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Licensing 101: Royalty Rate and Basis Part 2

19 December 2014

Carrying on with royalty rates, in terms of other ways in which the royalty rate will vary, premium entertainment brands may try to extract up to 15% of wholesale, and less strong entertainment/character brands may be willing to go down to 8%.

Art/design I.P. (not supported by broadcast or distributed content) will be in the 6-8% range (because the licensee is not necessarily buying into too much awareness), and fashion lifestyle brands will also generally be in the 7 to 8% range, but largely because the licensee is also expected to shoulder a very significant portion (or even all) of the local marketing spend against the brand.

In terms of royalty rate variance due to product category, the big one is that the royalty rate for FMCG product (consumables such as branded food and personal care) is generally in the range of 4-6%, but can go as low as 2% or even 1%, depending on the market and the volume to which the licensee is committing. Licensors are generally loathe to consider such low royalty rates, but sometimes the Minimum Guarantees for these deals can be so considerable the licensor will hold its nose and sign on the dotted line. Another factor in branded food/personal care category, is depending on the candidate licensee, that party’s market share in a particular market may be so significant or commanding, that the licensor considers the additional benefits of the partner’s media spend and/or presence on the shelf to help build the brands.