Structuring the international deal

Folio: The Magazine for Magazine Management, Jan, 2001 by John Cabell

Be aware of differences in culture, laws, negotiating tactics and commercial expectation.

Negotiating an international license or joint venture is inherently more difficult and time consuming than negotiating a domestic deal. Although most of the same principles apply, differences in culture, laws, negotiating tactics and commercial expectations necessitate a greater understanding of what one is getting into.

Put the law on your side

The legal elements of your deal center around your respective corporate entities and trademarks, what rights you're granting or receiving, the term of the relationship, and statements pertaining to termination triggers and provisions.

The corporate entity that you and your partner will utilize for the purpose of the agreement is typically the company name at the headquarters address. However, for tax and/or liability reasons, you or your partner may decide to use another corporate name and/or another domicile. If your partner decides to do this, make sure that you fully understand why, and have your lawyers check on the legal status of that entity. If you and your prospective partner decide to establish a shareholding joint venture, this third entity also needs to be referenced in the contract. In most cases, the trademark is the most important element of a deal. This being the case, you need to ensure that you own that trademark for the class and territory pertaining to the deal.

The rights you're granting or receiving include the licensing of a trademark (this should be a part of a joint venture agreement as well), the manner in which it will be used, the use of (translated) content that you own and provide, the language of the published product(s), and the territories in which the product will be sold.

Although it may be self-evident, the strict stipulation of language and territories is very important. In earlier times, many Spanish-language publishers in Spain were able to sell their licensed products in Latin America because their partners hadn't stipulated otherwise in their contracts.

The initial term of the agreement should reflect your mutual level of confidence about the title's and partnership's prospects. In my experience, this beginning period ranges from two to five years. Naturally, it's to your advantage to ensure the longevity of the arrangement through proper due diligence and planning.

Finally, under legal elements, are the reasons and provisions for termination. Many of the reasons to end a relationship are standard--such as misuse of trademarks, insolvency and failure to pay moneys in a timely fashion. Additionally, you'll want to agree to editorial and publishing standards and the major operating and financial assumptions of a business plan--for example, frequency and launch date.

With operations, you'll be responsible for providing the content and know-how for both licenses and joint ventures. For joint ventures, you'll also contribute investment, management and possibly some ad sales. (It's important to state that any deal can have hybrid elements; for example, a licensing deal could contract the licensor to act as an ad sales agent for a specified list of accounts.) However you arrange your deal, ensure that you can deliver on whatever you promise.

Your foreign partner will be the principle operator of the venture; he possesses the infrastructure and is established in the territory in which you'll be doing business.

The financial arrangements typically involve royalties and/or sharing of profits and losses. For a license, the parties normally agree to a royalty based on a percentage of all net revenues (single-copy, subscription, ad sales and other). Most agreements also call for a minimum annual guaranteed amount that is justified by the content and administrative expenses incurred by the licensor.

Joint ventures allow for much more scope in the deal arrangement. Most often, your share of profit or loss is based on your ownership share. Your initial investment in the venture is also determined thusly, but you need to consider the value of the noncash assets that both parties contribute.

On the matter of currency, most agreements call for all cash payments to be calculated in the local currency and then converted to U.S. dollars when they're paid. However, in markets where the currency is volatile and is likely to devalue, it's better for you to lock in a minimum annual guarantee in U.S. dollars.

Terms of payment

The timing of payments is also important. A licensing agreement often requires a payment upon signatures. If there's a minimum annual payment, that is normally paid in advance each year. Royalties (set against the annual minimums) are paid either quarterly or semiannually. The agreement you make should also stipulate that your partner is responsible for payment of all taxes and fees for repatriated moneys.

John Cabell is president of Cue Ball Media LLC, an international media industry management consultancy.