Australia’s licensing business hopped along more quickly than a wiry wallaby in 2003. Fred Gaffney, president of Gaffney International, estimates the market grew by about 10% to US$754 million last year, and it’s on track to make similar gains in 2004.
The boost can be attributed to a number of factors. For one thing, the Australian economy has been growing steadily at around 3% to 5% for the past few years, with the Australian dollar making massive gains against U.S. currency at the same time. (It was sitting at about US$0.75 at press time, up from a 1998 low of US$0.50.) Last year also saw a lot more new property launches compared to 2002, giving the industry a needed shot in the arm.
Certainly the nation’s love of licensed goods is playing a big role. With 20 million inhabitants spread out over roughly three million square miles, Australia is as ‘close to licensing heaven’ as it gets, says Grahame Grassby, GM of ABC Australia Consumer Publishing. He adds that there is no regional economic disparity, and the roughly 80% of the population that lives on the coastline (the biggest portion is settled in East coast centers Sydney, Melbourne and Brisbane) is urban and likes to buy merch associated with their favorite TV shows and sports teams.
Debra Joester, president and CEO of The Joester Loria Group in New York, agrees. She recently took a trip to Australia to get a lay of the land and check up on the Care Bears as the property’s worldwide agent. After taking a gander at the country’s retail set-ups, she says Australians seem very receptive to licensing. For example, the kids bedding aisle typically features two to four licensed properties at U.S. retail, but Australian mass merchants pack theirs with a minimum of six (and up to 10) properties.
Australian sales of Care Bears merch last year, at around US$23 million, were second on a per-capita basis only to the U.S. But Joester says it’s not uncommon for Aussie licensed programs to out-perform every other country in the world on a per-capita scale.
Australian retailers, it seems, are more than happy to whet the consumer appetite for licensed goods. According to Thomas Punch, managing director of Universal and Twentieth Century Fox agent Haven Licensing, the country’s mass retailers pursue licenses and promo exclusives for hot properties very aggressively. He says Target, which has no affiliation with the same-name U.S.-based mega-retailer, is the market leader in introducing licenses to retail. But Tony Oates, GM of Australian toy distributor Funtastic, adds that it’s also the first to drop licenses. ‘When the other retailers jump in and start slaughtering prices, Target vacates the brand.’
Punch says Australia’s retailers, especially Target, often rely on properties to ‘buy a demographic.’ As an example, Target looked to The Simpsons in early 2003 to attract five- to 12 year-olds since the Network Ten toon is one of the strongest shows on Australian TV for the demo. Target
mounted a promotion that
plastered the faces of Springfield all over its 140 stores, as well as in print and TV ads. The chain decked out more than 400,000 shopping bags with various Simpsons character images and had Homer and Bart ‘hanging off the Target logo’ at POS displays.
Additionally, Punch says Target has a dedicated licensing committee comprised of 24 senior-level execs whose goal it is to root out the latest and greatest licensed merch. The committee is very proactive, with members traveling often to U.S.-based studios and trade shows to assess properties.
Joester also noticed this proactive streak – even among retailers at the mall level. Australia is one of the most heavily retailed countries in the world, with mall-per-capita numbers that exceed the U.S. She says mall owners will regularly pay to bring licensed character entertainment in to drive traffic and get a leg up on the competition.
As for what retailers are snapping up property-wise, Gaffney says they allot roughly 80% of their license/brand budgets to proven classic properties, leaving the other 20% aside for newer, riskier propositions. But even the evergreens – think Disney’s Winnie the Pooh and HIT Entertainment’s Thomas & Friends – can ill afford to sit on their laurels.
Gaffney explains that in addition to strong toy marketing, all properties need TV, video/DVD, video game or book exposure to maintain their retail success. ABC Australia’s Grassby notes that properties not airing on the national broadcaster, which has a 100% penetration into Australian households, have a much tougher time making it at retail. Cable penetration sits at around 22% of households, offering a much more limited level of market exposure.
U.S., U.K. and Japanese cultures influence Australians heavily when it comes to property preferences. Gaffney says 90% of what’s successful in the U.S. gets a similar reception in Australia. In fact, the 2003 hot-property list reads like a menu from a U.S-Anglo-Japanese fusion restaurant. In preschool, the U.K. dominated with Bob the Builder and Thomas, while Japan’s Yu-Gi-Oh! and Beyblade and the U.S.’s Teenage Mutant Ninja Turtles and Spider-Man struck a chord with boys. For girls, American icon Barbie remains on top, and retro property the Care Bears also did well.
Some native Australian properties have also captured a small share of the limelight. Standouts this past year include The Wiggles, Hi-5 and girl-meets-horse show The Saddle Club.
On the royalties front, hot licenses can expect a rate between 10% and 12.5%, often with an additional 2.5% kicked into a central marketing fund to help support the property at retail. Licenses that are red-hot can command as much as 15%, says Punch. Guarantees are a bit more fluid. Gaffney says a reliable formula involves taking the licensee’s business forecast and halving it for the guarantee amount. Then the licensee will pay against that, which adds up to one-quarter to one-half of the total forecast as an advance.
So how much are the top Australian licenses bringing in annually? Joester estimates that the three or four biggest ones net somewhere between US$30 million and US$38 million in retail sales. Grassby says a good license normally takes in US$19 million to US$38 million, and a real scorcher can generate as much as US$75 million. However, that sum really only applies to a license that is as huge as it gets – meaning you can walk into the butcher’s shop and find licensed sausages featuring the property. More soberly, Grassby adds, ‘If something gets to US$75 million, you know it’s about five minutes from exploding into a thousand pieces.’
Life-cycle expectancy for a new property is between three and five years, and classics can go on for decades, experiencing highs and lows according to media and retail exposure. But with the highly selective retail environment in Australia, when it comes to picking up licensed merch, Gaffney estimates that only one out of every 10 new licenses catches on and lasts for more than a year.
Not unlike North America, the top Australian categories are toys and apparel, each accounting for about 25% of licensed kids merch sales, according to Gaffney. Books and home entertainment are next, each picking up 10%. Interestingly, Gaffney notes that food licensing (which commands royalty rates between 3% and 5%) and food-related promos are growing sectors in Australia. But licensors, especially those with preschool properties, should be cautious about what foodstuffs they link to their franchises. Joester has noticed that Australian parents are very concerned about the rise in childhood obesity rates and have begun to react negatively to properties plastered on junk food. Gaffney says it’s better to look at healthier foods like milk products and fruit.
The bulk of the Australian licensing business is conducted through territory agents stationed in Australia. A few of the big U.S. players have Australian operations, including U.S. studios Disney – which Gaffney says controls the biggest chunk of the market – and Warner Bros. and toycos Mattel and Hasbro. ABC Australia Consumer Publishing, Gaffney International, Haven Licensing and Newman International Licensing (based in nearby New Zealand) make up the rest of the big market players. Together, they represent about 80% of the licensing industry in Australia.