Licensing is an extension of your existing business development framework. If you understand the basics, have the tools, and have the patience you can do one as simply as the other. This article outlines a licensing strategy for a typical game, how to identify the top targets, and advises on how to approach them and structure beneficial deals.
To be successful in acquiring licenses for any game you need to maintain a specific set of goals, tools and methodologies. First and foremost you need to be clear about what you are looking to achieve from these deals. Your initial goal should be discovery and user acquisition. Until you have a sizeable user base and brand recognition you won’t be appealing to licensors. Licensors and their agents want two things out of every licensing deal: brand exposure and money. If you don’t have the user base at launch to provide them with a sizeable amount of brand exposure, the benefit you offer is money in the form of a licensing fee or minimum guarantee.
To pursue a licensing strategy you will also need a CRM solution. This is not as essential in licensing as it is in business development so if you don’t have a solution in place you can still manage. If you don’t have a CRM you can use a spreadsheet for the purposes of identifying and qualifying your partners. When you start doing outreach to your targets you will need a way to track prospects, calls, emails, notes, and to schedule follow-ups. Once you start reaching out to the licensors it will get time consuming and without a solution in place you don’t want to end up dropping the ball on a valuable relationship.
When you look at CRM’s you need to make sure they offer these baseline features:
There are several options out there for CRM solutions that are affordable and possibly even free for what you need. You don't need something as large or expsnsive as SalesForce though. We use Nutshell internally but there are also good options available from Hubspot, Sugar, Zoho, and others.
As we previously stated, until the game has a sizeable user base or your company has a track record of success the appeal to licensors will be cash. You may have a great team in place with a lot of experience in the industry but if you have not launched a game with this team in place you will still need to prove yourself. For this reason your company will be viewed as a pure licensing partner for larger companies and celebrities.
As you reach out to potential partners you need to ask them what their goals and expectations are for a licensing partnership. Pay careful attention to their response and record their answers in your CRM or spreadsheet. Partners that are simply interested in the licensing revenue will be less motivated to endorse a game than those who are passionate about maximizing the opportunity. Passion may come from a desire to be involved in a game that will yield high branding possibilities down the road or a desire to help further a particular cause or message the game promotes. When weighing your options on potential partners we recommend pursuing a partnership with those that are passionate about your game, message, or cause.
Even if a partner does not seem interesting at this point in the project, they may become a valuable partner as your goals change with development and release. Understand how to optimize each stage to meet their goals. For example, social media posts are a very easy ask. Identify the parts of the game that can best help your partners and cost you the least in time and opportunity cost. For example, you may not need to create a custom in-game item for a specific partner and all you need to deliver could be a pop-up screen on sign-in or a special mission. Create a spreadsheet with a list of all the possible ways you can incorporate additional elements into your game. Assign an hourly estimate on the time it would take to create that asset as well as an opportunity cost. This will help you track partnerships and determine the best fit for a partner at a glance.
While all games present a set of risks, your game’s (or studio's) theme and subject matter may present risks and won’t appeal to all licensors. In addition to the inherent development risks involved in any project, there will be licensors and partners that don’t want to be associated with the game simply because its messaging, genre, or content. There is also always the chance of a game not making it to market in the first place or seeing a release but not having the marketing and UA budget to sustain it. Depending on the licensor, they may or may not be aware of these risks, but these are things to always keep in mind. You don’t want to pay hundreds of thousands for a license and not have sufficient funds to devote to development, testing, polish, and marketing.
When creating promotional materials, focus on the track record of the team or individuals. Lay out why the game will succeed very clearly and make analogies to other successful games. Your audience at the licensor may or may not be up to date on the game industry so skip buzzwords and abbreviations.
“A modern F2P match 3 with an RTS metagame focused on monetizing DAUs”
That may make perfect sense to someone in the game industry but an outsider could be completely lost. It should read:
“A modern free to play game that combines the matching in Candy Crush with the strategy of Game of War. Our monetization will focus on in-app purchases that encourage users to engage with the game daily.”
At this stage you don’t need a wealth of material to pitch the game and seek partners. We recommend a six to ten slide deck. The deck should include the following:
Next, discuss the launch timeframe and initial marketing and user acquisition push. You want to show that you have a plan in place to draw users in addition to the support you are seeking from your partners.
Finally, craft an introduction email along with a follow up email. Keep these e-mails brief and to the point. You do not want to send a partner an introduction email that is a page long. They’ll look at it, see that it’s a lot to read, and simply close it. Four sentences and the attached deck should be enough. State who you are, what the opportunity to them is, and what their benefit will be.
It is imperative that you always present the opportunity in such a way that that they will see the greater benefit to them from the partnership. Discuss the values of expanding their brand awareness and pitch the game as a marketing tool. Establishing the game as a marketing tool as opposed to a licensing opportunity sets the tone that you expect to compensate them in some form instead of coming to them and offering to pay.
We've been working with high profile brands as a licensor and licensee for over 20+ years. We can help find you the perfect partner, negotiate a good deal, and even manage the relationship.
