We have updated how we compensate foundries for their fonts in Monotype Fonts.
We have improved how royalties will be calculated, reported, and paid when fonts are not known at the time of original sale. This is often the case for the Monotype Fonts subscription plans. Monotype Fonts is designed to give the customer flexibility to pre-pay for licensing rights they need and then choose the fonts over time in collaborative ways.
The royalty model described in this article does not impact how you are paid for your individual fonts sold on MyFonts.com. These orders continue to be paid out using the standard model: a percent of what the customer pays.
Understanding Production Fonts
Before we dive into the Monotype Fonts royalty model, it is important to understand what a Production Font is.
Production Fonts are fonts that are “put into production” i.e., licensed for commercial use. Think of it as the font that the customer decided was the font they wanted to use in the project after testing out a bunch of other fonts.
Read more about production fonts and licensing in Monotype Fonts.
So why did we change the royalty model?
We launched around 25 foundries' fonts in Monotype Fonts as a test group. Customers loved the additional fonts, and we learned a lot from this test phase about our partner's experience being in Monotype Fonts. One of the major takeaways was the lack of clarity and predictability around getting compensated for being in Monotype Fonts. So, we knew we needed to evolve the model before expanding Monotype Fonts with additional fonts and foundries.
In the past, royalties for Monotype Fonts were calculated using the same model as for e-commerce orders: a percent of what the customer paid. For Monotype Fonts, this meant when the customer named their production fonts or when the customer’s contract term ended.
The timing of paying foundries royalties was unpredictable because we did not know when the customer would name their fonts, so were waiting on them to pay our partners. Sometimes, this meant that we paid out most of the royalties soon after the contract was signed if the production fonts are named quickly (despite not having the money from the customer yet), or we would accrue cash for estimated royalties until the term of the agreement, then pay out at the end, which means foundries wouldn’t earn money for years, and were not seeing the value of being in Monotype Fonts.
These pain points arose because we were using the same model as how we pay on e-commerce sites, when we know what font is being licensed. However, Monotype Fonts is quite different compared to the old way of licensing on a per-font basis.
How it works.
Royalties are now calculated based on proxies that represent the value the foundry is bringing to the customer experience in Monotype Fonts.
We think foundries should be compensated for the fonts that are ultimately chosen by the customer AND for the fonts that the customer is using to prototype with to decide which font they want to choose. That selection is valuable to the customer, and we believe foundries should be compensated for providing fonts that customers are interested in prototyping with.
In 2022, we surveyed our foundry partners and asked you all to share how you felt a customer’s payment should be allocated to various parts of an experience like Monotype Fonts. The results showed that you feel the same way. It really helped us shape our thinking around the royalty model.
QUESTION TO FOUNDRIES
“Let’s pretend a customer has paid up front to browse, evaluate, and license a font in the future, but they haven’t chosen the particular font yet. We want to understand what you think is valuable to the customer during this process. Please assign a percent of what the customer paid to the following items. Your responses must add up to 100%”
|
CUSTOMER ACTIVITY |
AVERAGE FOUNDRY RESPONSE |
|
All the fonts the customer scrolls through before making a decision. |
11% |
|
All the fonts the customer clicks on to look at in more detail before making a decision. |
13% |
|
All the fonts the customer downloads to prototype with inside of an app before making a decision. |
18% |
|
The font the customer ultimately choses to use in the final work. |
37% |
|
The software that enabled them to browse, evaluate, download, and license a font. |
12% |
|
The support they received on the site while browsing. |
9% |
*The 2022 Foundry Priorities Survey included responses from 422 foundries that distribute fonts at Monotype.
Proxies.
We also wanted to remove the dependency on when customers name production fonts from the royalty payout, which means we can pay more to foundries sooner.
By implementing proxies, you can also expect to receive more frequent payments, and get a payment for being in Monotype Fonts even if your fonts were not named for production that quarter.
There are three proxies used to calculate royalties:
- Foundry’s percent of all syncs in Monotype Fonts. This represents the fonts that customers “sync” in the Monotype Fonts platform to prototype with in their design tools. Customers are using these fonts and getting value from them.
- Foundry’s percentage of all production fonts in Monotype Fonts. Production fonts are still very important to base compensation on. To increase the frequency at which customers name production fonts, we are launching self-service tools for customers to manage and track their production fonts themselves and get a more frequent read on what fonts are being deployed into production.
- Foundry’s percentage of all e-commerce revenue. While we see the most growth and highest revenue in subscription orders from companies, we know that sites like MyFonts and other e-commerce sites are still important for customers to purchase fonts, and these sites accurately reflect which fonts are desirable to customers. These sites are an important step in the font buying journey to help customers and brands license fonts for enterprise use. By using this as a proxy, you can grow your popularity on MyFonts while simultaneously growing your earnings from being in Monotype Fonts.
How to calculate royalty payments.
To calculate the payment, we determine the value the foundry brings to the platform by calculating the average of the proxies. The average of the proxies is a percentage that is multiplied by the amount we bill all our customers for the quarter and multiplied by the foundry’s royalty rate.
Keep in mind that this is a shift away from the idea of being paid per order or per customer; instead, you are being paid a lump sum for all customers that we billed during that period.
EXAMPLE CALCULATION:
|
Process |
Example |
|
Determine what we bill customers that quarter for Monotype Fonts royalty-bearing revenue. |
$37.5m |
|
Use proxies to calculate the value the foundry brings to the platform, and thus what portion of Monotype Fonts revenue billings goes to each foundry. Foundry’s % of all syncs in Monotype Fonts. Foundry’s % of all production fonts in Monotype Fonts. Foundry’s % of all E-commerce Revenue. |
Foundry X generates 4% of all syncs in Monotype Fonts, 10% of all named fonts in Monotype Fonts, and 12% of all e-commerce revenue. For equally weighted proxies, calculate the average. (0.04 + 0.10 + 0.12)/3 = 0.086 = 8.6%
The foundry’s contribution percentage is 8.6%. |
|
Multiply Monotype Fonts revenue billings for that quarter times foundry’s contribution percentage times foundry’s royalty rate. |
$37.5m * 0.086 = $3.225m in net sales $3.225m * 0.25 = $806,250 |
The benefits.
At Monotype, our goal is to continue to improve the foundry experience by being transparent. By aligning how we pay with how we sell, we can more accurately compensate our partners for their amazing fonts.
By modernizing our royalty model, foundries will see the monetary value of being part of Monotype Fonts sooner, as we aim to continue to grow the type industry.
It enables us to continue to simplify the customer’s licensing experience while growing payments to our foundries. It also means we can be more transparent about what you are currently being paid for and more accurately predict what you can expect to be paid in future payments. As part of the royalty payments, you'll be able to see metrics surrounding your fonts that are named as production fonts and fonts that are synced, in addition to the information you already receive about your sales on our e-commerce channels.
The timing.
This royalty model will be used to pay foundries for customer agreements signed after January 1, 2023.
We pay royalties aligned with the timing of when we bill customers, rather than when the customer names production fonts. The royalty payments to foundries and what we accrue for future payments to foundries is predictable.
On average for customer orders, 40% is billed in year 1, 30% billed in year 2 and 30% billed in year 3. This means that you should see a steady stream of payments as customers are billed at regular intervals in the future.
FAQs
We have produced a companion article covering FAQs related to the model.
Go to FAQs