Answerman

What Is A "Minimum Guarantee?"

Anonymous asks:

For a while now I've been hearing people talking about a minimum guarantee or MG when it comes to licensing. I have no idea what that is -- does that mean the fee that the US companies pay for the rights?

In bold strokes, yes, the "minimum guarantee" is the up-front license fee that an overseas publisher pays for the right to distribute some piece of media -- be it an anime, manga, book, music, web short, or movie. It's usually paid up front, often in two halves: one when the contract is signed, and another when the master files are delivered.

How the money works in a licensing deal is this: the publisher talks to the licensor, makes an offer in writing, and if the offer is accepted, the contract is hammered out, detailing who gets what and when. First, the publisher pays the content owner the big license fee up front. Then, they get the master files, and produce the book or disc or download for publishing in whatever territory that they're contractually allowed to, in whatever languages they're allowed to. (All of those terms are set in the contract.)

And then the product goes on sale. After a few months of selling the product, the publisher makes a report detailing how many units of the product were sold, and at what price. The cost of manufacturing is subtracted, and from that, they calculate how much should go to the licensor. Usually it's around 20-30%.

However, that money doesn't get paid back to the licensor right away. First, the publisher gets to count up and keep all of the royalties until they get to the amount they paid for the minimum guarantee. This is called "recouping" -- and it's an essential part in making sure the license was successful. It means the publisher made back their initial investment. Some contracts also allow them to recoup whatever they spent on production, i.e. making a dub, getting the show subtitled, getting a manga retouched, and designing the package. On rare occasion, they can also recoup marketing costs.

And once all that money is made back, THEN the revenue checks start going to the licensor. Every month (or 3 months, depending on the contract) the publisher is supposed to prepare reports for the licensors, detailing how much revenue each title brought in, how far it has to go to recoup, and if any royalties are due.

So where does the name come from? The phrase comes from the mainstream showbiz industry, which is notorious for its opaque accounting. In short, the minimum guarantee is the absolute least amount of money that the content licensor can expect to be paid. There SHOULD be more coming later, but most deals insist on payment of a big lump sum at the start, because it's never all that clear that the publisher will accurately count and pay all the revenues and royalties later. Getting all that cash up front makes it so that the licensor doesn't have to worry too much if the publisher decides to flake in sending anything later.

And in fact, there have been a few companies over the years that have completely dropped the ball on sending ANY royalty reports. Sometimes that was the result of a corporate buy-out: the larger parent company probably never figured out that they had to do that, and the people that did know no longer worked there to tell them. Other times, the company was just sloppily run. In a few cases the company ran out of money and simply couldn't pay the back-end royalties.

So a "minimum guarantee" is how the industry works. It's an essential part of nearly every licensing deal. In years past, streaming deals didn't require a minimum guarantee, but now with streaming being such an important part of the business, most deals require an up-front payment of some sort for streaming rights.

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Justin Sevakis has worked in the anime business for nearly 20 years. He's the founder of Anime News Network, and owner of the video production company MediaOCD. You can follow him on Twitter at @worldofcrap.