POTENTIAL REVENUE STREAMS: MERCHANDISING @ Score! Music Magazine



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Potential Revenue Streams: Merchandising

by Bobby Borg

Merchandising refers to the process of selling T-shirts, hats, tickers, programs, posters, and other goods that bear an artist’s name and often likeness. When these products are sold in conjunction with a concert tour, substantial sums of money can be generated. Merchandising monies are especially useful in helping artists subsidize touring costs when the fees they’re earning for a live performance are only minimal. Merchandising is also helpful to artists when their record company fails to provide adequate tour support funds. In any case, it’s important to have a basic knowledge of how merchandising works, from understanding your merchandising rights, to making merchandising deals, to handling your own merchandising independently.

MERCHANDISING RIGHTS

The first step to understanding how the merchandising business works is to understand a simple legality called “the right of publicity.” This law refers to an individual’s rights to grant or not grant the use of his or her name and/or likeness for commercial purposes. In other words, you have the right to decide who, if anyone, can use your name and likeness on T-shirts, hats, posters, or other products for commercial sale.

When considering your legal rights to a fictitious name, such as your stage or band name, you should register the trademark or servicemark with the federal government. This is especially important when you reach a point in your career where you’re going to be exposed on a national level. Federal trademark and servicemark registration makes it easier for you to successfully sue anyone who attempts to use your band name or logo without your permission. Choose a distinctive name that is not confusingly similar to other bands or entertainment-related companies to avoid lawsuits, and then conduct a trademark search to make sure no one else has prior use.

[The word servicemark is sometimes used interchangeably with trademark; however, they actually have different meanings. A service mark is used in connection with a service, such as your live performances. A trademark is used on products that are bought and sold, such as your records and merchandising.]

GRANTS OF RIGHTS

There are typically three scenarios that exist when discussing what happens with your merchandising rights. These are: the grant of rights to your record company, the grant of rights directly to a merchandiser, and the handling of your merchandising independently.

Grant of Rights to Your Record Company

When signing a recording agreement, your record label typically wants to secure your exclusive merchandising rights. This is especially true when you are a new artist signing with a small independent record label or when you have little or no negotiating power dealing with a major label. Your record company then licenses these rights to a third party merchandising company to manufacture product and oversee sales. The merchandiser pays the record company a merchandising royalty, and the label in turn splits it with you 50/50.

This arrangement is disadvantageous to you for two reasons. First, assuming that you’re able hold on to your own merchandising rights, you can easily make a deal directly with a merchandiser and cut out your record company altogether as the middle man. Second, your record company will want to cross-collateralize your merchandising royalties with your record royalties. In other words, ANY MONIES THAT WOULD OTHERWISE BE PAYABLE TO YOU FROM MERCHANDISING SALES GO TOWARDS PAYING BACK ALL UNRECOUPED EXPENSES WITH YOUR RECORD LABEL. Therefore, it can be a long time before you ever see any money from merchandising sales. Needless to say, it’s best try to avoid giving up your merchandising rights if at all possible. However, if you’re in a “take it or leave it” situation in your negotiations, weigh the pros and cons before making any decision.

[Don’t confuse exclusive merchandising rights with promotional rights. A record company always has the promotional rights to manufacture products using your name and likeness in connection with records, videos, and biographical information. A label may also give away T-shirts, stickers, and posters via record stores, websites, or radio stations to promote record sales.]

Grant of Rights to a Merchandiser

The second scenario that exists is when you’re able to secure your rights upon signing a record deal and you enter into a merchandising deal directly with a merchandising company. The merchandiser agrees to manufacture products and oversee sales and then pay you a royalty and an advance against projected earnings.

As mentioned earlier, a merchandising advance is often a much needed source of income for bands to help cover start-up expenses before hitting the road. The cost of rehearsals, airfares, tour buses, trucks, and production can add up. An advance is especially helpful in situations where your record company is no longer providing you with tour support funds to cover expenses and/or when the fees you’re receiving for live performances are only minimal. Some artists have even relied on merchandising monies to help cover their living expenses between tours. In any case, securing merchandising rights and entering into an agreement directly with a merchandiser is more advantageous for you than is our first scenario since there’s potentially much more money to be made in the long run.

Retaining Rights and Handling Merchandising Independently

The last scenario is when you retain your merchandising rights and handle merchandising independently. In other words, rather than licensing your rights to a merchandising company, you simply have a printer experienced in touring supply you with product and you handle the merchandising sales yourself. This way you will make more profit per T-shirt or item, although you’ll forgo a merchandising advance. This scenario usually exists at the beginning of an artist’s career when a merchandising deal has not yet been offered or the artist is playing small venues where handling the merchandising is still manageable. However, once an artist progresses to a point in his or her career where he or she is playing larger venues, the burden of ordering product, shipping, accounting, and sales may not at all be practical. Hence, the merchandising deal with a major merchandiser usually becomes necessary.

Copyright 2002 Bobby Borg.
Excerpt from “The Musician’s Handbook: A Practical Guide To Understanding The Music Business,”
which is scheduled for release in the Spring 2003 by Billboard Books.
For more information, visit http://bobbyborg.com,
or write: bborg@earthlink.net or Bobby Borg, PO Box 18564, Beverly Hills, CA 90209.