Licensing IP, the Web 2.0 Way

First: my apologies for using the phrase “web 2.0” in the title of this article. I couldn’t resist.

Anyway, here’s a random idea I’ve been tumbling. Could major IP holders (like Marvel Comics, Fox, etc) work with user generated content services (like Kongregate, XNA Creators Club, etc) to make their IP available to hobbyists and small businesses under explicit terms, in controlled conditions, for a non-negotiable revenue share? If managed correctly, how much profit and “brand excitement” could this generate, and would that outweigh any “sales cannibalization” and/or “brand damage” caused by the community?

The sign up process

Here’s how I think it could work. IP Holder, Inc partners with UGC Service, Inc to make its IP (and related art & sound assets, perhaps) available to members of UGC Service. To participate, members of UGC Service must explicitly sign up for the program, which is only available to individuals and small businesses (the definition of “small business” being up to IP Holder.) The sign up process gathers a large volume of data about the signee and requires the signee to explicitly agree to a variety of terms that are defined by IP Holder (such as “this IP cannot be used to promote a political cause, in a pornographic context…” etc. And of course, the revenue share that IP Holder expects.) If IP Holder really wants to be hardcore, credit card information can be required to validate the signee’s identity (and charge her a signup fee, if desired.)

Revenue sharing

As part of the terms of participation, the IP and related assets can only be used within the context of UGC Service, Inc. Why? Because UGC Service controls the ways in which content within its service is monetized (i.e. via advertising delivered by UGC Service and partner companies, or via direct sales or subscriptions driven by UGC Service’s transaction engine.) This ensures that IP Holder will get its share of revenue; in fact, the entire process is automated, such that IP Holder and user never even communicate. If you’ve ever used Google AdSense, you’ll understand how easy this can be — the transaction system simply debits IP Holder’s share before making payouts to the user.

But does this truly guarantee that all revenues will be accounted for? Probably not. Some enterprising user will almost certainly find a way to make money outside the context of the fixed ecosystem. But that probably doesn’t matter unless the user is making a ton of money, in which case, IP Holder will likely notice and can go after them — much as they would anyone else outside the context of this program. If the earnings are small or non-existent, who cares? Is it really going to lead to lower sales of the next AAA game (or movie) based on that IP?

Abuse of the IP

Same with other issues. Sure, someone is going to violate the terms and put IP Holder’s IP in a forbidden context. But that’s probably already happening outside the boundaries of this program. It’s probably less likely to happen within the context of this program because users will have explicitly agreed to terms (which has a psychological impact on behavior, even if a minor one.) More importantly, users will have provided all their personal information and credit card number, which might make them think twice about disregarding the terms of usage.

“Devaluation” of the IP

If anything, IP Holder will most likely fear more subtle “abuse” of its IP. For example, what if users extend the IP fiction in ways IP Holder is not comfortable? What if they simply create a lot of crap that “devalues” the IP? These are the same arguments employed against fan fiction and other forms of fan participation in general. And while I think it’s clear that the vast majority of consumers are capable of distinguishing between UGC and professional created media (and do not let the former impede their enjoyment of the latter), I certainly concede that most IP holders won’t feel that way. Nevertheless, it will probably take just one or two companies successfully participating in a program like this before many others jump in. The first one or two companies would probably be “lesser” IP holders — i.e. owners of IP that once had great value, but has become less popular over the years. Or owners of “niche” IP.

Resistance from existing partners

The other major issue will be resistance from existing licensors. If Publisher X is paying $10M a year for the rights to an IP, will they be OK with a program like this? Probably not. It would require time, negotiation, and resolve in order to convince Publisher X that user-created content probably isn’t going to dent the sales of its $10M retail title. In fact, it could even help it (by raising excitement about the IP within the ecosystem, overall.)

So what do you think? What pitfalls am I missing? What opportunities have I failed to mention?