Crossover Companies -
A Recent Phenomenon in Art Licensing

by Lance J. Klass
President, Porterfield's Fine Art Licensing

   There's been a major transformation in the field of art licensing. Haven't heard about it? There are good reasons why you haven't and why some people "in the industry" don't care to talk about it. But let's try to shine some light into the dark corners of that transformation in this article. You may just save your control over your art as a result.

   In a nutshell, here's what happened. For many years one of the most vibrant segments of the commercial art industry, particularly in the United States and Canada but overseas as well, was the limited-edition print industry.

   This industry was composed of literally hundreds of companies that printed high-quality lithographs of (hopefully) beautiful and compelling art on 100% rag paper. Each lithograph was signed by the artist and hand-numbered in pencil, and each was strictly limited to a specific edition, or issue, size.

   The field was dominated by celebrity artists with often huge followings and by major publishers who worked hard not only to create beautiful products but also to build up the reputations of their artists, thereby increasing current and future sales of their limited-edition prints.

   But I digress - back to the limited-edition companies. Although a major reason for the success of these companies was that they published lovely art, the manner in which they printed the art gave the "apparency" of intrinsic value. In other words, that fine rag paper with the lovely soft image was believed by collectors to have value in and of itself.

   The lithograph companies went one step farther, however, and this is what caused the decline of the industry. They promoted the secondary market or "after-market" appreciation of the prints as a way to sell new prints. It was common for publishers and print galleries to promote how one might expect limiteds to continue to increase in value over the year. They would talk about how a certain print sold out at $150 each and was now selling (or listed) for $500 or $1,000 or even more. As a result, serious collectors purchased every new print by their favorite artist and many stored their lithographs in special flat storage racks and containers to preserve them in pristine condition for eventual resale at gigantic profits. They had been told, and believed, that these prints were more than just a good purchase, they were an investment that would pay off down the road when their children needed money for college or when they wanted to retire with some extra income.

   Trouble is, when they finally decided years later to sell the print collection that was supposedly valued at many thousands of dollars, they often found it very difficult to do so. The market had become saturated with limiteds and there were now more sellers than buyers. And how would you locate someone who wanted to purchase your prints? Print galleries might take them on consignment with a 50% fee, but most were more interested in selling new prints. Without buyers, collectors began frustrated, word spread, fewer people wanted to "invest" in prints, the market was over-saturated with limiteds, consumer confidence declined dramatically, and a crash was inevitable. The bubble had burst.

   In the ensuing fallout many of these limited-edition companies either went out of business or turned to open-edition prints and posters which they sold to poster retailers and giant poster distributors, often at deep discounts, and to large framers at often pennies a print. The framers brought in frames from Taiwan or China or Indonesia and filled the shelves of every mass-market or discount chain in America with pretty framed prints at only $5 or $10 each.

   Only a few fine limited-edition publishers remained standing, and they were having a very tough time of it.

   As far back as 15 or 20 years ago, a few far-seeing print companies had realized that a lot of the art they had published as prints could be licensed to companies in other industries like the collector plate industry, itself later to crash when its own secondary market bubble. These print companies began to write into their artist agreements a clause that allowed them to license the artist's work into other fields, and then split the proceeds with the artist.

   As licensing became more profitable for them, they began to cut back on their huge annual investment in printing, storage and related costs, and focus more on art licensing which require absolutely no taxable inventory and next to no investment of funds. A lot of the money they had made from print sales had gone to pay for the cost of production. But income made from art licensing went primarily to the bottom line as almost straight profit. Clearly, these companies were on to something.

   Many of them found that licensing was easy. Companies came up to them at art shows asking to use "their" art on a broad variety of products. Before long an increasing number of print publishers came to realize that licensing could become a significant "profit center" for their businesses - and in fact might even keep them in business when times got really rough.

   They didn't have to lay out money for paper. They didn't have to pay for printing, and they didn't have to hold onto a taxable inventory of prints. They could slash their overhead, and radically increase their profits. What could be better?

