Merch Rights and Moral Clauses: Hidden Landmines in Kids' Deals
Merch Rights and Moral Clauses: Hidden Landmines in Kids’ Deals
If you’re working in kids & family content, whether you’re developing a live-action series, licensing a character, or prepping an animated film, there’s a good chance merch is a part of the plan. But here’s the thing: what looks like a standard licensing deal on paper can contain two of the most overlooked risks in the business, including merchandise rights and morals clauses.
They’re not always top of mind during development. But get them wrong, and they can cost you millions or kill the project entirely.
This isn’t a scare tactic. It’s the reality for anyone building a kids’ IP empire in a world where brands move fast, licensing deals get complex, and public perception can shift overnight.
Let’s walk through how these landmines show up in real deals and what to do about them.
Why Merch Matters More in Kids Content
Most of the money in kids & family content doesn’t come from the content itself. It comes from everything around it. Toys, books, games, lunchboxes, Halloween costumes, this is where IP becomes a brand.
It’s not a coincidence that the top-grossing kids' franchises look more like retail operations than production companies. Think Paw Patrol, Peppa Pig, Pokémon, Frozen. These brands print money on the shelf. That means if you’re selling or licensing a kids’ show, the merch rights might ultimately be worth more than the show itself.
But here’s the catch: including merch rights is often structured in ways that give the creator less control than they think and expose them to liabilities they didn’t anticipate.
The Merch Rights Trap: When “Customary” Isn’t Fair
A standard clause in kids’ entertainment contracts reads something like this:
“All merchandising and ancillary rights shall be retained by the company.”
It sounds clean. Standard. But it can be a trap.
Here’s why:
No carveouts for creator-branded content (i.e., you can’t even sell shirts with your own name if it’s tied to the show).
Flat fees or minimal participation in merch revenue, even when the merch is flying off shelves.
No say in how your characters are adapted, leading to odd, off-brand, or even offensive products.
Lifetime exclusivity in categories the company has no intention of using (blocking the creator from doing their own thing).
And sometimes merch rights are buried inside bigger definitions under “ancillary,” “derivative,” or “promotional materials,” so creators don’t always see the whole picture.
In one recent example I reviewed, a creator was shocked to learn they had licensed all merch rights in perpetuity with no royalty because the contract classified “merchandise” as a “derivative works,” which the producer controlled.
This isn’t rare. It’s just hard to spot.
What to Watch for in Merch Clauses
If you’re negotiating merch rights in a kids’ deal, here are three questions to ask early:
Who Controls What?
Is it exclusive? Is there a revenue share? Can the creator carve out specific categories (books, limited-edition art, live shows)? Look at both control and participation.
What’s The Definition Of ‘Merchandise’
Be wary of overly broad definitions. Some contracts try to include anything “tangentially related” to the IP, which could mean NFTs, licensing, or even social media handles down the line.
Are There Audit Rights?
If there’s a royalty involved, does the creator have the right to see the numbers? Many deals lack transparency.
If you’re on the buyer side (studio, network, brand), be intentional about how much you need. Don’t ask for the universe if you’re only going to exploit a few planets. Overreaching kills deals, and these days, creators are more savvy and less willing to give up everything.
The Moral Clause Minefield
Let’s shift to the other landmine: morals clauses.
These show up in almost every kids-facing deal. And for good reason, studios, toy companies, and networks want to protect their brand if someone tied to the project behaves in a way that could cause public backlash.
But here's the problem: many morals clauses are written so broadly that they become a blunt instrument.
A Clause Might Read
“If talent engages in conduct that brings the company or project into disrepute, the company may terminate this agreement.”
What does “disrepute” mean? Who decides? Is it based on a tweet? An accusation? A mistake from 10 years ago?
In a post-#MeToo, post-TikTok world, these clauses are being invoked more often and with less due process.
Real World Example (Redacted)
I worked on a deal for a kids’ YouTube creator whose animated character was being developed into a major streaming series. The network insisted on a sweeping morals clause, including language about “any behavior, past or present, that may cause reputational harm.”
That creator had once posted edgy content as a teenager, which had since been deleted. It wasn’t illegal. It wasn’t recent. But it created a liability risk under the clause as written.
We renegotiated. Tightened the language. Built in cure periods and limited the clause to material breaches tied to public conduct during the term. That deal closed and avoided implosion over an irrelevant issue.
The lesson? Every morals clause should be scrutinized, not rubber-stamped.
What Producers, Creators, and Reps Should Do
For Creators
Ask for precise definitions. “Immoral conduct” should be tied to criminal behavior or demonstrable harm, not vague reputational standards.
Request a cure period: Can you respond to or remedy the issue before termination?
Negotiate limited scope: Does the clause apply to all time, or just during the active term?
For Production Companies
Avoid boilerplate draft with intent. If you're serious about protecting the brand, create a framework that’s fair, enforceable, and tied to real-world risk.
Make sure your clause isn’t so broad that it can be challenged as unconscionable or used unfairly.
For Reps
Don’t let “industry standard” language go unchecked. The risk profile in children's media differs. A clause that works for a crime drama might be overkill for an animated squirrel.
Why This Matters Now
The kids & family market is getting more competitive and more brand-sensitive. As licensing expands beyond toys into games, wellness products, live experiences, and influencer tie-ins, the stakes around merch and morals are only going up.
We’re seeing a surge in creator-driven kids' content. Musicians launching animated spinoffs. Creators building multi-platform universes. Brands tapping into story-first campaigns.
All of that is exciting, but only if the deals are built to last.
These clauses, often buried near the end of a contract, can be the cracks that break the foundation later. Spot them early. Negotiate them smartly. Don’t treat them like boilerplate.
Think Beyond the Pilot
Whether you’re a producer closing a development deal or a creator licensing your IP, ask yourself: “If this thing really works, what rights will I wish I had protected?”
Merch rights and morals clauses might feel like footnotes now. But when your show takes off, they’ll be the headline.
And if you need a second set of eyes before you sign? That’s where I come in.
Need help reviewing or structuring a kids' content deal? Visit https://www.erickessleresq.com. I work with producers, creators, and entertainment businesses to get deals right from the start.