11

Rights sales and new digital publishing opportunities

Introduction

Territoriality is an area that has been debated more frequently following the ease of publishing across borders via the internet. Specialist publishing has tended to be global in scope but the consumer market has traditionally had a more territorial approach, and this is undergoing a shift. Publishers have been accustomed to buying print rights to particular territories: for instance, English language rights for the US might be separate from those for the UK and Commonwealth. Breaches in these rights, while possible, were less frequent given the limitations in the physical product. Products could be imported at lower prices but this did not really affect the market in a major way.

However, the ease of publishing into different territories via the internet has changed the approach. Controlling territorial limits can be difficult in a digital world. Publishers will control where they distribute their electronic products according to their rights agreements as far as they can. Some are particularly aware of a need to protect markets where they have dominated with their English language print editions; they want to avoid having cheap digital versions from outside their territory undercutting their own digital products. Sellers of digital books also try to abide by the rights agreements: Amazon, for example, do control what you can buy via their websites for different countries; it is also difficult to buy a US-only product on a UK Kindle. Technologically it is possible to manage territory rights.

The drive to global digital rights

Publishers can avoid these territory problems to some extent by owning global digital rights. There are benefits: if a publisher has global digital rights to a product, it can very easily distribute it to those markets in a way that may have been virtually impossible when it was distributing a physical product. Growth opportunities therefore exist where publishers can control global rights.

There is also some pressure from consumers. They expect it to be easy to access material across the internet; physical boundaries between territories make more sense than digital ones to customers, who can find it frustrating when they cannot access something easily. One example of what can go wrong is when Amazon realised they had been distributing illegally an ebook of an in-copyright work. George Orwell’s Nineteen Eighty-Four is in copyright in many countries, including the UK until 2020 and the US until 2044, while in Australia, Canada and Russia it is out of copyright. In 2009 Amazon were selling on the US Kindle a copy at $0.99; when they realised they were distributing a version that was published by a company that had no US rights to the book (which had been loaded by the self-service system) they deleted the illegal edition from Kindles. Customers in Canada, who were able to have the edition, lost theirs too. The more interesting aspect that caused comment with this story was not the different copyright arrangements, but the fact Amazon could extract titles from Kindles that customers had legitimately purchased: they could, if they wished, impose a form of censorship controlling the products a customer thought they owned. While they were trying to enforce copyright laws, they broke their relationship with customers. They recognised the error straightaway and restored legitimate copies.

Problems like this will never quite go away as copyright regulations vary and cannot necessarily be easily harmonised; however, global digital rights do provide some solutions. Some trade publishers are aiming to gain global digital rights for all their new books. This may bring a change to the mainstream publishing scene as publishers change their models around the sorts of rights they want to purchase. Will print rights still be sold via territory, if the digital trend is towards global publishing rights?

Authors and agents may react differently to the offer to buy global digital rights. They may still want to have their print rights divided up to ensure they get the best option in each territory; if the digital rights are global there could be some interesting marketing dilemmas. Or there may be more deals on global rights for both print and digital products, allowing the larger companies to gain ground where they can offer the whole global package. Meanwhile some well-established authors will retain all their electronic rights to exploit themselves, maybe away from book publishers altogether:

J. K. Rowling has worked with her agent to find web developers and producers, with sponsorship from Sony, for the Harry Potter digital site Pottermore (which is the only place where Harry Potter ebooks can be bought). Global digital rights make sense for many publishers but the topic does open up these further questions.

The challenges of digital products when selling rights

While global digital rights cover a publisher’s right to publish the digital work, there are many opportunities for publishers to license on the material in a digital format which are covered by rights agreements. Any rights contracts can involve complexity but as content can be dealt with in many more ways in a digital environment, whether chunked into tiny fragments or distributed across many territories, the rights deals can face new levels of complexity. Some rights sales remain reasonably straightforward: translation or serial rights, for instance. But customers are innovating with all sorts of new product ideas and often deals have to become bespoke around the exact requirements of the customer.

The challenge for the rights expert is to think carefully about the implications of any digital rights deal so that they are sure they have covered any issues of, for example, competition or exclusivity when dealing with a product that may well be innovative and not tried and tested. This is as well as ensuring they are getting best value from the contract, something that can be difficult when the digital marketplace is unpredictable. The publisher wants to maximise revenue from a digital product that someone might be developing but it does not want to render it financially unviable by asking for too much.

When many of these products are new concepts it can be difficult to work out quite how much money they might make as well as to assess the level of importance of the content being licensed to that product, both of which are necessary in order to accurately value the content one is licensing.

