Licensing questions

[Adam SBG]

We've been contacted by a company in another country about licensing our card game so they could produce it in their country and print it in their language. We were flattered, and said we'd be interested in talking. They've asked us for terms and a price, and we have no idea as we've never licensed any of our products before. They do many licensed products, so shouldn't they give us an offer and then see if we're interested? They seem really uninterested in making the first offer. Anyone have any ideas or experience in this area?

[guildofblades]

I would ask for an "advance" against some percentage of royalties. In the broader licensing world 10% royalties is fairly standard, but hot properties can go for more and dead ones for less.

The advance is an amount of royalties they have to pay you up front and counts towards any later royalties they would owe you as they sell the stuff. The "advance" for a small game publisher ought to be the amount of money you would be happy with if you got that money and absolutely nothing else. Enforcing a licensing contract and making a company half way around the world to pay you licensing royalties they owe you is darn near impossible without spending a HUGE sum of money. So the advance payment gets you a set amount up front so if you get nothing else, you can still be reasonably happy. Obviously, of course, you hope for them to be an honest company and that they will be successful with the product and end up owing you plenty more at that 10% (or whatever rate you negotiate) rate and actually pay.

The advance is merely you way to insure you get "something". Build into the contract quarterly royalty payments and sales reports. If at any time they fail to update you with those reports or pay royalties, make the contract such that at your decision, you can terminate the contract. That might not actually empower you to force them from selling your IP as enforcing your IP rights across international boundaries can sometimes be difficult. But it will at least give you the legal right to publicly announce the termination of that licensing deal so anyone actually interested in supporting you would not do business with them.

One other consideration. How much money do you stand to make selling the product into their country/region yourself? They publish a copy locally and your english sales locally will likely decrease as those players who have the option of using either the English language edition (yours) or one in their own native language will likely opt for their language. So factor in those lost sales as part of your requested advance.

Ryan S. Johnson
Guild of Blades Publishing Group
http://www.guildofblades.com
http://www.1483online.com
http://www.thermopylae-online.com

[Eero Tuovinen]

Well, I've done several indie roleplaying game license translations during the last couple of years. The contract model we developed with Paul Czege in -04 is rather simple, geared towards a one-shot deal that maximizes independence both ways. Other designers have been happy to use the same contract, so I guess it works in that regard. The only "flaw", if one may call it that, is that our contract does not preassign the long-term benefits of developing the IP to either party; in other words, should one of our games become an unexpected success outside the contract parameters, we'd need to renegotiate the deal. This is a flaw if you want to try to put one over your contract partner in projecting the success of the endeavour, but the benefit is that this kind of contract encourages the licensee to be realistic in projecting the success of the product, instead of inflating or deflating his prognosis in hopes of gaining more favorable terms.

That being said, here's how we do it: we license the right to print and sell a single printing of predetermined size for a predetermined licensing fee. We pay in advance, so the risk for the author is pretty much zero: he knows how many copies we are trying to sell, and his profits are not affected by our success. If we develop a run-away success, he's free to renegotiate after we run out on the product, even pulling the product from the market alltogether if sudden insanity should dictate thus. The contract explicitly includes no provisions for extension; if we want to print another run, we'll have to agree to a new fee with the licensor. Obviously this leaves pretty much all the investment risk (and work) to us, so the size of the license fee is correspondingly smaller; I feel that this makes sense, because we're the ones with actual hands-on experience for the market we're operating in. The licensor is not exactly competent to judge the Finnish market, most of the time.

Being that our contract is not royalty-based, our rates are not exactly comparable (I agree that 10% is in the ballpark for a fair royalty arrangement): we paid Paul 8.33% of the gross maximum profit in advance in -04, which was damn good (and rather fair, considering that MLwM was already a success at the time, while we were pretty much an unproven factor). This went down to 6.66% in -05 with Dust Devils and 6.25% last year with The Mountain Witch. I expect that around 6% is going to be pretty stable for us, I'm happy with it in our current business model, at least when supplemented with cultural grants and such. The percentage I'm offering is going to plummet if we go into bookstore distribution at some point, because no way I'm going to take the enormous risk of tripling our printing size and selling to distribution while paying triple the licencing fee. But meanwhile I think that our deals are not bad for either side: the only way a royalty arrangement is going to beat us financially is by selling out on the initial printing, which is not that certain in the current rpg environment. I've done my own share of royalty deals in the licensor end, and have seen nil over the advance in any of them.

Hmm... with all that on the table I suspect that this is not the kind of licencing deal a "real" licensee company is going to go for, if for no other reason than the fact that they can easily get a more traditional deal from somebody else. The deal works for us because the amounts of money and sizes of print runs are so small that we can carry the risks and manage the investment as a "hobby". I'd be surprised if you got this kind of deal with the percentage over 5% from a non-indie licensee, actually.

