While entertainment licensing has deep roots throughout most of Europe, it has traditionally been more of a perennial market in Eastern and Central Europe. But licensors – both those with a track record in the region and those contemplating a market entrée – are spotting buds of opportunity sprouting up there.
But before one can begin to understand how licensing works in the territory, it is necessary to take two steps back and examine how it began, as well as how distribution paths and the position of consumer products have evolved.
As with most largely untapped territories, the industry in Eastern and Central Europe was jump-started by the powerhouse marketing might of Disney and Warner Bros. in the late ’80s, followed closely by the arrival of local agents Plus Licens and EEMC (each armed with a strong portfolio of Western clients) in the early ’90s.
‘In the initial years after the wall came down, much of the business was concentrated on Warner Bros. properties, particularly Tom & Jerry, which was well-known in Russia and Poland,’ says Eva Braanstrom, executive VP at Stockholm, Sweden-based agency Plus Licens, which represents Bob the Builder, Pokémon, Peanuts and the Teletubbies in Eastern and Central Europe through local offices in Poland, Hungary, Russia and the Czech Republic. ‘Teenage Mutant Ninja Turtles was the first ‘hot’ property to take off in Eastern Europe in a major way in the ’90s, finally making its way into Russia with high sales volumes of comics.’
Many point to Hungary, Poland, the Czech Republic and Slovakia as the first countries in the region to embrace the concept of licensing, though it is important to note that Russia, with its strong history of local properties, was home to licensed merch even during the Soviet era. In those early days, the main licensable categories were publishing and stationery, mainly because they were the only products with sufficient distribution channels in countries plagued by under-developed retail infrastructures.
On the broadcast side of the equation – which remains the market entry point for kids properties in the region – Sesame Workshop’s relationship with Central and Eastern Europe dates back to the late ’80s, beginning with a dubbed version of Sesame Street in Poland, and then branching off into similar local co-pros in the Czech Republic, Hungary and Russia.
Sesame Workshop’s merch focus in the region was Poland, with a consumer products program that encompassed publishing, home videos, puzzles, games and apparel emerging in the late ’90s through sub-agent EEMC. ‘Due to changes at the Polish broadcaster, the show was taken off the air later on, so we no longer had a platform to support a licensing program,’ and the business dried up, says Risa Nelson, Sesame Workshop’s director of licensing for Europe.
Prior to the economic crisis of the late ’90s, Sesame Workshop had a fairly modest licensing program up and running in Russia, which debuted its local co-pro on NTV in 1996. ‘They went through a very difficult time, so a lot of what we had built up collapsed,’ says Nelson. ‘Licensees weren’t able to pay, companies were going under, and the market fell apart. So we scaled down our licensing opportunities and waited for the market to recover.’
Thankfully, the present outlook is considerably improved for several countries in the region. Heavy expansion has characterized the last two or three years, with multinational supermarket and hypermarket chains like Tesco and Carrefour increasing their market presence. Of course, the licensing opportunities that shift opens up shouldn’t be overestimated; a full 90% of Poland’s retail outlets are less than 50 square meters in size, and street markets still dominate the country’s retail landscape, says Plus Licens’ Braanstrom.
‘There is a retail structure developing that will begin to look more and more like that of Western Europe, but it has not yet come to a point where you can compare the two,’ says Braanstrom.
For Hungary, Slovakia and the Czech Republic, whose growth spurts came on much earlier than in Poland and Russia, the market has dropped off over the past three years in terms of revenue, according to KJ Istok, president of the New York office of New York-based agency EEMC, which has offices in Prague and represents Nelvana, New Line Cinema, Sesame Workshop and Twentieth Century Fox in Eastern and Central Europe. ‘The dust has settled after a period of massive, aggressive growth in the mid-’90s, and now we’re ready to see who will actually survive,’ says Istok. ‘You have a leveled-off economy. All of the major retailers are there now, and it has become so competitive that licensees can’t even keep up.’
While partly an issue of economics, the focal shift towards Poland and Russia is also due to simple economies of scale: The Czech Republic and Hungary have populations hovering at the 10-million mark, while Poland has 40 million inhabitants and Russia has 150 million. And licensees based in Poland and Russia are ‘being much more aggressive about expanding regionally, whereas Hungarian and Czech companies really can’t,’ says Istok.
But even as some roadblocks are lifting, others still impede smooth market entry and operation in Central and Eastern Europe.
‘In the past, many licensors have been hesitant to get into the Eastern European market because of the piracy issue, but it has improved considerably,’ says Braanstrom. ‘Today, the problems are mostly found in the apparel business.’
Conversely, rival agent EEMC claims that piracy is the territory’s biggest challenge. ‘Poland and Russia are notoriously horrible markets for any type of media piracy, whether it’s video/DVD or video games – you can pretty much buy anything there the day after it’s released in the U.S.,’ says Istok. In stark contrast to the box office debut of The Lord of the Rings: The Fellowship of the Ring – which enjoyed the biggest Polish opening ever in 2001 – the regional program for The Two Towers was ‘one of the only disappointments’ for the franchise in 2002 ‘because so many people were able to buy pirated versions of the movie days after the U.S. release, with another month left to go before it would come out in Poland.’
The two agents agree, however, when it comes to methods for managing the problem. Both recommend registering trademarks as early in the process as possible, and both help licensors find legal counsel, register trademarks and work with local authorities. ‘You can do a lot more on a local basis to stop counterfeiting as opposed to someone from L.A. or London writing a letter or a cease-and-desist,’ says Istok. ‘Having people on the ground to manage that function and watch the market is the key to stopping piracy.’
