To borrow a well-known fashion analogy, it seems like India is the new black in the world of international licensing. And property owners are starting to update their global look accordingly.
The country’s 1.1-billion population is certainly appealing, but what’s even more exciting is the size of India’s middle class. Roughly 200 million people make up this economic subset, and they control around 46% of India’s wealth. By any standard, that is a huge untapped market. And it’s also growing.
Since the Indian government started overhauling its political and financial systems in the early 1990s, the country’s economy has grown at a good clip each year, with GDP up by 8.2% in 2004. Moreover, as the reforms have taken hold, the percentage of people living below the poverty line has decreased by around 10%.
India’s middle class is largely English-speaking, thanks to the country’s British colonial history, which firmly established English as the language of business. And as 4Kids International managing director Simon Philips points out, the widespread use of English by the class with the most disposable income should make it easier for Western TV programming to penetrate this market.
Additional economic reforms in the last year have also made it possible for foreign companies with interests in India to repatriate their earnings and take them out of the country. This new development holds a particular appeal for independent licensors that don’t have the resources to set up their own India-based operations through which to channel funds.
And the final ingredient making India a tempting dish for global consumer products players is the influx of children’s broadcasters over the last few years. There are now seven dedicated kids channels in the region, including Cartoon Network and Nickelodeon, and this means that executing a TV-driven merch program is now a real possibility.
In terms of market demand, the nation’s smallish licensing industry does appear to be showing signs of growth. Sashim Parmanand, executive director of Asia Pacific for Cartoon Network Enterprises, says India’s US$90-million character merchandise market is expanding steadily by 15% a year. Cartoon has been broadcasting in the region since the mid-’90s and now attracts an estimated 22 million viewers.
Its consumer products arm started to explore the viability of licensing activity very tentatively in 2000, but this year, the team is planning to put forth a more concerted effort. In May, apparel, bags, stationery, toys and accessories based around Powerpuff Girls, Dexter’s Laboratory and Johnny Bravo will be available at retail across India. And Parmanand says Cartoon is also actively hunting for third-party properties to represent in the market.
London’s HIT Entertainment is also dipping its toe into India, with plans to launch a full-scale Bob the Builder program in the territory later this spring. Bob has been airing on Cartoon Network India since 2003, and Sheetal Merchant, HIT’s sales director for India, says puzzles, board games, apparel and rainwear based on the property will join the die-cast collectible toys that have been out since 2004. She’s now working with Indian agent Licensing Plus to find licensees in tablewear, shoes and back-to-school accessories.
Merchant stresses that doing business in India is not simple, and there are a number of challenges for licensors to overcome. For starters, piracy and the presence of gray-market goods are huge problems.
4Kids’ Philips says piracy isn’t limited to merchandise. From hijacked cable and satellite feeds, to counterfeit DVDs and videos, anything that can be ripped off is being ripped off in India, and there haven’t really been any cohesive attempts to stop the flood of illegal goods. But Philips is optimistic that licensors looking at getting into the region may be able to band together and mount a focused campaign to do something about the problem.
By contrast, gray-market goods aren’t completely illegal because they were officially licensed for distribution in a territory somewhere, just not in India. Merchant says it was the proliferation of gray-market Bob the Builder goods, illegally imported directly from Chinese manufacturers, that convinced HIT to launch an official program in India. But their existence still makes selling official product more difficult.
India is a very price-sensitive market. Merchant says the consumer mentality is best summed up as, ‘What can you do for me in terms of good value for money?’ And the presence of so much gray product means that maintaining competitive price-points is critical. ‘You have to make the official products as attractive in price [as gray-market items],’ says Merchant. ‘And if there’s no gray-market version, you can afford to go a little higher.’
But overcoming the stigma surrounding licensed products poses a more significant challenge. Philips says the ubiquity of pirated and gray-market goods has made India’s middle-class consumers wary of purchasing any entertainment-based merch. ‘The people who can afford to buy licensed products buy them out of the country because the product available in India is, in their minds, of inferior quality,’ he says. And convincing these consumers that the product being sold in India is genuine and of comparable quality to what they’d find in the U.K. or U.S. is going to be an uphill battle.
Philips thinks on-pack food promotions may be the key to turning perception around. There is no stigma attached to the quality of locally produced foodstuffs, so branded product in this category shouldn’t be a hard sell. And with this approach, a licensor would be putting its property on the family table every day. HIT’s Merchant is also pursuing this strategy with Bob the Builder.
Licensing as a concept is so new to India that a pool of know-ledgeable, competent licensing agents is pretty much non-existent, which is a catch-22 because most property owners agree that retaining local representation is crucial to breaking into any new market.
Parmanand says much of India’s licensing business is still being conducted by large property owners from abroad, and that list includes Warner Bros. Consumer Products and MTV Networks as well as Cartoon. HIT’s Merchant, who’s Indian herself and visits the country several times a year, says she connected with Licensing Plus through one of her mother’s business contacts. (Merchant’s mother is VP of Citibank’s non-resident Indian department in the U.K.) And it was the reputation of Plus’s Australian sister company, Licensing Works, that convinced her to contract the agency.
Once you manage to find effective representation in India, the next hurdle is licensee education. There are only a handful of established manufacturers that understand the concept and benefits of licensing, with Parmanand singling out the Indian branches of Mattel, Funskool and Egmont Publishing as some of the more receptive companies. But most Indian manufacturers are accustomed to producing goods under contract for other companies, explains Philips, so they have no idea how to enter into licensing agreements, secure distribution and issue royalty reports.
Then there are the government-related impediments to establishing royalty rates and deal structures. The country is still hungover from its days as a redtape-happy Raj, when participants in most commercial transactions had to first apply for a government permit. When 4Kids’ Philips began to look at doing business in India, the companies he initially approached told him that each licensing contract would have to be presented to local government authorities for licensee and money repatriation approvals.
There’s also a 7% cap on royalty rates in licensing agreements involving foreign licensors and Indian licensees. If you want to command a higher rate, you must apply to do so, and the approval process can take more than three months. Cartoon’s Parmanand says because her company’s licensing programs are operated through the wholly owned Indian subsidiary of parent company Turner, its deals are not subject to the cap. And in this case, local royalty rates sit between 10% and 12% for most product categories.
Finally there’s the country’s retail situation. India’s US$180-billion retail market is dominated by 12 million small, independent stores dotted across the country. Organized outlets such as department stores, malls, supermarkets and hypermarkets only make up 2% of India’s retailers. Pantaloon Retail, the largest of these organized players, has only 32 department stores. And although the bigger retailers believe their reach is national, they tend to be concentrated in the largest cities – Mumbai, New Delhi, Bangalore and Calcutta.
At this point, Indian laws prohibit the entry of foreign-based mass retailers such as Wal-Mart and Carrefour without an Indian partnership, so neither retailer has broken ground in India yet. But that situation could change; the government may be thinking about relaxing its regulations to permit foreign mass retailers who want to operate independently in the region.
Consumer spending is rising by around 11.5% annually, and it’s expected that by 2010, large, organized retailers will occupy 20% of the landscape. Merchant says she’s noticed that India’s larger chains are becoming much more sophisticated in their approach to merchandising, particularly in the kids arena. ‘They are at least starting to carve out specific space for kids product,’ she says. ‘Some of them now have a whole floor dedicated to kids, and that is a new development.’