Making money from merchandising
Selling branded merchandise for your band
Published in PM September 2009
There are many benefits to be gained from selling branded merchandise for your band, beyond making extra cash at your gigs, such as increased exposure and even directly upping your album sales figures. But there are also pitfalls that youd do well to be aware of...
With album sales in freefall and video games the entertainment medium of choice for many young consumers, record companies and music producers are having to rethink their business models in order to survive. Factor in the massive increase in the supply of music — 30,000 albums are released every year in the UK, thanks in no small part to cheap technology, enabling the creation of music and a fanbase on the net — and the outlook remains rather uncertain.
Music revenues from video games are helping to make up some of the shortfall, with talk of music downloaded for games like Rock Band, Guitar Hero and SingStar becoming chart eligible before the years out. So far, Guitar Hero fans have downloaded 40 million tracks with a further 30 million downloaded on Rock Band, so this is a welcome development.
With these changes in mind, many record labels are now positioning the artist as a brand at the epicentre of their operations, looking to drive broader revenue streams by adopting a so-called 360-degree model, encompassing record sales and numerous other music-related activities including touring, sponsorship, endorsement, digital licensing, publishing, and even merchandising.
Until recently the merchandise business was considered the seedier end of things. But the promise of a fast turnaround and an image-conscious youth market with cash to splash has seen merchandise become a big money-spinner in these troubled times.
Bands starting out now recognise the importance of merchandise in helping to subsidise their fledgling careers and create visibility in an overcrowded marketplace. The great thing about merch is theres no waiting around for royalty cheques, and if youre touring, merchandise will earn you cash in hand on the same day. And having achieved some success, there are other prizes to play for. Artists like Lily Allen, Beth Ditto and Liam Gallagher have been instrumental in showing how the humble pop star can easily morph into a fashion icon, creating their own lucrative high-street collection on the way.
Bread-and-butter merchandise, however, has many benefits. Its a form of advertising for your band, and should you be lucky enough to have a fan base, merch can even pay for itself, as fans snap up T-shirts, key rings and other apparel for the privilege of being close to their favourite artist. T-shirts, and any other item that has your name on it, will be seen by your friends and hundreds of passing strangers, providing you with invaluable exposure and a little extra cash to help pay for rehearsals and gigs.
At the top end of the market, the memorabilia of great artists like Jimi Hendrix, the Beatles and Elvis Presley can fetch hundreds of thousands of pounds when sold in auction houses around the world. In light of recent events, consider the value today of those many Michael Jackson items flogged at knock-down prices in a lacklustre Las Vegas auction, back in 2007.
But its not only stars, and perennial favourites of merchandisers like the Rolling Stones, Kiss, the Ramones or Metallica, who can succeed in this game. A little ingenuity, some creative design work and a website is really all you need to get your own business started.
Although companies such as Bravado, Backstreet International and Firebrand Live tend to handle the bigger acts, there are plenty of operations taking care of the newer artists. Operators like Shirtysomething and Digital Stores can offer either partnership deals or fully managed merchandising services, depending on your needs.
Until recently merchandise has been an underexploited area, but exciting new initiatives are helping to bring together a broad array of stakeholders, driving growth in this area. Music magazines, ticketing agencies and high-street retailers are now offering fans the opportunity to buy merchandise as an add-on with many other purchases. Add to this the expansion of on-line, direct-to-consumer sales; mail order; bundled tie-ins with iTunes; and the growth of the festival market, and its easy to see why merchandising is fundamental to any music campaign. In the USA theyve even introduced the T-shirt album. Designs featuring your favourite artist now include a digital tag carrying data on a redeemable download album. When a consumer redeems the coupon and downloads the music, a digital album sale is reported for chart purposes.
When starting out its best to aim for consistency as regards the brand image youre trying to project. How you are perceived isnt based solely on your music, but also on your image and the quality and distinctiveness of the merchandise that you offer. You can in theory apply your name, logo, artwork and designs to any number of products (T-shirts, hoodies, posters and so on). But aim to be original and maintain a consistent style across a narrow range of items. In the early days this should help reinforce your image and bring down costs by simplifying mass-production. Make sure you include your website address on everything you sell, as this will drive traffic to related purchases and ticket sales, and will facilitate the creation of a fan database.
Quality control is especially important when selling items bearing your name. Should your T-shirts shrink in the wash, or the dye run easily, fans wont be too happy and they will blame you, not the manufacturer! This could lead to a backlash, with fans boycotting gigs and bloggers running you down in chat rooms.
To pre-empt such upsets, you should ensure your merchandise contract requires the manufacturer to submit design samples for your prior approval, and that you have an ongoing right to inspect stock in order to maintain standards. Its in the manufacturers interest to take out product liability insurance in the event of a consumer being harmed by their merchandise (eg. a skin rash caused by a T-shirt, or a poorly assembled kids toy). Likewise, its advisable for the artist to have their own insurance, should they be sued for the failings of others. Compliance with consumer law is not very rock & roll, but theres no point achieving superstar status only to be ruined by litigation or bankruptcy as a result of dodgy merchandise bearing your name!
