BY Claudia Rosenbaum
Berliner: Alex J. Berliner/ABImages. Karlov: Courtesy of Barnes & Thornburg Entertainment, Sports and Music. Perry: David Webb. Mark: Tony Pettinato.
the business had been expanding through e-commerce and brick-and-mortar retail stores years before the pandemic shut down touring. The business has also grown in scope — with music fans staying close to home, puzzles have become a hot item in the past nine months — making licensing deals more complicated as well as specific to the artist’s wants and needs, whether it’s a superstar, an emerging independent artist or a legacy act such as Pink Floyd. (The estates of iconic artists like David Bowie and Janis Joplin are also very much in the game.)
Billboard spoke to three of the top attorneys in the music licensing and merchandising field, along with the president of a merch company that specializes in legacy acts, and asked them to highlight the key deal points and material clauses every attorney or artist should insist upon before signing on the dotted line.
A MERCH LINE
ADVANCES AND ROYALTIES
COUNTERFEITS AND AUDITS
“When an artist contracts with a merchandiser, he or she is giving the merchandiser the exclusive right to produce goods that bear the artist’s trademark or likeness for a set period of time. Unless the artist has carved out an exemption allowing for separate deals, if another merchandiser comes along and wants to do a marijuana product, beer brand or motorcycle, that company will negotiate with the license holder for those rights, not you. The license holder will also get to keep a percentage of any earnings from those deals purely because the artist gave them exclusivity. But even if the licensing agreement doesn’t contain an exemption, the artist should always retain the right to approve any merch deals that are made.”
“Deals for merchandise are often bifurcated: There’s one for touring and one for retail. When deciding with whom to partner and in what categories, artists should consider how they sell merchandise; their fan base’s purchasing habits; what items are purchased at what price points; when they will tour; how long they will tour; and their financial needs. This will help determine if the artist should have one overall deal for touring and retail or potentially one for each category.”
“It’s usually a good idea to work with the merchandiser to set reasonable and effective price points that account for the costs of materials, production and distribution so that a profit is made. Still, certain bands might want to see a lot of their shirts on their fans, and therefore they will price them lower, whereas luxury items such as leather jackets might be priced higher depending on the client and the popularity of the piece of merchandise.”
“No artist can afford to sell inferior-quality goods. It’s imperative that the artist know the quality of the merchandise being produced. I’d determine that upfront by having the merchandise company provide samples. If the artist doesn’t like the samples, chances are they won’t be happy with the merchandise company. Moreover, I would spot-check at stores and on tour the quality of the goods.”
“A band’s goal should be to have a merchandiser that’s selling their products in every available outlet whether it's Hot Topic or a beautiful web store. So you need to make sure the merchandiser is one that can provide sufficient inventory and that they are doing it right. Some merchandisers are good at selling T-shirts on the road but not as creative making products. Some merchandisers are better at putting stuff in retail stores. Retail penetration is a difficult thing to accomplish and artists should look for that.”
“This is an area where it can get really tricky for artists. A lot of merchandisers will give a percentage of gross sales. It’s much easier and cleaner to track. When your merchandiser insists on a net royalty calculation, it’s going to be more difficult to know whether you’re being paid fairly. When you don’t have a lot of insight into, for example, a merchandiser’s deal with its production factories, you don’t really know what the merchandiser’s costs are, so you have to trust that they are telling the truth.”
“This is a category in which artists can work with their lawyers, but they should also confer with their accountant or whomever addresses their money. Namely, if the artist does not need the money from merch sales, I prefer the ‘long ball’ game of leveraging higher royalties in lieu of advances. If the artist needs or wants the upfront money, then sometimes there is no choice but to obtain as high an advance as possible. There is no wrong answer as long as the artist makes a sound decision based upon their finances.”
“One of the main points of licensing negotiations is the length of the license and the size of the advance that an act will get. The longer the term, the higher the advance, but artists need to be careful because it is common for merchandisers to require that any unrecouped advance be repaid at the end of the term. Let's say a merchandiser gives an artist a $3 million advance for three years and the artist only earns back $2.2 million; then there’s $800,000 that needs to be repaid at the end of the term. Once the term expires, the artist can choose whether to extend and roll this old advance over to the next contract. If that happens, some merchandisers will agree to write off some of that unrecouped money. But if an artist insists on leaving — perhaps she’s not happy with the merchandiser’s performance — then the artist has to either negotiate the unrecouped advance down or pay it off.”
“There is a plague of unauthorized merch on the internet. The contract should spell out that the merchandiser is the enforcer for any bootleg products and that it will go after any unauthorized sales. You should negotiate that the merchandiser will be actively watching for these counterfeits.”
“Like any royalty-based accounting business where folks are chasing pennies, an artist should always have a robust audit clause, and I advocate auditing once every two to three years. When artists tell me they are concerned an audit will anger their merchandise company, my response is, ‘Then you have the wrong merchandise company.’ If people are doing their jobs, the audit is relatively painless and it’s not personal.”
“Creative approvals are critical and should be as broad as possible. The act should approve the artwork selected to represent it and its brand, but also the types of products that are going to carry the artwork. Those products, whether they are coffee cups, tote bags or T-shirts, should be appropriate for the act and its fans. It’s also important that artists retain control over not just the products but the quality of the products.”
“I don’t know an artist that does not want creative approval over their merchandise. I even have some clients that want to be involved in the design process in a meaningful way. One note of caution: It’s important to listen to the merchandise company as to what fans and licensees want to buy, as well as what licensees see as the trends.”
“Merch doesn’t always have to be a T-shirt. You can re-create classic tour posters or an old ticket stub into something collectible. A great piece of album art can become a bag or a jacket. It just needs to be something that gives the fan a feeling of nostalgia or a sense of belonging.”