But anyway, that's my experience in the fascinating world of indie licencing. To comment on your original question: going into the negotiations with honest intent is not a weakness, it's a strength. Therefore you lose nothing by telling them that you have no experience on the field, and thus they should make the first offer and explain to you what it's based on. If neither party should have any experience about the topic (as was the case with us and Paul in -04), well, that's a good opportunity to develop a new model.

[David Artman]

Only if you have NO desire to do this yourself, should you consider it. A card game should be VERY easy to translate, if you just hire some good folks or find quality volunteers. How much text are we talking about, here? Maybe a few thousand words, often using consistent, rules-like syntax?

Yes, arranging foreign distribution for your translation is a tough nut--but the guys above have already shown you how foreign IP enforcement can be just as bad. Yet, with Internet commerce enabling folks all over the world to buy from all over the world, you might not even need a foreign distributor. What's your current, English language distribution model? Could it carry the foreign languages as well?

A license is easy and fast money, and it might mean longterm revenue trickling in as royalties. But if you can afford to take the risk and translate for yourself--thereby ALSO retaining control over the IP and aesthetics and artwork--then you will be keeping closer to 100% of the profits than 10%.

So... with that in mind, and if you can put your money where your mouth is, I'd approach them with a request that they make an offer, and then you can assess whether you'd like that money now (and MAYBE more later) or if you'd like a shot at the whole wad. Be sure they know that they get one shot at the offer: no room for low balling and waiting to be dragged up in negotiation. Tell them they get to write down one number, and if it isn't high enough to make you happy to give up the production and risk and ultimate profits, then you walk. (Put it more politely than that.)

Sounds like you've got a date with a Let's Make a Deal decision. Good luck; I'm rooting for you going it alone!
David

[guildofblades]

Hi David,

>>A license is easy and fast money, and it might mean longterm revenue trickling in as royalties. But if you can afford to take the risk and translate for yourself--thereby ALSO retaining control over the IP and aesthetics and artwork--then you will be keeping closer to 100% of the profits than 10%.<<

Well, something else to consider. While you might have the product translated so you can produce and sell that language edition yourself there is not necessarily any profits to be had. Like standard small press printing, you still have your productions costs except now you've basically traded art editing for translation costs. But...here is the kicker, you have a production run to sell but now must try to market that run effectively to a consumer base that speaks another language and if you needed to pay to have the product translated, to market effectively to that consumer base, you're going to continue to need translators to reach that base. Given that a local licensee would be assuming the production costs and theoretically has the stronger connections with that community, they likely will be more able to sell stronger numbers of the game to that same community.

So, the option of "going at it yourself" to capture the extra profits "can" work out better, but it is FAR from a sure bet. The good ol risk vs rewards thing. When trying to make that decision a realistic assessment of what your company's capabilities to market to the consumers of that other language is needed. If that capability is really low then a new plan to raise that capability is needed or its better to just take your chances with the licensee and leave your own time free to focus on markets you understand and can reach better. Of course, if the licensee's offer is too poor you can always take the stance that larger studios often do and not license it or produce the thing yourself, leaving the market open to future offers by other potential licensee's.

Ryan S. Johnson
Guild of Blades Publishing Group
http://www.guildofblades.com
http://www.1483online.com
http://www.thermopylae-online.com

[David Artman]

Excellent point, Ryan--one I failed to considered.

Is there, perhaps, a middle ground? Where he pays for translations and the new print run(s), but then "consigns" the game sales to a marketing and/or distribution firm that works in the target language? I guess I am just loathe to see a guy hand over IP to a company/country that might not respect or protect it, down the road. Or one that might do a shitty job of producing/sorting/packaging the new release, reflecting poorly on the "parent" company making the English version (it won't do much good to try to explain that it's the licensee's fault, once the crap hits the fan). So I'd like to see all "rights" and all "production" stay in the owner's hands, and perhaps look for a company or distributor that can run with the marketing in the translated language(s).

By the way... out of curiosity--and, perhaps, to give us a better feel for the risks and benefits of a license deal--what language(s)?
David

[daMoose_Neo]

Trouble there though is that you lose all of the benefits of going at it yourself. You're still paying for production AND you're paying someone to distribute and sell the product, and all of the worry and weight is on your shoulders. While with a lisencing agreement, you can simply collect the due cash and let them worry about all of that. Yes, you run the risk of having a shoddy job done and running your title's name through the muck in that language, but folks also understand that a licensor can do a lot to a title that the original never would have (Take Transformers, for example; Japanese and American releases differ widely in figures and fiction content because of this.).

[Adam SBG]

I really appreciate the responses, they're very helpful.

David, the company is in France, and they're planning on translating our game Zombie Rally into French.

