Anyone who has tried to own rights in any goods or products will tell you how valuable the distribution rights in those goods often are. A Distribution Agreement is the vehicle those people often use to become or appoint resellers and transport distribution rights and goods to certain territories. Experience has taught me that while the resellers and owners of those rights value the rights and correctly want a Distribution Agreement in place, they don’t always know how to properly monetise or contractually manage the different rights.

Those who follow cricket will have probably heard that the Indian Premier League (IPL) became the latest example of an owner of a product wanting to put the rights (TV rights) on sale. As a South African cricket follower, I worried about whether SuperSport, our local broadcaster, would be able to secure the rights for the South African territory. And while it came down to the last moment, SuperSport managed to strike a deal. All of those developments got me thinking about what went into the deal, and made me want to talk about what some of the insights are, especially for those who will strike similar deals for distribution rights.

To be clear, though, I’m only focussing on using the insights to talk about how people can better manage the sale of software and hardware within an information and technology context. But if you sell or resell other goods, there are also takeaways for you as well.

Distribution rights

There are two kinds of people who typically deal with distribution rights:

  1. those who own goods (and all rights in those goods) and want to sell their goods in as many territories as possible; and
  2. those who want to obtain distribution rights to sell the goods in different territories.

Depending on the goods in question, the first group go by a number of names, but the most common are “software vendors,” “original software manufacturer” (OSM), “original equipment manufacturer” (OEM), or “software principal” in an information and technology context. The second group go by “reseller,” “distributor,” “agent,” “partner,” “channel partner” or others.

Regardless of what group you fall in, distribution rights are lucrative, and not having them can be limiting to your business.

In the entertainment industry, it means that customers in certain territories will not be able to enjoy a product like the IPL or a particular movie. In the software industry, it means that customers will not be able to deploy your software and hardware to run their operations.

Basically, no goods, no revenue!

Using a Distribution Agreement

The value of distribution rights is very important. Not all goods have the same value. The IPL is the most popular cricket league in the world. More popularity equals more value. Similarly, a popular piece of software like the Moodle Learning Management System, and the many applications that Microsoft conjures up, have great value compared to lesser known and used software. I say all this to say: an OSM like Microsoft has more leverage than other OSMs, over its resellers. Because of the value of their software, though, they also have a lot on the line.

In addition to any others, the following considerations are key:

  • Territory is important – an OSM and the IPL have to carefully choose what territories they want to award distribution rights in. They have to choose territories that have a customer base. They have to consider whether they don’t prefer to go into those territories themselves instead of appointing resellers.
  • Exclusive vs non-exclusive appointment – where the OSM and the IPL appoint resellers, they have to decide whether the appointment will be exclusive or non-exclusive. In other words, will those resellers have the sole right to distribute or resell in their given territories, or will others or the OSM be able to enter the territory at some point? Leverage plays a big part here, because if the reseller has a big presence in a territory, they may dictate the nature of the appointment.
  • The reseller’s expertise – some resellers do not have the expertise or skills to successfully resell in some territories, but because of not wanting to miss out on an opportunity, they still approach the OSM. Their plan is usually to secure the rights from the OSM and then appoint sub-resellers. This presents further complexity to any deal, and may not be what the OSM wants, especially if the sub-resellers are not bringing any extra value to the OSM’s standard goods.

What, then, is the ultimate message? In short, you need to carefully consider the type of relationship you are creating, and the Distribution Agreement you use to govern it. You need to get the right people to help you, regardless of whether you want to become a reseller or appoint a reseller.