[okfn-coord] Revenue share changes in WDMMG 4IP deal

Wed Mar 3 15:33:20 UTC 2010

Dear All,

One of the things raised (by Jordan among others) in our earlier
discussion of the 4IP WDMMG proposal was the revenue share clause
(Schedule 5).

Originally this was 50% of all revenue generated from the project.
This seemed very high, especially in relation to consultancy. I went
back with shares based on the type of revenue (consultancy, sales
etc). 4IP have responded with the proposal to reduce the rate to 30%
but with no customization by revenue type (see full email below for
more info).

Do we accept this or try negotiating further about this?

I should say that I spoke with them at some length about this today on
a conference call. The basic issue is that none of us know what (if
any) revenue will be generated by the project and what type of revenue
it will be. Their feeling is that:

a) 30% is livable as an additional cost on most consultancy (and will
encourage to be more "realistic" in our charging -- most
non-for-profits undercharge they think)
b)  if it is not reasonable it will be possible can re-negotiate once
actual costs become clear (though this is an informal statement of
this fact not a formal one and C4/4IP could always refuse).

I'm dubious how much mileage we going to get negotiating this further.
The down-side of too high a rate is:

a) we don't make as much money as we would if we get further work in
relation to this project -- but I would note we are not-for-profit :)
and the only purpose of that money would be to pay our own costs or
develop the project further -- note that further investment in the
project is covered by a separate clause, see second section of email
below).

b) we lose some people we could do further work with this on because
we have to charge too high a fee

Please let me know your thoughts.

BTW: this is the last remaining issue before we can sign the contract
with them. (There is an issue about personnel relating to engaging a
User Experience expert but following from phone con today it looks
like this resolvable and they have happy for this to be resolved once
the contract has been signed).

Regards,

Rufus

---------- Forwarded message ----------
From: Jamie Arnold <jamie at 4ip.org.uk>
Date: 3 March 2010 10:55
Subject: Notes on changes to Schedule 5 ahead of conf call @ 1pm
To: Rufus Pollock <rufus.pollock at okfn.org>

Rufus,
I've been working with Melanie Hayes, our Investment Manager, on the
revised commercials for the project.   She will hopefully join us on
the second half of our  call this afternoon. I just wanted to share
with you where I got to with her on this.
1) Here's the proposed change to Schedule 5, revenue share:
"1a. The Supplier agrees to pay to the Company 30% of Project Revenue
until such time as the 4iP Funding is recouped 1.5 times by the
Company. Once this level of Project Revenue has been recouped by the
Company, the Company’s share of Project Revenue shall be reduced to
10% until the Project End Date. The Supplier shall be entitled to
retain any Project Revenue after payment of the Company’s share."
The proposed rev share has been lowered to take account of your
revenue projections. We've kept with a flat rate that should not be
prohibitive to sales and reflects 4iP's appetite for risk. If we wish
to split this by revenue stream as we had discussed then Melanie will
need a business plan to understand cost of sales and operations.
We've added a mechanism to ratchet down revenue shares based on low
multiples of return on 4iP's investment - this stop things being
forever as it was before.

2) Spin-Offs
10.7 in the contract deals with the incremental changes to the project
and how these affect revenue share.
"10.7 Each of the Supplier and the Company shall notify the other in
the event either develops (or wishes to develop) any prequels,
sequels, follow-ups, spin-offs, additions, next phases or other idea
or further uses, products or versions of or in relation to the Project
and/or Delivery Items (“Spin-Offs”).  The Company shall then have two
(2) months from the date of such notification to evaluate whether it
wishes to invest in and/or acquire the rights in relation to such
Spin-Off.  If the Company notifies the Supplier that it wishes to do
so, the Company and the Supplier shall negotiate terms in good faith
for a period of twenty (20) Working Days from the date of the
Company’s notice.  If the Company and the Supplier do not agree such
terms by the end of the twenty (20) Working Day period, the Supplier
may obtain investment from and/or licence such rights to a third
party; however, it may not do so upon terms that are the same as or
more favourable (from the Company’s perspective) than those offered by
the Company and subject always to the Company’s rights in relation to
revenue from the Delivery Items as set out in Schedule 5."
We can discuss both of the above this afternoon with Melanie.  She is
responsible for this area and can answer any questions.
Speak later Rufus.
Jamie.

--
Jamie Arnold
Operations Manager
Channel Four, 124 Horseferry Road, London, SW1P 2TX

jamie at 4ip.org.uk
http://4ip.org.uk

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