In publishing, “merchandising” refers to the right(s) to create, market, and sell products (merchandise) based on a book or its characters and settings.
A good example is Bertie Botts’ Every-Flavor Beans, which appear in J.K. Rowling's Harry Potter series and also on many convenience and candy store shelves. Since Rowling invented the candy in her books, she also owns the right to control who can (and cannot) produce them, through licensing agreements.
However, many publishing contracts contain a license of "merchandising rights" that takes control over merchandising away from the author and gives it to the publisher instead. Granted, the contract requires the publisher to pay the author a royalty on merchandising licenses--but smart authors should retain complete control of merchandising rights instead.
Authors often don’t realize (soon enough) that their contracts contain an exclusive license of all merchandising rights to the publisher. This is yet another reason why it's important to have a publishing lawyer or agent review and negotiate your contracts--to ensure you keep these (and other) valuable rights.
Authors have no legal obligation to license merchandising rights to the publisher.
Obtaining the right to license merchandising rights is a potentially significant windfall for publishing houses, which can also limit the author's ability to profit from his or her creativity.
However, authors who retain the merchandising rights to their works can either create the merchandise themselves or license those rights to third parties--without obtaining a publisher's consent or approval.
Grants of merchandising rights are usually found in the “subsidiary rights” paragraph (along with grants to license film, TV, and similar secondary rights to the work). The language you're looking for is “merchandising” or “product” rights - and if your contract grants them to the publisher, you should ask the publisher to remove that section entirely, replacing it with language that states the merchandising rights remain the sole property of the author.
Sometimes, publishers try to insist on obtaining the merchandising rights. While you, the author, have the right to grant that license if you wish, consider the following before you sign a contract that licenses merchandising rights to the publisher:
1. Is the grant of rights exclusive?
Granting a publisher exclusive rights to merchandise licensing means the author cannot license those rights to anyone else or create his or her own merchandise without the publisher's consent--and the publisher has no obligation to consent at all.
2. Is the publisher capable of profitably exploiting merchandising rights?
Don’t license merchandising rights to anyone who cannot use them effectively. Few (if any) publishers have sales departments capable of licensing merchandising rights effectively.
Merchandising normally becomes important after a book becomes a bestseller and manufacturers approach the author (or publisher), seeking permission to make a licensed product. If you’ve given those rights to a publisher, you lose the chance to control that deal yourself, and you also lose a significant percentage of the income.
3. Does the publisher have a history of successful merchandising deals?
If so, and if the publisher can show you a plan that will guarantee you more money than you could get on your own, it might be worth sharing the profits. That said, don't license merchandising rights to anyone who hasn’t got a viable plan to produce or license products.
4. Is the author’s royalty (or license percentage) fair?
I've seen contracts giving the author less than 50% of the "amount the publisher receives" on merchandise licenses. Given that any merchandise is based on the author's creativity--not the publisher's work--this isn't nearly a high enough percentage. Also, be aware: 50% of the publisher’s receipts is not the same as 50% of the profits on the products.
Normally, merchandising rights have little value at the time an author enters into a publishing contract. That said, managing rights properly now will help avoid future regrets.
5. Is it worth abandoning a publishing deal to retain your merchandising rights?
Only the author can make that call, but I’m empowering you to make it any way you choose. Don’t feel intimidated if a publisher pushes back on the issue of merchandising. They’re your rights, and you, the author, get to decide whether or not to license them, and on what terms.
Make the decision you believe is appropriate for you and for your work.
Once you’ve signed the rights away, you generally can’t get them back as long as the contract remains in force, so treat this as a business decision and always get professional advice before you sign.
Finally, don’t beat yourself up if you’ve already signed these rights away. It’s not the end of the world. Sometimes it makes business sense to license merchandising rights (at proper percentages) to make a deal. Other times, it’s better for the author to walk away. The key is making an informed decision based on your personal situation.
Have you licensed merchandising rights? If not, do you feel better prepared to manage these rights when the time comes?