Brazil steps out of Mexico’s shadow

AS an international licensing market, Latin America has been heating up over the past few years, with much of the buzz focusing on the most active and profitable country - Mexico. But it's Brazil that currently has international licensors and local agents talking, both in terms of opportunity and growth.
October 1, 2006

AS an international licensing market, Latin America has been heating up over the past few years, with much of the buzz focusing on the most active and profitable country – Mexico. But it’s Brazil that currently has international licensors and local agents talking, both in terms of opportunity and growth.

Character merchandise accounted for US$1 billion in retail sales and an estimated US$60 million in royalty revenues in 2003, with Brazilian licensing association ABRAL estimating market growth at approximately 15% annually. And with a mere 400 active licenses, there is ample room for new properties targeting each segment of the kids market.

While family-oriented feature film properties like Disney’s Cars and The Incredibles and DreamWorks’ Madagascar perform particularly well in Brazil, TV stands as the main kids property driver. But, before you go running to Brazilian broadcasters with your new 13-episode series in hand, take heed of this market caveat from local licensing agency Exim, ‘animation is typically stripped Monday to Friday in Brazil, with Saturday morning repeats,’ cautions Celso Rafael, GM of Exim Brazil. ‘So if there are only 26 episodes available, your series will air in little over a month.’

Not exactly a stark broadcast reality (who wouldn’t want their series broadcast daily?), but this is compounded by the fact that terrestrial broadcasters only reach 50% of the total kids audience with morning programing. Brazilian kids go to school either in the morning or afternoon, and there are no afternoon kids blocks. After-school blocks are available on cable, but there is limited access and penetration in Brazil – only 20% of the total population subscribes.

Exim is exploring the world of after-school programming in a new joint-venture with Brazilian broadcaster Rede TV. In addition to a daily preschool block running from 7:30 a.m. to 8:30 a.m., for which Exim has licensed a portfolio of Nickelodeon preschool hits like Dora the Explorer, Exim and Rede TV also air an anime block at 6 p.m., when all kids are home from school. ‘We’re trying to be strategic about our time slot and differentiate ourselves,’ says Exim’s Rafael. ‘And anime does particularly well in Brazil.’

Other Asian properties currently performing well in Brazil include Sanrio’s Hello Kitty and Vooz Co.’s Pucca. At press time, Warner Bros. Consumer Products had just acquired the rights to license, manufacture, import, distribute, promote and sell Pucca-branded merchandise in Brazil. The program, targeted to launch in January 2007 (just in time for Brazil’s back-to-school season) will include apparel, accessories, toys & games, housewares & domestics, gifts, stationery and collectibles.

‘Several different types of properties do well here,’ says Salvador Viramontes, VP of Latin America for WBCP. ‘They can be local properties, Asian properties or international properties based on U.S. animation.’ WB’s stable of superhero brands, like Superman and Batman, are solid performers in the boys market, while Strawberry Shortcake (DIC) and Polly Pocket (Mattel) are gaining ground with girls. On the equal-appeal front, Nickelodeon’s SpongeBob SquarePants is the clear winner with boys and girls.

Local properties also play a key role in Brazil’s licensing market, with Televisa’s El Chavo del 8, an animated series based on a popular live-action series that first aired on the channel in 1971, leading the pack. The show is set in Mexico and chronicles the adventures of El Chavo, his friends Quico and La Chilindrina and neighbors Don Ramón, Doña Florinda and Professor Jirafales. Although it originated in Mexico, the property has cultural roots throughout Latin America. ‘Brazilians relate emotionally with properties and what they are watching on TV,’ explains Mary Carmen Rotter Alday, MD of Televisa Licencias, which acts as Brazilian agent for international outlets such as MTV Networks/Nickelodeon, FremantleMedia and Endemol.

It seems Brazilians get equally emotional about their consumer products. ‘Today’s consumers in Brazil are demanding a better price-quality ratio. They want a product that is not just character-slapped, but one with design and quality that is priced competitively and affordably,’ says WBCP’s Viramontes. Interestingly, while the upper 2.6% of the population holds 29.4% of the country’s buying power (US$150 billion), it is the lower three-quarters of the population that sets aside the greatest percentage of its disposable income for consumer products at 51.5% (Source: Strategy Research Corporation, UN Demographic Yearbook, UNESCO Statistical Yearbook).

No where is the quest for quality and affordability more evident than in Brazil’s top category for licensed product, apparel. The south region of the country is known for apparel production and other key territories are beginning to take note. ‘Large local apparel chains such as C&A are consolidating their positions and investing very aggressively in product design, and this is starting to be noticed in Europe and the U.S.,’ says Viramontes. Of course, Brazil has a large universe of ‘mom and pop’ stores that are very important to the apparel segment, he adds. So success in the category is dependent on how you distribute in order to reach those stores in addition to the large chains.

In terms of market trends, direct-to-retail deals are on the rise, but appear to be limited to the apparel category, where retailers can draw on the country’s manufacturing base. In-store promotions and activities are also hot in a region ruled by supermarkets, hypermarkets, department and club stores.

Seasonal buying patterns follow a slightly different path in Brazil than in other Western territories, with Christmas taking a backseat to Children’s Day (October 12), the number-one season for sales of licensed products, with marketing beginning in early fall. The market is witnessing some increased action on the Christmas front, however. ‘Malls are beginning to license characters for their seasonal décor and displays,’ says Exim’s Rafael. ‘And if they license say, SpongeBob SquarePants to be part of their Christmas theme, they will tie the property to a promotion to drive consumers into stores to buy related items. It’s great exposure for children’s properties.’

Another strong Brazilian holiday is Easter, which is ruled by a single character licensed item – the chocolate egg. ‘All Brazilian retailers will have huge displays – even on the ceilings – of licensed eggs for the Easter season,’ says Rafael. In terms of growth holidays, licensors and agents agree that Valentine’s Day is becoming more important for categories such as licensed plush.

As Brazil grows as a market, it is also experiencing movement in new categories. Licensors and agents peg wireless as the fastest-growing segment for character licensing, noting that the large telcos have the marketing dollars to spend on promotions, and have been aggressive on that front with family feature films over the past couple of years. ‘As the technology’s penetration increases, we expect that Brazil will continue to see dynamic growth in that area,’ says Viramontes.

Of course, every growth market has its challenges. The main obstacle for Brazil affects the entire production chain, from the licensor/agent right down to the consumer.

The country is highly taxed at each level of production, distribution and retail. ‘It’s what we call tax over tax over tax,’ says Rafael. The royalty rates in Brazil are generally the same as in other territories – beginning at 3% to 4% for food products and running as high as 14% for a hot license, with an 8% to 12% median. But the tax impact on price points for licensed products in Brazil makes them much more expensive than in other territories. ‘A toy that is sold in the U.S. for $10 would retail for approximately $25 in Brazil,’ Rafael explains. That said, he anticipates taxation will be a key issue in the nation’s looming election next year.

That issue aside, licensors and agents remain bullish on Brazil breaking free of the ‘growth market’ moniker and becoming globally recognized as a viable business opportunity. They point to the fact that the country’s currency – the real – has remained stable for the past two years, and the continued expansion of international companies into the region as positive signs.

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