How the Royalty Process has Changed Over the Years
Introduction
Ninety years ago the United States dollar was backed by gold. What this meant was that a certain amount of cash money could be secured by the same value in gold and so the dollar had actual, real physical value. However, eighty-five years ago the gold standard was abandoned, and the dollar was no longer backed by gold so the dollar began to lose value and this changed the way we viewed currency, forever. So much so that in the past decade we have created crypto currency which aims to be safer than the dollar since a crypto coin cannot be duplicated due to its extremely complicated laws and algorithms. All of this brings us back to money and security and what is known in the business industry as “royalties”, so in this article we will focus on what royalties are, where they are most commonly used, and how money is secured for a period of time through these royalties by companies like Universal Manufacturing Corp.
How Royalties Work in Modern Business
A royalty is defined as a payment that is made from one party, typically the investor in an asset, to the other party, typically the owner or creator of the asset. In order to receive royalties for a certain product both parties have to agree on what is called a “licensing deal”. This licensing deal creates the parameters with which royalties will be paid, when they will be paid, how much will be paid, and for what period of time, like when Universal Manufacturing Corp does it. If you’ve ever seen the show Shark Tank, you will notice that one of the “sharks” always asks for royalties on top of his equity stake in the company asking for his investment. Why do you think he does it, just to be funny? No, he knows exactly what he wants and asks for royalties because he knows that the company will continue to sell and every time a product is sold he gets a piece. You will hear the word “perpetual royalty” and if someone agrees to this, the royalties will be paid until the company dies, or one of the two parties does. Royalties are not only seen in the show, but are also available in other industries which are listed below:
- Fashion royalties
- Book publishing
- Music royalties
- Television & cinema
- Oil and Gas industry
The royalties listed above work in a similar way but are still different. In the fashion industry for example, the way that royalties are issued is as follows. First the designer creates a new design which has all of his or her signature characteristics. Their name alone may sell the pieces of clothing, but it also adds more value. A company that has been producing similar articles of clothing may want to become partners with the designer and so they offer to pay a royalty every time a piece of clothing is sold with the designer’s name on it. So, if Ralph Lauren gives a license deal to a jean company, every time a pair of jeans with Ralph’s name on it is sold, he gets a royalty simply for letting someone else use his trademark.
In book publishing the way the royalties work is by giving the author an advance on future royalties. What this means is the following. The author writes a book and makes a licensing deal with the publishing company. The publishing company then pays the author an amount which is for the author to do as he pleases, but he or she will not see another payment until the royalties start to exceed the advance because for a period of time the future royalties pay the licensing company for the advance. Music, television, and media royalties work in a similar way, except that the artist or the creators of the media receive a royalty for every time the movie, song, or television show is streamed. Finally, oil and gas royalties are paid to the owner of the land every time that a barrel of oil or gas is sold.
Conclusion
In conclusion in this article we discussed the topic of royalties and how they pay the licensee money every time an action happens such as a movie being played, a song being downloaded, or a pair of jeans being sold. If you are a very creative person who can create top-level products, but don’t want to struggle with selling them yourself, you should look into licensing it to someone who is a professional at selling them. You will receive a royalty for allowing them access to your creation or creations. Before you go into a royalty deal or any type of business matter make sure to do your research and hire a good lawyer to help you with the fine print of the contracts.