6 Criteria for Evaluating a License

If you're in the market for a license, how should you judge the worth of a particluar license?

Profitability. You would think this is obvious, but so many times the sheer glamor of a license seems to overwhelm a company's good sense. You need to look at all the costs of a license, which include the upfront fees, the royalty, the extra time to manage the licensing relationship and make sure you're adhering to all of the terms of the contract (which can be a big one). Add it all and see how many copies you have to sell in order to make a profit. And look at what your opportunity cost is... what if you took that money and time and invested it in your own, original product? If your answers don't look clearly favorable to the license, you shouldn't do it.

Distribution Opportunity. OK, maybe it's not just the profit on this one product, but the new distribution opportunities it opens up for you. But you'd better be as sure as you can that, with licensed product in hand, you really will get that order from MassMarketStoreCo. And how big will that order be? And how long will they take to pay for it? And what's their return policy? How big a return reserve will you need to keep? Can you afford the marketing campaign needed to ensure good sales in your new distribution channels? And if you succeed with all that, is there any chance some of your other (nonlicensed) products could then get into this new distribution channel?

Market Opening. Maybe you think this license will open up some new markets for you. Look closely at the demographic info of the license fan base (if it doesn't have a fan base, why are you licensing it?); if they can't give you that info, you'll need to make your best guesses (but it should raise a red flag if the licensor doesn't know that sort of information). Does this demographic match that of your products? If not, could they really get interested in your type of product? Some RPG licenses have gotten by with the idea that fans of the property will buy the RPG as a world book and never actually play it.... which is great, really. As long as it sells! Just don't expect to sell those customers your other RPG products.

Awareness. Perhaps you feel this license will get you lots of publicity and raise awareness of your company and its other products, and this will help you make money by selling more of your other products. That sounds nice... but how will you know? You'd better set some benchmarks so you have the data to show whether this did or did not happen. And publicity just doesn't fall from trees into your hands. You have to shake the tree yourself... or sometimes climb up the tree and gnaw off the limb with your teeth to get the frickin' PR opportunity to fall into your eagerly clutching hands. (You did remember to get some free advertising from the licensor, didn't you, by way of inserts or mentions in products, or into their other licensed products? Didn't you?)

Difficulty. Here's one you need to look at. How hard will this be to pull off? What technical difficulties await, in design, or voluminous research, or getting approvals, or even just getting someone at the licensor to answer a simple question. Talk to other licensees, if you can, to see what problems they have had, or what advice they have.

Fan factor. Even if none of the other answers have scared you off, you should consider this. The license will probably take a significant amount of time and effort, and you may be dealing with it for years. If it's not something you enjoy, and you don't find it fun, do you really want to be spending that much time with it? If you really don't like it, you should at least be making pots of money to assuage your pain.