Where You Stand Depends on Where You Sit
I’m not aware of a universal blueprint to cover all possible types of licensing deals, but most publishers follow some standard parameters—which vary depending on which side the publisher is negotiating from. Just like the rug merchant who asks his son the sum of two plus two, and the son replies, “Am I buying or selling?” the licensee’s (buyer’s) goal is to pay as little as possible and “even less” if it has to incur translating expenses, and for the licensor (seller), the goal is to make as much profit as possible. These are the starting positions from each perspective. But the objective for both sides in any negotiation should be to ensure that the economics work two ways. Each party needs to generate enough revenue to make the transaction worthwhile. The long-term goal is to establish a valuable relationship that creates a trustworthy basis for conducting many fruitful transactions.
Market Centricity
Every deal should be market-driven. The licensor will want its potential partner to identify, quantitatively, the sales potential for the product in its market. From experience and knowledge of the territory, the licensee should be able to forecast how many units it can sell in a typical 12-month period and at a specific price point. An experienced partner should be fairly accurate in its estimates. Since the licensee is taking all of the risk, the licensor should accept the licensee’s estimates, and give the licensee enough time to achieve its expected results. Of course, unknowns and a certain amount of guesswork in launching any new product are commonplace, but a local publisher will know how to minimize its risks.
Territory Considerations
By being immersed in a specific territory or region, a publishing partner represents a significant marketing expansion opportunity. Normally a territory is defined by language rather than geography. Publishers that license French-language rights, for example, might assume that Switzerland and Belgium were included in their territory, which should be defined precisely and take into consideration the partner’s marketing capabilities. French-language rights could also include Quebec and far-flung French territories such as Mauritius and Madagascar. Identifying as many appropriate territories as possible from the beginning will benefit both sides.
Neither party should make assumptions about which territories are “automatically” implied. This should not be left open for debate and end up being in contention after the marketing and selling begins. Specific territory rights should be granted only if they are likely to be used. A publisher in France may expect to have distribution rights for the entire French-speaking world, but this would make sense only if they have the resources and distribution network to market in all of the regions that could be considered part of the territory. There are 33 French-speaking countries—not including the province of Quebec—which is second only to the 44 countries that comprise the English-speaking world. The question to consider is whether the France-based partner has the ability to reach all of these locations. If not, the agreement should specify in which markets distribution rights are granted, with any exclusions remaining with the licensor to handle on its own or to license to another partner.
American publishers normally define their territory as the U.S. and Canada, including unincorporated U.S.-owned territories, such as Puerto Rico and Guam. Frequently the Caribbean is also included, even though some Caribbean islands, like the Bahamas—only 60 miles (100 km) from the Florida coast—belong to the British Commonwealth of Nations. In any case, there should be a clear understanding at the beginning of any relationship where in the world licensing rights apply.
A good policy is not to seek or grant rights that are not going to be exploited. The goal is to sell as much finished goods or services as possible in as many markets as possible. The world is a big marketplace and very few products, as a matter of practice, get a wide enough circulation to worry too much about territory boundaries, and in most cases, it’s unlikely that channel conflict is more than a perceived issue. Still, giving away more territory than necessary can limit future opportunities.
