Can you imagine asking two major retailers to pitch for the right to list your products in an ever upward
spiralling bid process? Not likely. And yet that’s pretty
much how the licensing process works. Licensors are in effect selling rights to merchandise derived from
their brands. Selling is usually hard, right?
Well, not always. In fact it comes down to the balance of power. There are certain luxury cars that have two and a half year waiting lists… so does that salesman have to try as hard as the guy at your local garage who has to manipulate would be customers into signing on the
dotted line? Nope. And the same applies to licensing kids’ properties.
The reality is that the foundation of success in this industry is risk management. Developing products
which don’t sell is a fast track to insolvency. Hot licences offer potential for high sales, but they reduce the risk of product failure.
This is especially the case in the UK which is one of the most label conscious, brand-driven markets. That doesn’t mean any old licence will do. In the same way as some cars are more obtainable than others, so some licences are more aspirational than others.
Undercooked brands, has-beens and so-so brands are not likely to drive significant sales. Only those licences with significant reach and impact will cut the mustard, and of course those are the ones which other companies want, too. This often leads to a spiralling bid process which works in the favour of the licensor. Who can blame them for exploiting the appeal of brands they may have
invested millions in establishing?
The challenge for those seeking strong licences AND prudence is to stick to viable deal terms and still deliver sales targets (not easy).
However, there are trends which I believe are shifting the balance of power back in favour of toy firms. One recent trend has been for major toy firms to develop or co-develop entertainment based on their own, or
part-owned brands.
This means they have a larger base of business before they have to rely on third-party licences. It also gives them licensing opportunities, as well as leaving more opportunity for other companies.
Secondly, the global financial crisis has led to a degree of consolidation and rationalisation of both toy firms and retailers. When combined with the risk aversion which often accompanies recession, this has made it easier for companies to focus on the bottom line versus chasing the top line.
Finally, the other significant trend is the broader origination of hot entertainment brands, with many
more coming from new or smaller players and newer media formats.
Angry Birds is one example. Whereas
a decade ago, we may have had kids brands borne out of TV, publishing or film, we now have all that plus app
stores, online worlds and social media. Nowhere within licensing has the impact of 21st century technology and media been more evident than that of the music licensing world.
The music industry more than any has today embraced a more flexible approach to fill gaps left by the onslaught of digital music. It wasn’t long ago that music licensing deals brought the strongest of commercial souls to their knees, but not anymore.
Could that be just one example of a broader rebalancing of the kids’ entertainment licensing business as it applies to toys? It just might…
