Hi junos,
Your question is complicated by the fact that there is a wide variety
of individual situations, and it is not possible to answer
conslusively whether 8% is a fair rate for your case. Nevertheless, we
can measure it against some "rules of thumb".
The making and marketing of lecture DVDs is not widespread enough for
standard rates to be published on the internet, so I've looked for
guideline figures. In some cases I've used figures taken from book
publishing, CD publishing and the licensing of intellectual property
in general (including inventions). In other cases I do have some
figures for DVD publishing ? but unfortunately not specifically for
lecture material. However, there seem to be a few general "rules of
thumb".
The first relates to how much one would expect to receive as
royalties, as a percentage of the increase in profit that your
intellectual property provides to the publisher's business:
"It is sometimes said that a fair royalty is one that, over the life
of the license gives the licensor about 25% of the profit made by the
licensee from the exploitation of the intellectual property. This is
only a guide and in some cases is appropriate and in others is not."
Licensing Executives Society International - FAQs
http://www.lesi.org/level1/faqs.htm
"Among the techniques for determining a "fair" royalty is the
so-called "25% rule". This "rule" suggests that a licensor should
receive 25% of the extra profit derived from the licensee's use of the
licensed technology. There are a number of points that should be borne
in mind when considering the "25% rule". First and foremost it must be
remembered that it is but one of a number of alternative approaches
that may be used to arrive at an agreed quantum of consideration for
the grant of a licence. To this extent it is a misnomer to call this
technique a rule. It is nothing more than an aid to reaching agreement
between a licensor and a licensee; despite these reservations the
author, and it is believed many other licensing executives, have found
the technique helpful, and it often accords with industry practice."
SCP Technology ... Structuring Royalty Payments to Mutual Advantage
http://www.scp.com.au/publications/licensing/mutual.shtml
Of course, added profits are not the same as net sales. The definition
of "net sales" can vary, but here are some examples:
"Net selling price shall be the gross invoice price of the Licensed
Products sold ... in normal, bona fide, commercial transaction without
any deduction other than the following items of expenses, if any, to
the extent to which they are actually paid and included in the gross
invoice price." [The expenses listed on that webpage that could apply
to DVDs are: Sales discount, Sales returned, Indirect taxes on sales,
Insurance premium on sales, Packing expenses on sales, Transport
expenses on sales, Sales commissions and Advertisement fees].
Model Technology Transfer Agreement
http://www.1000ventures.com/technology_transfer/tt_agr_model_byrok.html
"The royalty will amount to a percentage of the gross margin derived
from the sales price of the DVD title, computed as: Royalty Rate x
(Sales price - handling fees - cost of goods) ... Handling fees and
cost of goods nominally amount to $4 and $5 respectively, with their
price subject to reasonable change according to business conditions."
PubliFilm ? Letter of Authorization
http://www.publifilm.com/common/contract.cfm
That there is no mention in PubliFilm's rates of filming and editing
costs. In their case it is assumed that the material is ready to be
mastered and duplicated without further editing. In your case, this
will not be the case and it seems reasonable that the publishers
deduct the costs of these tasks from the royalties paid to you.
But you need to agree with them how much this is going to cost,
otherwise it's open to abuse as the costing of these tasks is somewhat
arbitrary and could be artificially inflated to drive down the royalty
paid to you.
So what percentage of net sales might correspond to the "increased
profit" figure of 25% discussed above? Bear in mind that the publisher
has many costs not taken into account in the calculation of "net
sales", including administration and marketing expenses.
"Surveys have shown that royalties paid in connection with license
agreements can range between 0.1% of net selling price and 50%."
Licensing Executives Society International - FAQs
http://www.lesi.org/level1/faqs.htm
But again there is an oft-quoted "rule of thumb":
"Typically simple licence agreements provide for a single royalty
during the life of the licence. This might be, say, 5% of the net
selling price"
SCP Technology ... Structuring Royalty Payments to Mutual Advantage
http://www.scp.com.au/publications/licensing/mutual.shtml
"It is a common assumption that a fair royalty is 5% of turnover from
the licensed property."