To avoid being left with a bedroom full of items that nobody wants, its also wise to do some research before placing your order. Find out what fans are willing to pay for items — dont just assume theyre willing to part with their cash! Research which items fans prefer, the colours etc, and remember to cater for both men and women with your designs. For instance, if you havent been successful in attracting many female fans, dont underestimate the power of an item of merchandise to convert them into lifelong fans. They may stumble upon a particular T-shirt design, or see their friend wearing something they like — this may be the catalyst they need to start following the band!
Slicing the pie
When touring, bands are often expected to pay a percentage of their merchandise sales to the venue. If the venue is providing staff to help sell your wares, a fee may be reasonable. If not, youll want to negotiate the rate or have it removed from your performance agreement altogether. Typically, venues take between 20 and 25 percent of all gross merchandising revenues when they sell for an act, which they claim helps to keep down venue hire costs. At the time of writing, many bands and artists are in line for a welcome boost, as excessive merchandising fees are to be scrapped from a host of major venues across the UK. One of the biggest operators, Mama Group, whose venues include Londons Garage, Camdens Jazz Café, the HMV Forum and the Barfly chain, have now agreed theyll offer zero merch fees, provided the band and their management meet certain professional criteria.
If you play a venue where they do take a cut, youll need to ensure you mark up your retail price by the same margin. Longer term it may be a smarter move to subsidise sales from your own pocket, to get your merchandise out there and not be left with a mountain of gear that you cant shift. On the mail-order side and for Internet sales, youll also have to pay a commission on each transaction to the credit card company or retail partner. Again this should be borne in mind when pricing items.
After all the time and effort that goes into developing a merchandise business, the artist is unfortunately vulnerable to imitators and counterfeit sellers. A quick trawl of eBay or your local market will show you that. But bands and artists do have a variety of legal tools at their disposal to help them protect their name and image, and ultimately their merchandise, from unauthorised copying.
They can register a trademark in their name and logo, their domain name can also be registered, photos and artwork can be protected by copyright, and under the Trade Descriptions Act 1968 the law also allows for the prosecution of those selling counterfeit goods or items that are incorrectly labelled — useful against unofficial sellers outside your gigs or on-line.
Talking of legal wranglings, 60-year-old bat-muncher and Black Sabbath frontman Ozzy Osbourne is currently suing the bands guitarist Tony Iommi over unpaid merchandise royalties resulting from a trademark infringement. Ozzy alleges Iommi falsely claimed he was entitled to sole rights in the bands name, causing Ozzy lost revenues on merchandise sales. Ozzys now asking for damages and a share of all profits, as well as acknowledgment that he owns half of the trademark in the Black Sabbath name. Tony Iommi in fact registered the Black Sabbath trademark in the United States back in 2000, and claimed Osbourne gave up his rights to the name in the 1980s. Ozzy is reported as saying he believed all four original band members should share in the Black Sabbath name equally.
Beyond trademark law, artists and bands may also be able to bring an action for whats known as passing off, to protect their goodwill and reputation should a counterfeit seller mislead the public into buying goods under the assumption that the artist has approved of them. The difficulty with an action for passing off when youre still unknown is that you have little goodwill to warrant protection. The courts usually require you to demonstrate that you had an existing trade in the category of goods in dispute, and that, as a result of the passing off, youve suffered lost sales. Where merchandise is concerned, it would appear that the moral of the tale is to get your name into the marketplace sooner rather than later, register a trademark, and start trading in merchandise ASAP!
Even the hugely popular Spice Girls came unstuck when they sought a court injunction to prevent an Italian publisher from printing an unauthorised sticker book called The Fab Five, featuring the girls. Because the book didnt carry a label saying it was an unauthorised publication, the Spices claimed that the publication misrepresented that they had endorsed its sale. At the time the Spice Girls had no registered trademark, so they tried to rely on passing-off instead. They failed in their bid when the judge ruled there had been no deception, that the words Spice Girls hadnt been used anywhere in the book, and that the publishers were not trying to mislead the public.
The merchandising deal
As a general rule the artist will license the rights in their name and image to a particular manufacturer so they can produce and sell products bearing their name or logo, for a defined period of time. On expiry, the artist is then free to strike fresh deals with further licensees. This process allows the band to explore new product ranges and enter markets with relatively low risk, although quality control can be a problem where they license too widely. All licensed products should be sold bearing your trademark and copyright notices, which will be licensed to the manufacturer separately.
