All you need to know about standard terms in a license agreement – Part 3
Still on important terms in a license agreement:
TERM
The length of the term of the agreement generally depends on the product category being licensed. Most standard product categories will require licenses with two full years of selling time, plus development period (prior to marketing date), so the average license will be around 27 to 30 months. If the proposed term is less than this, most licensees will pass, deeming it not enough time to earn back their investment and amortize fixed and manufacturing costs.
Of course, for movie properties, which are ‘in and out’ of the market, there would generally be a shorter selling window so the contract might be more like 15 to 20 months in total length (however, this is why movie licensing is a harder and harder sell among licensees, unless there is near zero risk that the related consumer products program will NOT do well).
Branded food and personal care licensees will often seek even longer terms (such as 3 years’ selling period), due to slim margins in consumables business and time required to make back investment.
On the other hand, promotional licenses are generally not more than nine months in length, covering development time, the actual promotional window, and sell off.