Definitions

In the first instance one looks for definitions which could help with the rights arrangements; electronic publishing and multimedia are terms that vary and change; indeed the term multimedia is possibly used less than it was (when it was more clearly associated with the CD-ROM period of the 1990s). However, both terms are still used to some extent in contracts and there are some loose definitions focusing on the fact that electronic publishing tends to focus on one sort of content (i.e. book content) available in some form or other electronically (whether on a Kindle or on a smart phone etc.) while multimedia covers products that may integrate a variety of content types (sound, photo, video, text) seamlessly. Educational publishers producing web products integrated into an interactive whiteboard are examples of the latter, whereas a straightforward ebook – sold maybe via Kindle or iBookstore – is electronic publishing.

In certain areas the rights deals are reasonably straightforward. Selling the ebook rights is not especially complicated, for example. Licences to characters for games have been sold for a number of years and well-established rules and financial expectations apply. However, licensing content that may be delivered, for example, by an app in very small chunks in a daily digest that lasts for a certain amount of time before starting back at the beginning again is more complex; add to that the pricing model, where the first few digests are free before customers have to subscribe, and it becomes even more challenging. As products develop in complexity such definitions become less useful, and in many ways rights, once they step beyond the basic, often have to be sold on a product-by-product basis, with each product being considered individually when developing a rights deal.

General considerations

Various problems arise when looking at the sale of rights in a digital context, some of which have been reasonably well solved, others of which pose continuing challenges. Initially, it is important to double-check the contract to ensure that the publisher does have digital rights available to license on. New contracts will have these covered, even if not in detail regarding the exact range of products that could be included. Indeed the clauses currently tend to leave the digital section reasonably open ended, clearly recognising that the environment is moving so quickly that one cannot predict ahead all the sorts of digital uses that may become available for content. Old contracts, as we have seen, will not always have this covered in any effective manner and it may be safer to renegotiate them.

Another consideration is to ensure that the territories covered are clearly defined. Digital products can be distributed across boundaries much more easily than print products, yet, again as we have seen, the contract may only cover a certain territory for print and digital and so the reach of the digital product to which a publisher might be licensing content must clearly match what can be licensed under the contract; the contract may contain some sort of reassurance that the territories are ring-fenced.

Some of the early questions about how to license digital content have been settled. Electronic content has been licensed for a long time into databases (e.g. the big legal databases like Lexis Nexis) and in these cases the value of the content has become reasonably well established; arrangements for site licences too are often well established. Other early areas of debate, such as different applications of fair use or fair dealing within an electronic environment for material held in archives, have been broadly ironed out: for instance, there are generally accepted expectations of how much of a book can be viewed electronically for free before a user faces a pay wall (when, for instance, searching on Google books). Issues around inter-library loans and systems for downloading (but not retransmission) of material are also well established. In the latter case there are certain details in delivering digital information that have to be taken into account, such as the ownership of the material while it is being transferred (via broadband perhaps), or ownership of back-up material or stored material; in these instances usually fair use applies.

Other questions remain, however: for instance, should electronic copying be covered by a collective licensing arrangement as works for physical copying rather than being administered by individual publishers? This might at least counter arguments that publishers are preventing users using the work in the way they want or need to by administering their own rights too restrictively. In any case, the collective management of print photocopying has proved effective. Some publishers, both in the US and the UK, are opting in to collective copyright clearance systems, or allow an educational mandate to apply for certain materials and are monitoring how these are going.

Another area where publishers are looking for solutions is the use of published material in course packs; as we have seen, the opportunities for customers to create bespoke course packs are growing considerably. Publishers are keen to exploit rights to their content, so it is in their interests to make material available and ensure the copyright situation is easy to manage for users. Arrangements for digitising the material in the first place were early hurdles but increasingly all content is available in a digital format, so the focus is on creating infrastructure, often through joint ventures, to create systems that cover the copyright clearance too for users creating course packs. Publishers continue to face the problem that while they may own some of the material the user wants, they usually do not own it all, even when in a joint venture with others. The user may still have to compromise on their choice of materials. This can be off-putting. Third parties too are entering, such as Ingenta, offering web-publishing solutions, its focus being on providing better technology for users. There are other debates like this over abstracts and document delivery services which create challenges for publishers trying to license valuable content effectively.

The question of value in the new digital products

These general issues are a challenge but there are more specific considerations facing rights experts as they sell specific chunks of content for specific types of product, for instance into multimedia products. Content convergence is leading to products such as apps that may well contain book content, film content, animation, interviews and music. All these components need to be valued and measured in terms of both the amount of content within a product and its importance to that content. As we saw in Chapter 9, an electronic text of a poem for instance may be quite short compared to add-on commentary sections and video footage of it being performed, but if the app is about that poem the video footage only has value in relation to the inclusion of that poem. This convergence makes unpicking the rights around these various content chunks much more challenging.

Planning the deal: what do rights people have to bear in mind?

