Canada’s relationship with the United States has often been compared to that of a mouse and an elephant. If the elephant rolls over or stomps around too much…well, you get the picture. And that’s the situation facing Canadian-based licensors, licensing agents and licensees.
Given that Canada and the U.S. share very similar cultures and that most of Canada’s best-selling properties originate from south of the border, large American licensors tend not to think of Canada as a separate territory. The trend in recent years has been for the bigger property owners to consolidate their licensee ranks, issuing North America-wide licenses and using Canada as a bargaining chip to sweeten the pot for U.S.-based manufacturing partners.
But that tactic does not take full advantage of Canada’s market opportunities, according to Robert Miller, VP of Toronto-based Studio Licensing, which handles Nickelodeon’s properties in Canada. Licensors that go that route often find that the Canadian portion of their total annual take only adds up to about 2% to 3%. ‘But it has the potential of being 8% to 10% if they would put more of a vested interest into nurturing the territory,’ says Miller.
We talked to top Canadian agents, and they agree that Canada can be a lucrative, self-contained kids licensing territory if you know how to treat it right. Just how nice? Randi Bregman, president of Venture Licensing in Toronto, says Spider-Man: The Movie continues to be the top-selling boys franchise in Canada. According to New York-based trade publication The Licensing Letter, merch based on the Spider-Man film generated between US$700 million and US$800 million at retail in 2002, with approximately 10% of those sales coming from Canada.
While it’s difficult to put a finger on exactly how much money Canadians spend on licensed merch, since Canadian sales figures get lumped in with U.S. numbers, several Canadian licensing agents put the total at between 6% and 8% of overall North American sales, which The Licensing Letter pegged at US$71.5 billion for 2002.
However, it’s important to note that a hot property can push that range closer to 15%, and both Bregman and Miller say the Canadian market is on an upswing that should last for another 18 months.
Most players agree that making the most of Canada requires maintaining a local presence. According to Toronto’s George Gross Jr., president of Star Wars and Tractor Tom agent G-Squared! Promotion, U.S. companies that grant Canadian rights should open up Canadian offices or sign on with strong Canadian distributors. They can’t expect to send U.S. salesmen to Canada, visit a mass retailer or two, and then call it a day.
Not surprisingly, most big-gun licensors have a Canadian licensing presence in the form of either an agent or – in the case of Warner Bros., Universal Studios, Twentieth Century Fox and Disney – corporate offices in Canada that deal with licensing in the territory.
Mirroring the U.S. market, studio-generated properties like SpongeBob, Dora the Explorer and Spider-Man rank among the hottest licenses in Canada, and apparel, toys and publishing generate the bulk of sales. Royalty rates and guarantees also seem on par with the U.S., with hot and/or evergreen properties commanding between 12% and 15% royalty rates in most categories, and guarantees running the gamut between US$3,800 for unproven properties to six-figure rates for successful ones.
While it’s true that the elephant does exert considerable influence over the mouse in the Canadian licensing landscape, there are some key differences between Canada and the U.S. For one, says Gross Jr., Canadians are not as receptive to violence-tinged properties as Americans. The likes of Rambo and Mortal Kombat, which he claims had decent programs in the U.S. in the mid-’80s and early ’90s, did negligible business in Canada.
More significant to licensors looking at the Canadian territory, however, is the fact that the country is officially bilingual. According to national law, all packages and labels must contain both English and French wording. Also, although Canada may be bilingual, the majority of French-speaking Canadians are found in one province. Quebec contains about 25% of the population, and, as any Canadian licensor will tell you, to ignore its specific needs is to miss out on a nice chunk of business.
‘French Canadians are big consumers of licensed goods,’ says Venture’s Bregman, adding that ‘they love characters and if you make sure that the programming is in French and the property language is translated, they will consume the property.’ Miller agrees. He says when French Canada really connects with a property, it will sell as much merch there as in the rest of English-speaking Canada, which is three times Quebec’s population.
But before you start handing out licenses that cover Quebec, there are a few things you should keep in mind. Kelly Elwood, VP of licensing for Montreal’s Cinar, heads up the licensing program for the Canadian-grown hit preschool property Caillou and knows a thing or two about the market. Last year, Caillou merch sold more than US$76 million at North American retail, with sales stemming outward from Quebec. Because that market is so important to the license, Elwood says there are a few red flags that go up when she’s negotiating licensee deals.
For example, if you’ve got a potential soft goods licensee who’s fighting hard for Canadian rights, you have to ask how committed that licensee is to doing the packaging, promotional materials and marketing in both languages. In the publishing category, Elwood says you have to find out if your partner is willing to produce French books; if not, ‘you can write off 30% of the market.’
You should also investigate whether the licensee is up to the challenge presented by Quebec’s strict children’s advertising laws that prohibit manufacturers from advertising to kids. Elwood says there are ways to reach Quebeçois children through a balance of promotional activities and direct marketing aimed at mothers, but you have to find out what kind of commitment the licensee’s willing to make. Elwood says this is crucial when considering master toy licensee candidates as they often rely heavily on TV ad campaigns.
Another bilingual consideration is product design. Are there a lot of words or phrases imprinted on the toy, T-shirt or other merchandise you’re selling? If it’s plastered with English words, it won’t sell in Quebec. So if your licensee doesn’t want to make two versions, you’re best to go with image-based products.
Kevin Meloche, general merchandise manager of children’s wear for Canadian mass-market retailer Zellers, says he won’t buy licensed kids clothing for the Quebec market if non-copyrighted wording is not translated into French, and he prefers image-only items for that market. On the whole, he says, Zellers is quite cautious about buying licensed goods for the Quebec market, and the company does regular property surveys to find out if their Quebeçois customers are watching the show and liking the property.
On a brighter note, Nelvana’s VP of North American licensing Mark Northwood says Canadian product developers’ sensitivity to language issues stands them in good stead when it comes to taking a property global since they are accustomed to producing image-based goods that can be sold easily into non-English-speaking regions. In some respects, he views the Canadian licensing market as a good hothouse for growing new and smaller properties – you can discover what does and doesn’t work and fine-tune a program before taking it to a larger market like the U.S.