Merchandising Clauses for Actors

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Hollywood has traditionally been the town where, if luck strikes, you can see your name in lights. With entertainment licensing and merchandising revenue reportedly exceeding $12 billion in 2007, it may be time to start hoping to see your face in plastic or pixels, no matter how clumsy that sounds. Merchandising has expanded beyond superhero and cartoon-character lunch boxes, T-shirts, and action figures into more diverse territory, including clothing lines, collectible figures, books, and video games based on popular TV and film characters. Recently, five actors on Heroes discovered this when it was announced that the NBC show's most popular characters would be turned into collectible figures, with more characters to be released later. So how does an actor ensure that he or she gets a piece of the pie?

When engaging an actor's services in a film or television production, studios typically require the right to use the actor's name and likeness not only in the production, but also for advertising, promotion, and merchandising. A savvy talent rep will insist that the actor receive a royalty if the actor's name or likeness is used in merchandising. Often the studio will agree to a customary royalty of 5 percent of its net merchandising receipts. For items of merchandise on which more than one actor appears, the customary royalty is often reduced proportionately, based on the number of actors whose images are used. Experienced talent reps will insist that the royalty be reduced only if the client's likeness appears alongside other cast members receiving royalties, and if the royalty is reduced, that a floor be set — a minimum guaranteed royalty regardless of the number of images used, usually 2.5 percent. Net merchandising receipts are typically defined as the studio's receipts less a distribution fee and expenses. Which specific fees or expenses can be deducted is negotiable depending on the actor's leverage, but unless the project is merchandise-intensive or the item is a popular seller, the actor likely won't be seeing huge royalty payments.

Of course, top talent may be able to bargain for a much higher royalty — 12.5 percent or higher — in addition to a more favorable definition of net merchandising receipts and various approval rights, such as approval over the use of his or her name and likeness on merchandise and possibly the look of the merchandise itself. Major stars may even negotiate a separate lucrative merchandising and endorsement deal with the studio for their characters.

It is important to note that a merchandising royalty does not usually apply to merchandise used solely in connection with promotion and advertising or with commercial tie-ins, which are promotions intended to promote both the studio's project and a third-party product or service. For example, royalties are not paid when McDonald's, Burger King, or Jack in the Box gives out Indiana Jones or Incredible Hulk action figures with their kids meals. While a royalty for such commercial tie-ins is often a point of contention, studios typically do not receive compensation for them, just promotional exposure; if they do receive compensation, it is usually part of a larger deal and difficult to account for individually. Although actors rarely see a royalty for commercial tie-ins, an actor may negotiate approval rights over the use of his or her name and likeness in connection with certain products, such as firearms, pharmaceuticals, and personal hygiene items.

Often merchandising royalties are neglected when making a talent deal, particularly when the role is not one you would expect to be merchandised or when the allure of a part makes signing a hastily negotiated TV-pilot deal seem like the right thing to do. But as merchandising expands, it is important for actors to ensure they receive a percentage of this revenue stream, even if at the time the opportunity seems unlikely.