Over the years, cartoon characters, famous persons, musicians and household brand names such as Coca Cola and Marlboro have all been incorporated into merchandise and marketing, but the key to any successful tie-in lies in the mutually beneficial relationship that serves to enhance brand cachet on both sides. When it comes to merchandising personalities, a distinction needs to be drawn between the use of a celebrity image emblazoned on a product, and personality endorsement, where the famous person is informing the public they approve of the product and are happy to be associated with it.
Beyoncé, Britney Spears and David Beckham are real-life examples of the influence of celebrity in driving sales. Its rumoured that David Beckham earns £20 million a year from endorsements and merchandising rights for football shirts alone. His name is associated with a roll call of global brands including Motorola, Adidas, Calvin Klein and Gillette. R&B diva Beyoncé, has also managed to bag endorsement deals with the likes of Samsung, Emporio Armani perfumes, LOreal and Pepsi, raking in millions to add to her tour receipts. And despite a costly divorce, Britney Spears in still an exceptional earner. She too has netted six-figure sums from the likes of Pepsi, Elizabeth Arden perfumes, Samsung, Toyota, and Skechers, who have all bought in to her provocative Barbie-doll image!
In a straightforward merchandise deal theres no obligation to part with all of ones rights at once. The artist is free to retain rights in distinct categories of merchandise should they prefer — for instance, agreeing a licence on T-shirts and hoodies, but retaining rights for posters and calendars, granting these to a second company. But where an exclusive grant of rights does take place, the parties need to verify that no conflicting or prior agreement is in place.
Particular care needs to be taken with territorial provisions as well — especially with regard to the grant of rights to sell merchandise on-line. You may have done a deal with a company to sell at your gigs, perhaps a deal for retail sales, and additional deals in overseas territories. If there are multi-territory deals in place, make sure the scope of rights granted is precise and that the parties arent treading on one anothers toes. Administering sales in both the physical and on-line world can be a tricky business!
The term or duration of the deal is often correlated with the artist earning some form of guaranteed income over time from the licensee, or possibly until recoupment of any advances paid by the manufacturer. Of course, if the company does a poor job of selling your merch, you could be tied in unnecessarily. Its advisable therefore to secure the right to buy yourself out of a deal should sales underperform. Retail and mail order deals tend to last between one and five years, while tour merch deals are limited to the relevant dates, plus some time at the end to sell off any remaining inventory.
Successful acts can expect to earn big advances for signing a merch deal, in addition to sales royalties on top. Had Michael Jackson lived to complete his 50-date run at the O2 Arena, no doubt a sizeable portion of his newly replenished fortune would have been attributable to MJ merchandise — silver rhinestone gloves and fedora hats aplenty! In death the value of this global icons image has gone in to orbit. Itd be fascinating to know whether Jackos London promoters AEG held or possibly retained posthumous manufacturing rights to his name!
Merchandise advances are sometimes repayable when tour dates fail to sell to an agreed level, or if the artist cancels the tour. Usually some form of guaranteed minimum will be kept by the artist regardless, but bonus payments and royalties will depend on ticket sales. Royalties are paid after the deduction of expenses, including manufacture, venue fees, and VAT.
On the road your tour accountant can ensure that youre receiving the correct payments. At retail you will be accounted to either quarterly or every six months, with a right to audit the manufacturers accounts should you suspect underpayment.
If you have employed a designer, photographer or artist to contribute to your merch, make sure they transfer the rights in their work to you before you begin manufacture. Even ideas sketched on the back of a napkin could be worth millions one day!
It should also be the legal obligation of the original rights holder, the artist, to maintain all rights and registrations in their image and name. In practice this entails the registration of your trademark in all the territories where you have granted merchandising rights, and the protection of copyright in your photos, designs and artwork. Likewise the manufacturer should be required to assist by incorporating a trademark notice on all products sold, and a copyright notice on any artwork or design. Both parties are expected to co-operate in protecting these rights and pursuing those who infringe them. Tracking infringers on the Internet is almost a full-time job, but Trading Standards and Customs & Excise are very useful when it comes to seizures and bringing prosecutions against infringers.
Dont expect big money to begin with. You may have to pay to play, or gig for free, and it may take several years of hard graft before you gain a reputation. But while youre waiting, merchandise can be a great way to build profile and help cover day-to-day expenses. Whether you strike a touring or retail deal, you should try to negotiate a small portion of your merch for free from the manufacturer, as well as the right to buy some back, so you can sell items yourselves for a profit at gigs. Retail distribution is generally hardest to come by, due to limited shelf space and narrow margins — unless of course youre shifting thousands of units. Providing a good service and maintaining a strong relationship with fans is paramount.
Always keep a record of every purchase made at your gigs, take down phone numbers and email addresses, and dont take your fans for granted — without their loyalty youd be nowhere!
Richard Salmon is an entertainment lawyer, and lectures in media and IP law at London Metropolitan University. 0
Published in PM September 2009
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