Finding the right partner for a game today isn’t a one-time search. If your game has a post-launch content plan, identifying potential partners should be an ongoing priority.
Identification of targets comes from simple research. Track your targets in a spreadsheet or your CRM so you can add new options and see the information you have gathered on each one.
Once you’ve created your target list of companies you need to qualify and prioritize them based on your most immediate needs. As the game builds to launch and in the early days of release your focus should be solely on user acquisition. More users not only builds the core revenue stream of the game, but also establishes legitimacy and a daily or monthly following of users that can you provide access to.
With this in mind you want to sort the target list and prioritize partners based on their social media footprint and your needs for the next eight quarters. We calculate the social media footprint as simply the sum of the Facebook, Twitter, Instagram (and other social media profiles), number of Twitch and/or YouTube subscribers, and mailing lists. Basically, how many of their fans or followers can they reach to tell them about the game. You won’t know their mailing list reach from research so that is something you need to ask when you reach out to them.
As you go to prioritize your list, divide it by the stage of the game. Pre-launch and for the first month after launch your objective is users. You want to target the partners here that can provide you access to the most users for the least amount of money out of your pocket. Post-launch you want to retain that momentum but should have a solid enough user base at that point to start approaching companies from the marketing side versus the licensing side.
The days of cold calling are all but over. Today’s executives don’t want to be bothered out of the blue with something they aren’t prepared for. Research the specific contacts you need to speak to at each company. You want a decision maker that is “C” level in the organization so start with the company website or LinkedIn. You don’t need a premium account to contact the person, you just need their name. If you have not been able to ascertain the contact’s email address at by this point go to https://hunter.io/ or www.mailtester.com and use these sites to determine the contact’s information and reach out to them directly.
Using your introduction email your first objective is to establish contact, outline credibility, and determine interest. From there you want to have the partner ask for more information or set up a call immediately. If you do not get a response to your first email, wait one week and send your follow up email. Do this twice for a total of three attempts to reach your contact. If you haven’t received anything after the initial email and two follow-ups then search for a different contact at the company or deprioritize that partner for the short term. Don’t waste time relentlessly trying to pursue your favorite company or celebrity when they aren’t returning your calls. The best partners are the ones that are enthusiastic and excited about the game, not necessarily the one with the biggest following.
There are no hard and fast rules for the type of deal that you can create with a partner. Even major movie studios vary the types of deals they structure based on the IP and the partnership. Keep in mind that when you are dealing with a licensing agent versus the licensor directly an upfront payment of some sort will usually be expected. Licensing agents typically make their money on commissions so deals without an advance are rarely entertained.
The way you approach a partner is key, as well. Large IP’s or companies will typically have a licensing and marketing division. The group you approach first will set the tone and expectations for the relationship. The key difference between the two groups is simple. Licensing divisions will be expecting you to pay them, marketing divisions are more likely to pay you. Your objective for the long-term profitability of your game is to deal with the marketing division but you will have to begin with the licensing side. All games will need to have a large number of users that are returning daily or weekly before you can make that transition.
A licensing deal will typically have you paying a fee, royalty, or both to the IP holder in exchange for the right to use of their brand and obtain their support in promoting the game. This is the case when their reach is stronger than yours and you need their support to grow or their IP to establish credibility. These are the initial deals you will be doing before the game launch. The Kardashian game from Glu Mobile is a great example of this. They paid Kim Kardashian a large upfront fee and she receives a royalty from the revenue of the game.
Marketing deals come about when you have proven that your game is a powerful brand in and of itself. Your objective here is to have companies pay you to have the brand featured in the game. You can provide access to targeted users who return to the game frequently. In today’s world of declining traditional advertising, many companies are looking to games to promote their brands. You see the evidence of these deals in mobile games where specific products based on brands are placed. You will need to have hundreds of thousands of daily active users to approach companies with this opportunity. Your objective is to show that it is cheaper and more effective for them to spend their money marketing in your game than it is to invest in more traditional marketing.
Occasionally you will see what we call co-marketing deals. There are numerous names for these deals but they essentially boil down to quid-pro-quo relationships. These are a key aspect of early-stage partnerships as well. You will include the IP or brand in the game and promote it as the brand holder does the same for the game. No money changes hands up front in these partnerships. You typically see these partnerships with smaller companies and brands. The relationship is mutually beneficial and neither company needs to expose themselves to large amounts of risk.
As you move into the letter of intent (LOI) and contract phase of the partnership there are a number of deal terms that you need to be aware of. Some of these general terms you will discuss with the partner and some are specific items to be negotiated in a formal contract.
Flat fee: These deals are paid for in money up front with no backend royalty payments. As the licensee these are the best deals you can do if they are negotiated at an affordable fee. You will pay the IP holder once, and never owe them any additional revenue. These deals are best done when you are acquiring a brand or IP and need little ongoing support from the partner. Once you’ve paid a licensor all they are owed it can sometimes be difficult to get them to hold up their end of the deal. You see a lot of these deals in the social casino space when a company wants to brand a digital slot machine with a recognizable IP.