Our game's not huge. Our first print run was only 500 units, and we sold them through conventions, our web site and Key 20, and we only have about 40 left between us and Key 20. We weren't really planning on doing a second printing, so I'm not concerned about a loss of sales. I suspect their production values would be better than ours (Zombie Rally was printed much like the first runs of Give Me the Brain from Cheapass Games, black and white on simple colored card stock) so they'll probably print it better than we can afford to do. They could "ugly up" the artwork I guess, but that's about it.

I'm hoping to hear back from them soon, and at least now I've got some ideas.

[guildofblades]

>>I suspect their production values would be better than ours (Zombie Rally was printed much like the first runs of Give Me the Brain from Cheapass Games, black and white on simple colored card stock) so they'll probably print it better than we can afford to do.<<

Unless you know of the previous track record for this company, don't assume that. If you can find no track record or publishing history for the company they might be a guy in a basement that just loves the game and plans on publishing it basically just like you did, maybe even on cheaper stocks. I'm not saying that is the case, but unless you do some research, its a total guess.

Once upon a time the Guild of Blades had a RPG game line that was basically 20-24 page digest booklets printed in B&W only utilizing reverse black covers. We licensed a French language edition and the publisher just printed really crappy click art on plain white paper for the covers. At least for the only two prints I ever saw. Basically the original game line looked cheap (but then the core rules only retailed for $2.00), but not quite desk top publishing. The licensed stuff looked like very bad desk top publishing. So a licensee can certain take a cheap product and make it look dirt cheap. Its possible. lol.

Ryan S. Johnson
Guild of Blades Publishing Group
http://www.guildofblades.com
http://www.1483online.com
http://www.thermopylae-online.com

[Adam SBG]

I would ask for an "advance" against some percentage of royalties. In the broader licensing world 10% royalties is fairly standard, but hot properties can go for more and dead ones for less.

Ryan, is that 10% of the MSRP or is it 10% of the profit? Sorry for the dumb question, but I wanted to be sure.

[guildofblades]

It is fairly standard for royalties in licensing to be based on Gross earnings. That is neither MSRP or profit. Just 10% of whatever comes through the door.

Ryan S. Johnson
Guild of Blades Publishing Group
http://www.guildofblades.com
http://www.1483online.com
http://www.thermopylae-online.com

[Adam SBG]

So if we're telling a potential licensee that we want a 10% advance of the gross, do we base it off of 10% of the cover price x number of units of the first printing? If we're working towards an advance, I don't know how we'd base it off of anything but the MSRP.

Thanks again for answering my questions.

[Eero Tuovinen]

Correct me if I'm wrong, but Ryan probably means gross profit, which you might calculate by deducting the fixed costs (printing costs, overhead, other non-discretionary costs of the enterprise) from the revenue (how much money comes in). (This is, of course, assuming I'm not botching my English economy terminology.) Projecting these numbers before the enterprise is essentially guess-work, so you can't base the amount of advance on the gross.

What you can do, instead, is to decide on some reasonable projection thresholds and base the advance on those. For example, a very common form of literary contract in Finland bases the author's advance on the assumption that half of the printing will be sold at MSRP; one quarter of the agreed-upon percentage calculated at MSRP is paid upon signing, one quarter at publication and the rest whenever the latter half of the books is sold, if they are. Then the onus is on the publisher to determine a realistic size for the first printing.

To sum it up: while you might calculate the royalty percentage from revenue, gross or profit, the advance should be determined based on actual projected success of the project, as revenue numbers are naturally not available when making the contract. I'm not one to tell you what percentages to ask for or any of that, but I suggest basing the royalty percentage off revenue, that being the simplest number to track in the other party's books should that become necessary. How this affects the size of the percentage should depend on the nature of the business, but naturally you'd demand higher percentages in order from revenue<gross<profit.

(Reading my own contribution up-thread with fresh eyes, I notice that I made a slight mistake: the percentages I calculate there are from projected maximum revenue, not gross. The difference in our case is just that gross includes the printing and art costs. Turned into gross, those percentages should be a couple of points higher each.)

[guildofblades]

Hi,

Nope, not gross profit. Just gross reciepts. So if we have a book that retails for $10 and we sell 1,000 of those direct to the consumer at full retail that would be a gross revenues of $10,000. If I were paying a 10% royalty on that, I would owe $1,000.

If however I sold that same book at wholesale at a 60% discount my total gross sales would have been only $4,000 for which I would only owe $400.

An "advance" is just that, an advance. It is an advance payment of royalties as a show that you are serious. I've recently mailed off a licensing proposal where we offered a $10,000 guarantee against 10% royalties. The license was pitched at a 5 year term and at the start of each license year we are paying up front an advance of $2,000. At the end of each quarter we would have to take a look our total gross sales and if we had earned more than $20,000 in sales that year, then we would begin to owe the licensor more royalties; 10% on everything over $20,000 earned for that year.

Ryan S. Johnson
Guild of Blades Publishing Group
http://www.guildofblades.com
http://www.1483online.com
http://www.thermopylae-online.com