“In March and April, we found that people stuck at home were listening to music or watching DVDs. And besides face masks, puzzles were a huge hit in 2020 and will be big right up until Christmas. We did a puzzle for John Fogerty, for Creedence Clearwater Revival, several for AC/DC, David Bowie and Pink Floyd. You might have two or three family members spanning two generations sharing their love of Pink Floyd — not just the music but a puzzle of one of the band’s album covers. It’s all about shared experiences.”
“Product-line extensions should evolve with an artist’s audience. As fans grow up, they gravitate toward different things. They might want to build on their T-shirt collection to add a shoulder bag or knapsack that has a band’s logo. Later, they might want a denim jacket or a leather jacket.”
“In order to maintain a relationship with core fans and also to establish a relationship with emerging fans, you need to keep diving into artists’ stories and legends. Some fans might want to celebrate a particular record. For Pink Floyd, it would be Dark Side of the Moon; for AC/DC, it might be Back in Black. Our job is to establish product lines that really span those whole careers. Even with an artist that didn’t have a long career — like Janis Joplin — you can still continue to revisit the highlights to keep fan interest alive.”
“If the merchandise company is going to create the artwork that will be associated with an artist’s line, I would not make a deal unless the art was ultimately owned or assigned to the artist upon expiration or early termination of the term of the agreement, royalty free, worldwide, in perpetuity. The merchandise artwork can be as much of the artist’s identity and brand as any property. You don’t want to leave it behind or have to pay other parties to use it.”
“People are trying to find pennies in places they never had to look before. Artists can expand their opportunities by creating multiple areas of exploitation. For instance, a client, [an] artist, could have separate deals in categories such as department stores, online, domestic touring and international touring. The more sale points there are, the more artists can reach their fans.”
“When it comes to licenses for touring merchandise, the shorter the better. Tours are finite, and typically you can always renegotiate a more lucrative deal on the next tour. Retail tends to be different. Retail is not as much of an impulse purchase compared to tour sales, and it can take real time to develop sales that move the needle. Thus, a longer term may be beneficial to the artist for a retail deal. It allows the merchandise company to pump up retail over a longer period that inevitably will aid the artist.”
“Because artists are unable to tour and sell shirts at concerts, merchandisers are being asked to work harder to create sales opportunities, and artists are feeling the need to recoup their advances. Because of that, everyone is looking into renegotiating their deals and extending their rights. Merchandisers are asking for longer terms, and in response, artists are asking for more money. All the parties that I’ve dealt with recognize the need to stay in business together during the pandemic. Everyone is trying everything, including new business models of creating beautiful online packages to complement livestream shows.”
President, Perryscope Productions
Partner, Mark Music & Media Law
Partner, Rimôn Law
Chair, Barnes & Thornburg’s Entertainment, Sports and Media Division
BE JUDICIOUS WITH YOUR LICENSING RIGHTS
STUDY YOUR FANS’ BUYING HABITS
NEGOTIATE PRICE POINTS
EXPECT TO SEE SAMPLES
SHOP FOR PROVEN MERCHANDISERS
PUSH FOR A PERCENTAGE OF THE GROSS
HIGHER ROYALTY RATES OR A BIG ADVANCE?
BE WARY OF UNRECOUPED ADVANCE TERMS
THE MERCHANDISER MUST POLICE COUNTERFEITING
CONDUCT REGULAR AUDITS
CREATIVE APPROVAL SHOULD BE AS BROAD AS POSSIBLE
LISTEN TO THE MERCH COMPANY
THINK BEYOND THE T-SHIRT
CONTINUE TO PROVIDE NEW MATERIAL
EVOLVE WITH THE FANS
DEVELOP MERCH THAT SPANS ENTIRE CAREERS
OWN THE ARTWORK
THINK BEYOND TOURING AND RETAIL
SHORT-TERM OR LONG-TERM CONTRACT?
RIDE OUT THE PANDEMIC WITH YOUR MERCHANDISER
Berliner represents Soundgarden in its royalties dispute with Chris Cornell’s widow, Vicky Cornell, as well as the estate of Kurt Cobain and Nirvana LLC (composed of former band members Dave Grohl and Krist Novoselic) in their lawsuits against Marc Jacobs International for copyright infringement.
Karlov oversees a legal department focused on advertising, branding and sponsorship deals for concerts, live events, theater, digital media, sports, film and TV. He serves as outside counsel for Bob Dylan, John Fogerty, T Bone Burnett, Rufus Wainwright, Michael Bolton and the Grateful Dead’s song catalog and has brokered merchandising deals for the NFL and the Olympic Games.
Perry heads a New York-based full-service licensing and merchandising company that handles global licensing, tour merchandising and e-commerce for such legacy artists as Janis Joplin, David Bowie, Pink Floyd, AC/DC, Aretha Franklin, Miles Davis and Sonny & Cher. He has fostered collaborations between AC/DC and Gucci, David Bowie and Barbie, and Pink Floyd and Converse.
The veteran entertainment attorney has a roster of clients that includes Grammy winners, Rock & Roll Hall of Fame inductees and major record labels and their top executives. With his guidance, Mark says that artist clients Billie Eilish, Guns N’ Roses, Benny Blanco, Danny Elfman, Rhiannon Giddens and Mötley Crüe have all done merchandise and related “brand enhancement” deals during the pandemic.
Although merchandise sales are largely equated with T-shirt and hoodie sales at concerts,
How To MAKE THE
How To MAKE THE
Four experts in the field offer guidance on negotiating strong contracts that will result in satisfied artists and fans
BY Claudia Rosenbaum