Potential Revenue Streams:
Merchandising
by Bobby Borg

Merchandising refers to the process of selling merchandise-T-shirts, hats, stickers, programs, posters, and other goods that bear an artist's name and often his or her likeness. When these products are sold in conjunction with a concert tour, they can generate substantial sums of money. Merchandising monies are especially useful in helping artists subsidize touring costs when the money they're earning for a live performance is minimal. Merchandising is also helpful to artists when their record companies fails to provide adequate tour support funds. In any case, it's important to have a basic knowledge of how merchandising works, and to have a broad understanding of everything from 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 law called "the right of publicity." This 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 sales. When considering your legal rights to a fictitious name, such as your stage or band name, you should register the trademark or service mark with the federal government. This is especially important when you reach the point in your career at which you will be exposed on a national level. Federal trademark and service mark registration makes it easier for you to successfully sue anyone who attempts to use your band name or logo without your permission. To avoid lawsuits, choose a distinctive name that is not confusingly similar to that of other bands or entertainment-related companies, and then conduct a trademark search to make sure no one else has already claimed the name. [The word service mark 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 three typical scenarios that apply to using your merchandising rights. These are as follows: 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 the artist 50 / 50.

This arrangement puts you at a disadvantage 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. Second, your record company will typically 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 TOWARD 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" position 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

If you're able to secure the rights upon signing a record deal you can 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 this column has already mentioned, a merchandising advance is often a much needed source of income for bands and can help them cover start-up expenses before they hit the road. The costs of rehearsals, air-fares, tour buses, trucks, and production can add up. An advance is especially helpful if your record company is no longer providing you with tour support funds to cover expenses and/or if the fees you're receiving for a live performances are small. 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 because you not only keep a bigger percentage of royalties since there is no middleman, but you have more control to negotiate the deal you want, or not make a deal at all and handle merchandising independently.

Retaining Rights and Handling Merchandising Independently

The last option for merchandising is retaining your merchandising rights and handling your merchandising independently. In other words, rather than licensing your rights to a merchandising company, you simply hire a printer who is experienced in handling merchandising for touring performances to supply you with the product, and you can then 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 is usually applicable to the beginning of an artist's career when a merchandising deal has not yet been offered or when the artist is playing small venues in which 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 merchandiser becomes necessary.

-------------------------------------------------------------------------------- Bobby Borg is the author of "The Musician's Handbook: A Practical Guide To Understanding The Music Business" published by Billboard Books.
For more information: www.bobbyborg.com.

Reprinted with permission from TAXI: The Independent A&R Vehicle connecting unsigned artists, bands and songwriters with major record labels, publishers, and film & TV music supervisors.