Royalty: This is the amount of revenue as a percentage or a fee per sale that you owe the licensor in return for the use of their brand. More valuable IP’s will demand a royalty as well as an upfront fee. If the initial fee can be recouped by the royalties it is referred to as an “Advance Royalty.” If the fee is non-recoupable it will be called an “Acquisition Fee” or something similar. Not all royalty deals require an initial payment, if you are structuring a deal that does, make sure you are paying an Advance Royalty. Only on the rarest of occasions should you be paying a non-recoupable initial payment to a licensor.
Term: This is the period of time that you have the rights to use the IP. The longer you wish to hold the rights, the more expensive it will be. We do not recommend engaging an IP or company for more than 1 year after the initial launch of the game. You can always have options to renew if the game is still monetizing well. This practice will save you money, and allow you to step away from the deal sooner if it is not providing the desired result. Mobile game terms should typically be shorter than those for console games as the development cycle is shorter and the increased risk of sunsetting. It does you no good to pay for a license if the game isn’t around to use it.
Territory: Whereas territory used to be defined by country it is more frequently done today based on language. You can typically save money by not requesting worldwide rights. If an IP is not well known in a country, don’t pay for the rights to use it there. The same is true for countries like China that have a vastly different model for games.
Grant of License: This section of an agreement will detail the rights you have permission to use and how you can use them. In this case you will be creating a mobile game. This section of an agreement may also outline what credits you have to give to the IP holder, author, artist, etc.
Approvals: Approvals are an extremely important part of the contract and relationship. Many partners don’t know much about the game industry and they don’t understand the time constraints of game development. It is EXTREMELY important to outline clear timelines and methodologies for approvals in your final agreement. Typically you want to give the licensor no more than 10 days to approve anything that they need to review. In the event that they do not approve it they need to be very clear and specific on what needs to be changed. It is typical to have a major licensor want to approve the final design documentation, major milestones, the final game, and any marketing materials featuring their likeness or IP.
Payments: As mentioned earlier, every deal is going to have its own pros and cons with regards to payment terms. In general, you should weigh each licensing partnership based on the cost it would market your game to their social media footprint versus the terms of the deal. Other factors such as new market reach should be taken into account as well. If the licensor has specific obligations to meet in the partnership make sure you have not paid the total fee until that is done.
Reporting (if on a royalty structure): If there is a royalty due to the licensor based on revenue you’re going to need to report those sales and pay out the royalties on a monthly or quarterly basis. Your objective in negotiating this would be quarterly payments due 45 days after the end of each quarter.
Trademarks and Branding: Here your partner will outline which specific trademarks can be used in the game and where they are placed. Every company has different rules for this but you want to make sure that in all materials that they create to promote the game, your company name is listed as well. This will help you with brand recognition down the line.
PR: Because of the size of many of the companies you will be dealing with or the publicists when dealing with celebrities, the licensor will want control over the PR surrounding the game. It is standard for everyone to sign off on a press release before it goes live. Try to control the creation of the press release on your side but make sure they will distribute it to their press list as well as it will undoubtedly have a deeper reach than yours alone.
Licensor Commitments: This section of the agreement should put into detail the expectations you have of the licensor. This needs to be as comprehensive as possible and cover everything from marketing to promotion. Remember, if it isn’t included in the contract, a licensor isn’t truly obligated to do it.
Insurance: Most major brands will require that you carry Errors and Omissions insurance. I’ve seen this as low as $1,000,000 coverage and as high as $5,000,000. If you don’t already have it, go ahead and invest in it. We recommend picking up one to two million dollars of coverage before it is brought up by a licensor. Usually we’ve found that if they ask for three million and you tell them you already carry one million, they’ll agree to the lower coverage.
Termination: Simply put, this is where you will outline what happens when the agreement is over. Many licensors will demand that the game be released within a certain time period or the rights revert back to them. This can be advantageous to you if you want to pick up exclusivity or other perks without paying extra money up front. Guarantee them the game will be out by a specific date and get exclusivity on this. Also make sure that the agreement does not state that the deal can be cancelled “for any reason”.
Acquiring a license isn't nearly as expensive as it used to be and even small indie teams can find a great partner. Games have come a long way in the last 20 years alone and a savvy licensing partner will understand the value of games. A great license with a partner that will support you can be a huge boost to your visibility and sales. Today’s digital market on mobile, console, and PC is extremely competitive, a little bit of brand recognition can go a long way.
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Jay has successfully negotiated and closed countless deals for licensing, development and distribution over the past 20 years. His consulting firm, The Powell Group, focuses on building positive relationships between various forms of media and the game space, and helping a wide variety of clients succeed in the video game industry. The firm tracks over 4,000 developers and another 750+ publishers globally. In 2018 he founded the "IndieGameBusiness" initiative which produces both a weekly podcast and hosts multiple virtual business conferences each year.
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