EEMC helps its local licensees differentiate their product in terms of quality and design in the development process. ‘We make sure that a T-shirt that’s licensed is going to have a much higher-quality fabric and printing design than something you could buy at a Russian flea market,’ says Istok. ‘And having a special style guide and designs is key.’
When looking at developing markets, the issue that usually pops up behind piracy is pricing. Western-produced products are generally too expensive for the average consumer in Eastern and Central Europe, so the bulk of the licensee base tends to be local companies that manufacture locally. And international retail chains favor locally-produced product, so distribution deals for imports are difficult to secure.
But for the outside licensor, striking a manufacturing deal with a local company or actually finding one that will invest in manufacturing product is difficult as well, says Louise O’Toole, international licensing manager for London-based Entertainment Rights, which has begun to explore the territory as a viable new market over the last six to eight months. ‘We like to work with partners that are already onboard – mostly from the U.K. or the U.S. – and source product from them,’ says O’Toole. ‘But the key issue is price because [local companies] are working against sterling, which is expensive for them.’ The solution? Licensors and agents need to work with existing partners to alert them to opportunities in the region and to settle on price.
When frontrunning countries like Hungary and Poland join the EU in 2004, distribution deals may multiply, but Plus Licens’ Braanstrom maintains that such agreements will still depend upon price points. ‘Even if we see a lot of foreign investment, we still have to look at the disposable income of the consumer, and that will be the deciding factor for distribution deals,’ she says.
In terms of marketing, many countries in the territory are very strict with regards to governing their broadcasters. ‘In a lot of countries, you can’t advertise during a children’s programming block – and certainly not product related to the program. This has severely limited the amount of kids programming that broadcasters are looking for,’ says EEMC’s Istok. ‘There’s just no business model in it, which is a big challenge,’ especially considering that most merch programs in the region hinge upon TV exposure.
Property type preferences
While feature films are deemed as risky a licensing proposition in Eastern and Central Europe as they are elsewhere, Sesame Workshop’s Nelson points out that franchises like The Lord of the Rings and Harry Potter do exceptionally well in the territory. ‘I think that these have helped to set the stage in terms of educating local licensees, retailers and promotional partners.’
And while the region is certainly influenced by Western tastes, ‘the acceptance of properties and programs involves a different matrix compared to the U.K., France and Germany,’ notes Ian Downes, managing director of Saban Consumer Products Europe, who points to Eek the Cat and Wunschpunsch as two Saban properties whose vibrant 2-D animation appeals to public tastes there.
Japanese properties are well-received in Poland, while the Czech Republic has favored domestic properties and classic characters like Tom & Jerry. But the Czech Republic has gone through a ‘major transformation,’ says EEMC’s Istok. ‘For a while there, you couldn’t sell anything but Czech properties, but now that focus is shifting, and it’s becoming harder and harder to sell local properties.’
Brand licensing is currently a no-go, though sports brands like Nike and Adidas have made some headway, especially in Hungary, which appears most receptive to the brand licensing concept.
While publishing and stationery once dominated the merch scene, there has been a strong increase in the areas of food, confectionery and promotions. ‘Those categories have already surpassed the other categories as an income source,’ notes Braanstrom.
Saban’s Downes concurs. ‘We’ve probably had more success in promotional licensing than product licensing,’ says Downes, whose company has begun to look seriously at Eastern Europe as a merch territory over the past year to 18 months. ‘There isn’t a full base of manufacturers at the moment, but that’s not necessarily due to a lack of ability or infrastructure; it’s more the culture of licensing there. We’re looking very carefully at the work we do with our TV channel so that we can offer licensees support in the marketplace and use licensing as a marketing tool.’
Toys and apparel, which are typically driver categories in other territories, are tertiary ones in Eastern Europe. Indeed, Entertainment Rights, which hopes to build programs for Merlin the Magical Puppy and Ethelbert the Tiger in Hungary and Poland (where they air on Minimax) by the end of 2003, will launch with publishing, stationery and back-to-school product. Plush (another strong category in the two countries) and apparel should follow those lead-in categories quite quickly.
Similarly, when Sesame Workshop launches its merch program for the localized Russian version of Sesame Street this fall, publishing, home video and stationery featuring main characters Zeliboba, Businka and Kubik will be the lead categories. But Nelson says that SW is also looking at developing a good nutrition program with series sponsor Nestle, with whom the company has launched several food promotions in the past.
Going forward, licensors and agents agree that the territory will be a major business focus over the next five years. ‘In a few years’ time, you’re going to see that more or less all of the Eastern European markets will continue to grow,’ says Braanstrom. ‘Foreign investors are likely to keep up with strong retail expansion, so we think it is going to be a territory with enormous potential.’
EEMC’s Istok claims that the Ukraine will be a growth focus, and notes that Serbia, Croatia and Slovenia appear to be re-establishing old business ties, which could open regional opportunities. But at the moment, the odd men out appear to be Romania and Bulgaria, which lag behind the rest of the region. ‘There’s just no money to be made there at the moment, at least in my opinion,’ says Istok.
For now, the way forward appears to lie in viewing the territory with an open and flexible mind. ‘If I were a licensor, I would include Eastern Europe early on in my planning. Instead of looking at it as a secondary market, look at it as a potential growth market,’ says Plus Licens’ Braanstrom. For her part, Entertainment Rights’ O’Toole cautions: ‘Don’t demand the same requirements that you would from an experienced market. In the next 18 months to three years, we’ll see a nice business settling there.’
Editor’s note: The electronic version of this article has been edited from the original print version in order to correct or clarify some information that it contained.