The Business of Licensing – Breaking Down the Deals

When I started in licensing back in 2007, I quickly realized that explaining what licensing is depends entirely on who you’re talking to. In my last episode, I broke it down for my mum, focusing on characters, stories, and why licensing is everywhere.

This time, I take you back to a different conversation - this one with my dad. He wasn’t interested in the fun or creativity of licensing. He wanted to know how the deals actually work.

Sitting on the couch watching an Australian Rules Football match, we dove into the mechanics of licensing. What do brands like Disney charge to use Mickey Mouse? What happens if the product doesn’t sell? How do these deals even start?

In this episode, I explain the nuts and bolts of licensing, covering:

• Royalty rates and minimum guarantees—how licensors make money

• Deal memos and contracts—why they matter in every agreement

• Style guides and approvals—how brands protect their identity

• The real value of licensing—why companies are willing to pay for IP

If you’re curious about the business side of licensing, this episode is for you.

And if you have a burning question about licensing, I want to hear from you! Episode 10 will be a special Q&A where I answer listener questions—so send yours to hello@borntolicense.com, and I’ll do my best to include it in the show.

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🎙 Born to License – Hosted by David Born

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Chapters

• 0:00 How Licensing Appeals to Different People
• 2:48 Licensing - What does that Actually Mean?
• 3:33 The Basics - What Are Royalties & Minimum Guarantees?
• 4:49 Deal Memos & Contracts – How Licensing Agreements Begin
• 5:31 The Role of Style Guides – Protecting the Brand’s Identity
• 6:32 Final Thoughts & What’s Next - The Art of Negotiation

Transcript

Hi, I'm David Born and welcome to Born to License. If you're just joining us, this season is all about unlocking the secrets of licensing through storytelling and practical insights. Last episode went back in time to 2007 to a conversation with my mum where I explained the basics of licensing. What it is, why it's everywhere, and why it matters. For this episode we have a whole different vibe today. We'll be staying in 2007, but this time I'll be chatting with my dad, who's more interested in the nuts and the bolts, the numbers, the terms, the real mechanics of how deals get made in this industry. And just to set the scene, we're watching Australian Rules Football. If you've never seen it before, it's fast, it's physical, and to an outsider it's probably a little confusing. 

 Which now that I think about it, is a lot like licensing when you're new to the industry. So. So let's dive in. It's 2007 and I'm sitting on the couch with my dad watching an Australian Rules football match. The cheers of the crowd, the thud of the ball and the commentators excitement fill the room. It's chaotic, fast paced, and anyone unfamiliar with the game probably a little confusing. That was a good goal, dad says, just gesturing to the TV. Straight through the middle for six points. These guys must run 20 kilometers a game. I nod, trying to keep up with the action on the screen. It's organised chaos, I reply. But somehow it all works. Dad turns to me during the next break in play. So David, how's the new job going? Mum told me all about your office with SpongeBob and Spider Man. 

 It's going great, I reply, grinning. I've been learning so much. Licensing is a fascinating world. Licensing, hey, he says leaning back in his chair. What does that actually mean? I mean, how do the deals work and how much does it cost? I laugh. Dad's always been more about the numbers in detail. Alright, let's break it down, I say. Imagine this, I begin. A company wants to put Mickey Mouse on kids pyjamas. They can't just slap Mickey on there and start selling and that would be against the law. So they go to Disney, who owns Mickey Mouse. Disney gives them permission to use Mickey on their pyjamas, but only if the company agrees to certain terms. That's licensing in a nutshell. Dad raises his eyebrows. Okay, but what kind of terms are we talking about? 

 Surely Disney isn't doing this out of the goodness of their hearts? No, not quite. I Say with a smile. One of the key terms is the royalty rate. That's the percentage of every sale the company has to pay Disney. So if the pyjamas sell for, say, $30 and the royalty rate might be 10%, Disney gets $3 for every pair sold. Well, that's clever, dad replies, nodding. But what if the pyjamas don't sell? Does Disney still make money? They do, I explain. That's where the minimum guarantee comes in. It's like a safety net for Disney, or any licensor, for that matter. The licensee agrees to pay a certain amount upfront, no matter how well the product sells. For example, if the minimum guarantee is $50,000, Disney gets that amount even if no pyjamas are sold. 