With these general points in mind, publishers, who are selling the rights for digital-only products, have to bear in mind a variety of issues when constructing a rights deal. The following issues are important for print products too but they require further attention when dealing with an unknown digital product:

• amount of content
• value of content
• technical specifications
• platform
• bundles
• option period
• compensation levels
• overlap with other digital products

Content and value

The amount of content and the value of the content are important considerations, as we have seen. As one puts a value on a chunk of content it needs to bear some understandable relation to the whole from which it was taken; that way prices for different sizes of content, as the content is cut in different ways, are in some way in line and not undercutting or conflicting with each other. It is not just a case of examining your own content in relation to the rest but also of assessing how far the added value provided by the other content enhances the saleability of your own content. For instance, your own content benefits from being available with other publishers’ content in a major academic library-based database; in this case it is not in your interest to price your own content out of the picture. Seeing how a product is used is important for establishing relative value.

The other elements of content sold (e.g. photographs within the content that have their own permissions arrangements) need to be considered and sometimes those third parties need to be consulted. Ensuring the permissions for all these additional materials are cleared can be a large job. Publishers are having to rethink what they include to ensure they have the rights future proofed for products that they may license going forward; it may be that as they build the sort of asset management databases mentioned in Chapters 4 and 8 only those items with full global rights can be included (even if they do not, in the first instance, need more than simply UK rights).

Technical details

Each stage of the technical journey of the material also has to be taken into account, i.e. where it will be held, how it is transmitted, where it ends up being used. So it may be that when selling content for educational software, one needs to consider each type of hardware on which it is available. Or if material is available as an app, one needs to consider which operating systems it will use; and if it is available on more than one, whether the prices will be different. Sometimes an app on one platform is free while another is not; the apps may vary in sophistication and there could be differences between the iPad and the iPhone versions. If it is a game, is it downloaded or is it carried on a cartridge to put into a dedicated game console? If the latter, is it a handheld device or a TV-based system, etc.?

In relation to this you need to be aware of the robustness of the platform or at least systems in place to ensure that if the platform fails there is compensation in some way or other for lost revenue; or if the whole product fails, at least rights revert promptly. Therefore it can be important to have short licence periods too to ensure that rights are not tied up if new products are developed.

Bundles

Print and electronic bundles (quite widely available for certain specialist markets such as law) have caused their own problems; in the UK VAT is not charged on books but is charged for electronic products. So a publisher has to value the electronic component of a bundle in order to allocate a VATable element to the bundle. This can be open to abuse.

Option clauses and other contract arrangements

Defining the option period, usually a key part of a rights deal, is even more critical here as the length of time a technology company can take to develop a product varies; of course it can be quick, but if the company is slow to exploit the rights (perhaps it was not properly funded, as many new start-ups may not be) the publisher does not want to be locked in. Timeliness in relation to a particular type of technology or product is critical in a fast-moving marketplace. This leads on to the publisher being sure how far the company they license rights to is actually able to exploit the rights effectively; a publisher therefore has to develop new levels of knowhow to make these judgements and start to build experience around these. Rights experts usually know, for instance, which foreign language publishers will produce good translations and are well in touch with their local market; this sort of expertise needs to develop around new companies as well as new product types.

Where revenue expectations can be inflated by eager new technology companies, it is possible to consider compensation paid where revenue falls short, which may buy some insurance against working in a marketplace where it can be difficult to evaluate both the ability of the company to produce and effectively market the product and the eagerness of the market for it.

The usual sort of financial arrangements apply, so that a contract will be broadly based on a royalty arrangement. Net receipts are easy to define in the case of monitoring sales of a translated print copy; however, what they constitute may be less clear in terms of a complex app where other parties are also involved in taking a percentage of revenue (e.g. iBookstore). Understanding the way the app breaks down in price is key here: for instance, even the software may need to be valued in order to assess the price of the content.

With the proliferation of new product ideas, one might well be licensing the same content in several different ways for different platforms and uses. Rights managers need to ensure contracts are very tightly worded to allow this to happen, making clear to each person using rights the extent to which they can use them. They need to be clear on areas of overlap and also need to ensure they are not diluting their own content with too much exposure across new products, so devaluing it.

Conclusion

The area of rights is set to become much more involved and exciting in terms of finding new business opportunities. Publishers can potentially expand marketplaces if they develop more global rights deals. They can also potentially develop more wide-ranging rights deals with their content. If publishers continue to build on their expertise in content creation and development, so ensuring their longevity as an effective creative industry, understanding how they can value and manage that content most effectively is going to be critical.

Further reading and resources

Owen, Lynette (ed.). Clarke’s Publishing Agreements, 8th edition. Bloomsbury Professional, 2010.

Owen, Lynette. Selling Rights. Routledge, 2011.

Upsall, Michael. Content Licensing: Buying and Selling Digital Resources. Chandos, 2009.

Questions to consider

1. Some predict that the breakdown of territories in terms of rights sales will lead to the domination by US publishers of the English language market. How far do you agree this might happen?
2. What considerations do you need to bear in mind in assessing the value of content when selling rights to small sections of it?
3. What new opportunities and what challenges do publishers face when selling rights for their digital content?