   I remember when the annual licensing show in New York in June used to have an artist or two here or there, and perhaps several art licensing agencies, exhibiting and showing art for license. As the phenomenon of crossover companies really got cooking, the licensing show developed a section just for art licensing, and it has continued to grow dramatically every year.

   Yes, there are a few individual artists who will pay $3,000 for a ten-foot booth at the show plus all their other expenses (travel, hotels, transportation, booth fixtures, meals, and so forth) in the hopes of making back their investment by being discovered by major licensees. And there are some art licensing agencies that exhibit as well. But if you go there this year you'll find that most of the exhibitors are print companies and card companies that have realized that they're sitting on a goldmine of bottom-line profitability.

   To the world outside the shows, they're print companies. But to the art industry, they're much much more - they're full-service art licensing agencies, often with thousands of pieces of art that they either own or control, all of it available for license onto literally thousands of different types of products.

   So what became of the limited-edition print industry? There are still half a dozen or more major publishers of limiteds left standing, and they continue to produce high-quality lithographs. But most have now diversified into publishing open-edition prints and posters, creating their own products with their art, or having significant licensing divisions.

   In the process of crossing over into art licensing, print companies have revised their agreements with artists to include that licensing component. (Card companies generally haven't had to, since most have amassed often gigantic bodies of artwork that they purchased as full "buyouts", often for very small one-time fees.) Some of these contracts and clauses are simple, fair and straightforward, but increasingly the game is to gain as much control over as much art as possible.

   Look at it this way. Let's forget about the ethics of the situation for a moment and look at it from a strictly financial viewpoint. If you were a print company and had a choice between owning art or having to pay for art, which would you choose? And if the choice were between paying a lot for art, or paying just a little, which would suit you better? Again, that's leaving the question of ethics out of the equation.

   So what if you didn't care about ethics or artist rights but really only about your own profits? Why then you might want to create a "publishing" agreement that is actually more of a licensing representation agreement. You'd probably want to have it written in very legalistic fashion that's difficult to understand. You'd finagle the terms, and the artist, to gain total control of works of art and of the activities of the artist themselves.

   If you're so inclined, you might try to convince an artist to assign his or her copyrights to you as part of the bargain. You might decide to give yourself the complete ability to license the artist's work wherever and to whomever you choose, leaving the artist completely out of the picture. And you might want to pay the artist as little as you could, perhaps 30% of the income, let's say, from each license. That way you'd now own the art yourself, be able to do whatever you wanted with it, and throw only a small percentage of the profits to the artist.

   And that's exactly what has happened in a disturbing number of cases. Over the past few years I've seen contracts used by print companies that would make your hair stand on end (if you were able to somehow decipher the language of the agreements). I recently came across one agreement which did all three of the odious activities I've listed above: the artist assigns the copyrights to his or her art to the company which then does whatever it wants with the art and keeps 70% of all income from licenses. Horror stories abound.

   In their defense, it must be said that many print companies offer licensing to their artists as a serious and significant adjunct to the artist's income. Through their promotion of the artist's work they improve the name recognition and visibility of the artist and can, on occasion, provide the artist with very large royalty checks. Would the artists have been able to go as far without their publishers acting as their licensing agents? That's often extremely unlikely. Is it worth it to the artist to give up control in order to gain a good, solid income? For the few artists who "make it big" this way, probably most would agree that it's worth it.

   And there's nothing wrong with that, so long as the agreement between artist and publisher is clear, straightforward, written in English, fully understood by the artist, and doesn't involve a transfer of copyright or reproduction rights from the artist to the publisher.

   Some publishers do wonderful work as licensing agencies for their artists. Many don't. The trick is to be able to separate out the predatory companies that abuse artist rights from those that protect them.

   In future articles I'll spell out how to recognize good licenses from bad, take licenses and representation agreements apart piece by piece so you understand their components, and discuss how you can protect your rights from those who would take them away.