 If the sales exceed the mg, the licensee just pays the extra royalties as they go. Dad whistles, impressed. Sounds like a win for Disney. What about the companies making the products? Why would they agree to this? Well, it's all about leveraging the brand. When a company licenses a character like Mickey Mouse, they're not just paying for the design, they're paying. They're paying for the emotional connection it brings. People already love Mickey Mouse, so they're more likely to trust and buy a product with his face on it. It's an instant advantage in the market. Fair enough, dad says. But how do these deals even start? Is it done all over handshakes? No, it requires a lot more than a handshake, I reply. It starts with a deal memo. Think of that as a blueprint for the licensing agreement. 

 It lays out the key terms like the royalty rate, the minimum guarantee, the duration of the license, and what products can be made. Once both sides agree, the lawyers turn it into a full contract. Dad nods thoughtfully. And once the contract is signed, they can just put Mickey Mouse on the product? Well, yes, but they need to make sure they're using the right assets, I say. They'll get access to a bunch of things, including style guides. Dad stared back, thinking. What's a style guide then? A style guide is a set of creative assets and guidelines that the licensor provides to the licensee. It includes things like approved character poses, logos, color palettes, patterns and packaging guides. It ensures that every product aligns with the brand's image. And the licensee has to follow these rules? Dad asks. Absolutely, I reply. 

 Every element has to be submitted to the licensor for approval. It's all about protecting the brand's integrity. Wow, dad says, leaning back. So it's not just slapping a logo on a product and calling it a day. There's a lot more to it. Exactly. I say nodding Licensing is like a well orchestrated game. Everyone has their role and when it's done right, it creates amazing results. Kind of like a footy team. With that, we both turn our attention back to the game, where another spectacular mark earns cheers from the crowd. So that conversation with dad was a little different from the one I had with my mum, where she was all about the characters and the stories. Whereas dad wanted the numbers, the legalities and the structure. And that's what I love about licensing. It appeals to people in so many different ways. 

 Whether it's the creativity, the strategy or the formalities, there's something in it for everyone. What stood out to me most during that discussion was just how important it is to understand the fundamentals. Licensing might sound overwhelming at first, but once you break it down, the pieces start to fit together like a puzzle. Here are the key takeaways I want you to remember from this episode. Number one Royalty rates and minimum guarantees are the backbone of licensing. Royalties are based on percentage of sales that the licensee pays to the licensor for every product sold. The minimum guarantee ensures the licensor earns a baseline amount whether the product sells or not. These terms establish trust and balance in the deal. Number two, the deal memo lays the foundation before a full contract is drafted. The deal memo serves as a summary of agreed upon terms. 

 It's a vital step that outlines the key details like royalty rates, territories and product categories, keeping everybody on the same page. Number three Style Guides Ensure Consistency A style guide is like a rulebook for maintaining brand integrity. It includes everything from approved character poses to font usage and packaging designs. It's essential for keeping licensed products aligned with the brand's identity. And lastly, number four, Licensing is a collaborative process. From negotiations to product approvals. Licensing involves multiple stakeholders, whether it's licensors, licensees or agents. Collaboration and clear communication are what makes these deals successful. What I find so exciting about these basics is how they bring structure to an industry that thrives on creativity and connection. Licensing isn't just about the numbers or the rules. It's about creating partnerships that bring characters, brands and stories to life for consumers. 

 Now, in the next episode, we're heading straight to the negotiation table. I'll take you behind the scenes of a deal memo negotiation and show you how the foundations of a licensing agreement comes together. We'll break down terms like minimum guarantees and royalty rates a bit more, and I'll share what I've learned about the art of finding common ground in a high stakes setting. Now I'd love to answer your questions about licensing in the Q and A finale. Whether you're curious about industry terms, processes, or you just want to know more, send your questions my way. And thanks for joining me at Born to License. Until next time, keep looking for the deals and stories that shape the products that you love.