Licensing Images:
Checklist for Museums and
Other Cultural Organizations

The Checklist

9. Compensation

In return for licensing use of images from its collection, a museum will receive compensation. Compensation can be arranged in a variety of ways. The following are possible options which can be used alone or in combination with each other:

· a fixed amount per image;

· an advance against royalties i.e. an amount paid by the licensee to the museum when the agreement is signed with the amount of the advance being deducted from royalties payable to the museum as the royalties are earned through the sale or licensing of products;

· royalties to be defined in a schedule to the agreement which can be tailored to the specific circumstances of each contract. This could be a percentage of revenues received by the licensee or a fixed amount per image used;

· the supplying of information as well as images could require a separate payment schedule. If additional work is required from museum staff, the museum may wish to charge for such work at rates and in a time frame to be mutually agreed upon in advance.

The above are just some examples. This is a matter of negotiation, and museums can be “creative” in determining the compensation scheme that best meets their interests. There are no set rules. The licensing of digital rights is relatively new. There are, as yet, no industry standards regarding the value or price to be paid for these rights or the arrangements for compensation. As these are constantly developing, museums should be cautious in entering into long-term arrangements where they are not entitled to earn a percentage from unforseen revenue sources. For instance, a flat fee, plus a percentage of revenues or profits, can be a preferred method of compensation. The amount of the compensation should reflect a number of factors: whether it is an exclusive or non-exclusive arrangement; the term; whether it is limited to a certain media or medium; whether there are any geographical restrictions; and whether the museum has the administration in place to track royalties due and the number of images used, or the number of times an image is used, depending on the structure of the agreement. All of the terms and conditions should be carefully considered in establishing compensation.

The payment schedule is another matter which should be set out in the agreement or in a schedule attached to the licence. The time within which payment must be made will, to some extent, be dictated by the method of payment which has been chosen. For example, if payment is a set amount per image, then payment could reasonably be required within 30 days of the agreement being signed. However, if payment is based on a royalty system, then products must actually be sold or licensed in order to determine how much is due. In this case, payment cannot be made at the time of signing for the simple reason that neither party knows how much is owing. When a royalty system is used, the payment schedule should require payment within a certain number of days (e.g. 45 days from January first and July first). Specify the currency of the payment and deal with any related tax issues such as the GST or, if you are dealing with a foreign currency, withholding taxes.

Record-keeping is another important aspect of any agreement requiring compensation for use. Statements or invoices specifying what is being paid for and in what amount should be required under the terms of the agreement. This will provide the museum with the information it needs to determine how much is owing under the agreement. A museum may want to ask that a statement be provided on a periodic basis, such as every six months.

The right to verify the compensation paid is another important right for a museum. An audit of the licensee's records with respect to royalties due under an agreement on a yearly basis by an independent certified public accountant is an option which should be considered. This is even more important in cases where royalties are the basis for payment. If the royalty system is chosen as the basis for payment, it is suggested that the agreement include the right of a museum to audit the records of the licensor to verify the amount received. The museum can request that the agreement provide that if there is more than a five-percent discrepancy between the royalties paid and those actually due, then the licensee will pay for the cost of the audit. An audit can be a significant cost, particularly when the museum is dealing with a foreign company.