Patent Cafe Magazine
http://www.cafezine.com/index_article.asp?deptId=5&id=48&page=2
Patent Cafe Magazine adds that 5% is almost always too low:
"This [5%] almost always under-estimates the true value of the
property, especially for an exclusive license."
Let's now look at some specific examples for DVDs. If you want to
publish a DVD from music videos held by GEMA (a German industry body)
for which GEMA administers the copyright, you can license the material
for 13.75% of your highest published dealer price:
GEMA ? Customers ? Industrial Affairs ? Rates
http://www.gema.de/engl/customers/industrial_affairs/rates/vr-t-h_3_rate.shtml
If, on the other hand, you are a filmmaker who has already produced a
film, and the film is complete and ready for publication, and you are
licensing it to PubliFilm, they will produce and distribute a DVD of
your film and will pay you 8% or 20% of net:
PubliFilm ? Letter of Authorization
http://www.publifilm.com/common/contract.cfm
I must say that 20% seems quite high. Even successful recording
artists do not get that kind of rate. Consider this quote from
Courtney Love:
"This story is about a bidding-war band that gets a huge deal with a
20 percent royalty rate and a million-dollar advance. (No bidding-war
band ever got a 20
percent royalty, but whatever.)"
MacMan.Net: Older News
http://www.macman.net/news.html
(search down the page for "Courtney Love")
Bear in mind too that Courtney Love's agent, lawyer and business
manager will also be paid out of her royalty.
Consider also this breakdown of where the money goes from an average priced CD:
"Artist 6.6%, Producer 2.2%, Songwriters 4.5%, Distributor 22%,
Manufacturing 5%, Retailer 30%, Record Label 30%"
Where the money goes: A breakdown of the $19.95
http://www.sandersontaylor.com/da_zzub_w2002.html
From the above we can see that 5% may be too low, and 20% is probably
way too high, so 8% sounds reasonable provided you can lock down the
filming, editing and production costs. In any negotiation, though, the
best you can get is "what the market will bear". Is the publisher
taking a big risk here? PatentCafe advises "If the typical royalty is
5% and you want 10%, you may spoil your own best deal. Remember that
it is better to have a thin slice of a very large pie than no pie at
all."
If your first DVD is successful, is there then the possibility to
"build a brand for yourself" and negotiate a higher rate for future
DVDs?
Are there subsidiary rights that might produce further sales (such as
videotape versions, interactive versions, translations, sales in other
countries, aggregated works, future updates, performance rights,
merchandising rights, audio rights, book adaptations, teacher's guides
etc) for which you can negotiate additional royalties?
By the way, here's a page on subsidiary rights (oriented towards
books, but the general concepts still apply):
Publishers Marketing Association - Newsletter
http://www.pma-online.org/scripts/shownews.cfm?id=513
Is there a way you can improve the royalty payment by presenting the
lecture in a way that minimizes the filming and editing costs? That's
something to discuss with your publisher.
A 2000-copy product is a fairly small run, and there may not be a lot
of scope for negotiation, but if this is likely to be the first of
many such recorded lectures it may be worth your while retaining an
agent. They might cost 15 to 20% of your royalty, but if an agent can
improve your deal by more than that then it would be worthwhile.
Even if you or your agent are not able to negotiate a higher rate, you
may be able to negotiate better conditions. For example, you may be
able to increase the amount of the royalty that is paid "up front" in
anticipation of future sales, or you may be able to establish a
minimum royalty that will be paid to you regardless of the number of
copies sold.
I hope this has given you an overview that will help you proceed with
your DVD. If there are further aspects to your question that you would
like me to research, or if the content above does not sufficiently
address your question, please request clarification.
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Regards,
eiffel-ga |
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