All About Licensing: Part III

Other parts in this series:
Part 1
Part 2

The contract is signed. The materials are delivered. And soon, our upstart anime company takes the stage at an anime convention and announces their new acquisition: the 13-part late night TV series Saliva Princess. The audience is dead silent. A few people snicker. It occurs to the young executive that licensed the show that maybe, just maybe, doing this deal was a mistake. But it's too late now. They sent the money, they have the masters, and dammit, they'd better release a DVD.

Under the best of circumstances, the DVD sells, the publisher makes a good amount of money, the licensor gets paid, and everyone is happy. Under mediocre circumstances, the DVD doesn't sell, the publisher takes a loss initially, but keeps in touch with the licensor, files their reports, and the companies stay friends.

But that's not interesting. As industry observers, it's far more fun to see what happens things go wrong. (Besides, what's the fun in making a fake example company if we can't light it on fire?) So what follows is a composite of things that have actually happened and things that have not: a scenario of just how badly a deal can go awry. Or at least, how badly they can go over a mediocre late-night TV show nobody wanted in the first place.

Sloppiness Begets Sloppiness

1Up Pictures was an up-start anime company. Sensing that they'd probably never make money on Saliva Princess, the company president started looking for corners to cut. They'd previously released a handful of DVDs, but this time they decided to author one themselves. "DVDs are easy," the company president said in between sips of double-espresso. "Anyone can make one! The software does it all for you these days! No need to pay an authoring house!"

Unfortunately, the company had neither the equipment nor expertise to actually make a functioning DVD. After months of delays and missed street-dates, the disc finally ships, and as soon as the first copy goes out, screenshots are posted to the internet. "This looks like it was made in iDVD," observes one forum member. "I can tell because there's still an Apple logo in the corner of the screen." Only a few fans were planning to buy this series to begin with, but now they're all so enraged that they've cancelled their pre-orders.

Horrified and embarrassed, the company quickly has a proper authoring house redo the disc, and offers a trade-in program. But the disaster added several thousand dollars to the production budget, and mysteriously, that extra money ended up in the recoupable expenses column.

The licensor gets their first report. The show hasn't even come close to breaking even, but seeing that the production costs are way higher than they should've been, they inquire, “why were production costs so high?” 1Up doesn't respond.

The next month, no report comes at all.

Hand Wringing

If the licensor was to be honest with themselves, they don't really care THAT much about Saliva Princess. The show made its money back in Japan already and the fan base has moved on, the production committee has already disbanded, and nobody is really expecting much in terms of foreign sales. But for the young executive that made the deal, it's a point of pride that things get done the right way. After all, it was his first big deal.

One night, he has drinks with another licensor at a much bigger production company. He learns that 1Up has actually always been pretty sloppy about reports, and if he waits long enough and annoys them enough times, they might catch up.

And so he waits. And pesters. And no more reports come. Time passes, and the next year's Tokyo Anime Fair rolls around. The two finally meet; the guy from 1Up is apologetic, but explains that it's not his department, and he'll make sure that he gets on the Finance department's case when he gets back.

But from that point on, they never send another report. Or another check. And since there's no new shows that the licensor is offering that 1Up is trying to get hold of, there's really no incentive for 1Up to fix things.

Few Options

Technically, 1Up is in breach of their contract. They are not abiding by the terms of the agreement, they've been mostly unresponsive to the licensor's requests, and if the licensor really wanted to, they could send legal notice and try to get their master tapes back. They could also sue (well, arbitrate) to try to get what they might be owed in terms of royalties.

But really, there's not a whole lot of incentive to do that. The release bombed for 1Up, and the odds that they've recouped what they spent on it are pretty low – even if the licensor decided to make a federal case of it, they probably wouldn't get much of anything. And they'd spend a whole lot of money on lawyers. And even if they got the rights back, nobody else wanted them before, so it'd be unlikely anyone would want to rescue the show and re-release it.

So the guys at AniProduce decide to just overlook the issue and let the contract continue as if nothing was wrong. Besides, they're busy and have better things to do than hover over an aging property that was never going to make them much money overseas anyway.

A Final Straw

If you'll remember from Part 1, 1Up originally held out for broadcast rights to the show, but ultimately didn't get them. Unfortunately, the company president didn't get that memo, and he thinks he has a large number of shows that are cleared for broadcast in North America.

After visiting a trade show in Vegas (and doing enough cocaine to kill a bear), he finds himself staggering home after signing over broadcast rights to about 12 different shows to a small cable channel. Among them… Saliva Princess!

The cable channel is not big – in fact, nobody has ever heard of it. But it's big enough to send out a press release, which promptly gets printed by ANN and most other anime news outlets. The licensor just happens to be visiting these sites when he gets wind of the TV deal, and immediately fires off a Cease and Desist letter. They also try calling, but nobody picks up the phone and nobody is responding to voice mails.

As one might imagine, the guys at AniProduce Co., Ltd. are not happy with 1Up. They're considering legal action, but after consulting with the company lawyer, they're informed that it's still probably not worth suing over. The laws are murky, and a costly court battle would still be way more trouble than it's worth.

But at this point, the bridge is burned. The licensor might have considered doing business with 1Up again before this, should they offer enough money up-front for something. But now? No way.

The Moral Of The Story

Contracts really are like a marriage between companies. Over the course of their agreed-to commitment to each other, they may break their promises, fail to meet expectations, or screw up royally. But unless there's some real gigantic train wreck that clearly costs people lots of money and/or embarrassment, it's usually not worth involving the legal system in a costly and messy divorce. Especially since the term is only for seven to ten years.

The other thing to remember is that small, one-season TV shows are comparatively low-stakes commodities. If this were a Naruto or a Yu-Gi-Oh!, the stakes would be exponentially higher, and a lack of reports and royalties would make any content owner immediately see red. But again, given the cost of litigating an issue in a foreign country, things would have to get really, really bad before anybody would consider legal action.

But there is one other thing to take note of here: you'll notice that nearly all of the examples of horrors that can happen over the course of a license are things that the publisher can do to the licensor. The licensor is actually in the vulnerable position – once they hand over the materials, a rogue publisher can basically do whatever they want, and the licensor will be more or less helpless to stop them.

But by and large, such occurrences are rare. The vast majority of deals get executed, have a few initial bumps in the road during contract and materials stages, and then pass through the rest of their terms quietly and without too much drama. But given the difficulty and the inherent insecurity in letting another company adapt and distribute your content, one certainly can't blame the licensors for wanting to be as hands-on as possible.

Even if they sometimes don't know what they're doing.