalties unless the agreement specifies otherwise. This option of payment in advance provides a good incentive to the Artist. Be aware that if you advance $1000, for instance, but your margin on sales does not achieve this amount, you (the licensee/manufacturer) bears the loss.
Demanding a Guaranteed Minimum Annual Royalty Payment
If you want a long-term licensing agreement with an Artist, you may consider a “GMAR” (guaranteed minimum annual royalty payment. Here you pay a specified amount at the beginning of each year or period, regardless of merchandising or sales. At the end of the period, if royalties exceed the GMAR, you pay the artists the difference owing. You also bear any loss if the GMAR is not achieved.
Auditing Royalty Income
Unless the relationship between Licensee and Artist is trusting, there may be a provision in the agreement for auditing to take place. This provision would:- describe when the Artist or representative can access your records, and provide that if the audit uncovers an error of a certain magnitude—commonly a sum of $500 or over — you have to not only compensate the artist for the shortfall, but also for the cost of the audit.
The artist may request a provision for attorney fee payment or reimbursement to cover them in the event there is any legal dispute relating to the Licensing Agreement.
When researching the legal ramifications of Licensing Art, the first organisation of significance I came across was Arts Law the “national community legal centre for the Arts.” This not-for-profit organisation is on a mission to empower artists and creative communities through legal guidance and support. With 84.6% of the copyright transactional licensing royalties being paid to the artists, this is a stand-up organisation doing good things for the Arts industry. An interesting resource available via their website is the Artwork Reproduction Licence – Merchandise, This is a sample to be used when a third party wishes to manufacture and sell merchandise printed with an Artist’s work. The cost is $500 for nonmembers.
My research led me to many agencies that represent a stable of Artists and works. They allow you to search images via Artist, subject matter, or usage. If you find an image you want to license for on-sell, you can submit your proposed usage and request a quotation. To follow are links to three agencies that allow you to search Art that is ready for Licensing.
What will Jimmy do?
I don’t pay for one-on-one legal advice for my small business unless it is absolutely necessary (no offense intended if you’re a legal eagle). At this stage, my process will be:- • Find an Artist(s) that resonates with our brand. • Commission a piece specifically to fit with our brand and/or product. • Negotiate the terms of a Licensing Agreement for continued use of the image. • Purchase an Artwork Reproduction License Template and adjust it according to the negotiated terms. • Ensure the Artist seeks their own legal advice before signing the agreement. • Seek legal advice if there is any negotiation point of concern. • Sign on the dotted line once both parties are happy to proceed.
Know Anything About Art Licensing?
If you have any experience with Licensing, whether as an Artist or Licensee, I’d love to hear from you. Please email any feedback, questions, or links to your business. firstname.lastname@example.org