Negotiations: A Major Benefit of Working with a Licensing Agency

It’s human nature to want to avoid conflict.  However, conflict is not always unavoidable.  Having been fortunate enough, or perhaps hardheaded enough, to have gained success in the performing arts, I came to view contract negotiations as conflict — because, quite frankly, they were.  I fought for every victory; the record label fought back, wanting the biggest piece of the pie in order to protect its own interests.  Every victory, in essence, was a compromise.  And every compromise took something out of me, something indefinable and yet, quite real.

Finally, I learned not so much to stop fighting, but to conscript a small and very dedicated army into my cause.

That army was a licensing agency; an agency that I hired when I decided to create a brand for myself by entering into negotiations with a manufacturer of a line of cosmetics bearing my name and likeness.

My representatives at the licensing agency had advised me that the first criterion was to determine what I wanted from my agreement with the manufacturer; in other words, what my terms were going to be.  Terms, of course, would have their basis rooted firmly in my interests and objectives.  While money (percentage of royalties) was a huge consideration, it was not the sole factor driving negotiations.

Before I even sat down at the bargaining table, I had to clarify some important issues.   If I lost my deal with the record company and had to fly solo as an artist (which has been an escalating trend in my business), or if I decided not to renew my contract with the label, what did I wish to project through this line of cosmetics that would be so closely associated with my image?   Did I want to retain the appearance of the tough-cute rocker chick, which had always worked (meaning, sold)?  Or did I want to project a more mature image, reflective of my music, which was beginning to evolve in that direction?

Did I have concerns about environmentalism and animal rights?  Did I want the products tested on animals, and did I want the line comprised of all-natural ingredients, which would be more costly than synthetics?

Would I want the products to be manufactured and packaged domestically, as a consideration to the American workforce hard hit by foreign competition?  Domestic production would be more costly than going overseas to cheaper labor pools, and those costs would be reflected in my earnings.

How was the manufacturer planning to distribute the product?  How exclusive did we wish to be?   Promoting the line in fine department stores would narrow the market but allow for a higher markup and therefore, a higher profit margin.  Selling the line in Big Box stores (i.e., Target, Wal-Mart) would reap a much larger customer base while demanding a lower retail price, equating to lower earnings.

To what degree did I wish to be involved in product development, including the determination of colors, textures, products (for example, lip gloss versus or lip gloss and traditional lipstick), even product names, and packaging designs?

I had to answer to all of these questions prior to my negotiations.  And not only did I have to have the answers, I also had to understand how each of those considerations would impact my contract.

My savvy representatives at the licensing agency also cautioned me not to confuse ego with business, and not to be afraid to think outside the box.  Although I had hired this licensing agency to facilitate negotiations with the manufacturer, they wanted me to be an active participant in the entire process — and that was one of the reasons I had hired them!

The agency educated me in the various stages, or facets, of successful negotiations, explaining that these encompassed alternatives, interests (as I’ve just outlined above), options, standards of legitimacy, relationship, and commitment.

Alternatives had to be considered beforehand (“Forewarned is forearmed”).  If neither party could reach a consensus, I learned that the normal procedure is to enter into a BATNA (Best Alternative to a Negotiated Agreement).  This type of agreement determines the level of tolerance with respect to royalties for both parties, with tolerance defined as “lowest to highest” (a.k.a., Minimum Guarantee) within the parameters of a standard licensing agreement.

If, for example, my record label decided not to renew my contract, my value as an entertainer would diminish as soon as that news hit the media (which would be almost immediate, given the nature of record labels).  If that were to happen, my value as a licensee would also decrease, thus putting the manufacturer in a better position to bargain toward his own goals.

My licensing agency explained that they could protect me, to some degree, from such eventualities, by crafting a strong BATNA that would limit the manufacturer’s alternatives.

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