Let’s play role play.
Imagine you are a Hollywood moviemaker who’s last film was a roaring success that made $100 million at the box office. You charge anywhere between $500K to a million $$$ for your writing and directing services.
A big Hollywood studio approaches you to make movies for them. You have an idea – an idea for a movie franchise – one that would go north of eight movies at least. You want the creative control and the ability to tell your story in parts. And you have total belief that the movies will succeed.
Take a million for a movie. But the creative rights lie with the studio. They decide if to make more movies. The good thing is you can be sure of your pay whether the movie succeeds or not.
Take a huge cut. But own all the merchandising, licensing, and sequel rights to your movie.
What would you do?
While you ponder over that question, this role-play actually happened 44 years ago in 1976. George Lucas took a cut to his million dollar pay check, accepting an upfront fee of $150K but owning all other rights to his movie with Fox Studios. It was the beginning of the StarWars franchise.
Fox Studios was more than happy to sign the moment Lucas said “I also want to own merchandising rights” coz they wrote off $200 million on unsold toys from their last movie that dramatically flopped at the box office. It was a win-win, right? Looking back, no. George Lucas made a genius move with the way he structured his contract with Fox.
StarWars released in 1977 soon becoming the second highest grossing movie of all time bringing in $1.48 billion. Within a year of the release, over 40 million Star Wars figures sold netting $100mn in merchandise sales. In 2011, while there was no new Star Wars movie, the merchandise sales still brought in $3 billion in sales! Lucas, you freaking, genius!
George Lucas sold Star Wars franchise to Disney in 2012 for $4 billion after three and a half decades of the first movie in the franchise. That’s some insightful lesson right there in contracting for all the founders as they negotiate fundraise with VCs and sales folks as they structure their deals with the customers.
May the force be with you!