China’s population of 1.4 billion and economic reforms that have produced a brisk economy that regularly marks double-digit increases, has been on the radar of international licensors for a good five years or so. In fact 2004 was the last time we took a significant look at the country’s consumer products prospects, and it seems like they’ve gotten considerably brighter.
No doubt, this past decade has produced an unprecedented era of growth in Chinese licensing. According to China’s National Bureau of Statistics, retail sales of licensed goods in the vast country more than doubled between 2000 and 2006 to US$1.3 billion, representing about 1% of the global total. Combine that with a growing middle class that is expected to number 200 million by 2015, and retail sales that rose 18.7% year-on-year in 2010, and what you have are conditions that might be more than a little attractive to kids IP owners.
Speaking of which, China has roughly 300 million children, with 16 million newborns arriving every year and an official one-child-per-family policy that acts to encourage moms and dads to spend more on their only children. As VP of Cartoon Network Enterprises Asia Pacific Dulce Lim-Chen says, ‘China represents one of the greatest long-term growth opportunities for licensing.’
China cannot be lumped in with other Asian markets – a factor that’s kept its licensing industry somewhat in check. When it comes to consumer awareness and preferences, China is a unique case. There are multiple reasons for this, ranging from a decades-old policy of cultural isolation to the existence of state-controlled media.
Smaller localized, quasi-private TV stations, for example, have increased their market share over the last few years, but the biggest broadcaster and cultural driver remains CCTV. The public broadcaster’s 19 channels reach more than 1.3 billion people and there are tight restrictions placed on internet transmissions that simply don’t exist in other Asian countries. It’s coalesced to create a climate where properties don’t have much staying power.
‘The consumers’ attitude towards children’s licensed products in China is fast and fickle,’ says Jack Yew, VP of South East Asia, Greater China, Australia and New Zealand at Nickelodeon Consumer Products. ‘Although a few major characters have entrenched themselves, consumers generally move quickly from property to property.’
One of the granddaddies of kids international licensing in China is BBC Worldwide. The Beeb’s commercial arm has been working in partnership with Chinese companies for more than 20 years, dating back to the time of former leader Deng Xiaoping’s original market reforms. Additionally, Teletubbies became the first Western preschool series to air on CCTV in 2002, and it met with tremendous success, drawing an audience of more than 300 million viewers.
‘Teletubbies has really become a flagship brand for us in China,’ says Pierre Cheung, BBCW VP and GM of sales and distribution for Greater China. ‘We have sold more than three million DVDs and two million books. In 2006, we opened the first of our Teletubbies Play and Development centers in Shenzen.’
BBCW has since been able to augment its presence in the region and it recently launched DVDs, magazines, books and toys based on In the Night Garden, also created by the minds behind Teletubbies’ prodco Ragdoll. The penetration of BBCW goods is a product of a steady build, according to Cheung.
‘It’s a long-term game in China,’ he says. ‘The concept of guanxi – personal relationships developed over a long time – is extremely important to getting distribution in China.’
On the backs of those relationships, In the Night Garden goods can be found at China’s Walmart stores, retail chain Jusco, Xinhua bookstores and emerging online power, dangdang.com.
‘The most prominent outlets for BBCW products are department stores, hypermarkets and bookstore chains,’ says Cheung. ‘We have seen internet sales growing in popularity too.’
Relative newcomer, Nickelodeon has also started exploring the many levels of the Chinese market with its iconic IP over the last two years. ‘We have most of the core products licensed there now, including DVDs, apparel, toys, books, stationery, footwear and personal care,’ says Nick’s Yew.
In fact, Nick will be launching Dora the Explorer, and related products, on CCTV and at retail in Q4. It has also just partnered with the pubcaster to develop a co-branded Nickelodeon website.
‘Understanding and appreciation of licensing is still nascent in China,’ says Yew. ‘But I think we’re really making headway.’
Cartoon Network is also in the territory, concentrating on its Ben 10 and Powerpuff Girls IPs. Last year, CN launched The Powerpuff Girls Magazine, which has reportedly already doubled in circulation.
‘We also have a dedicated Ben 10 Magazine,’ says Lim-Chen. ‘It is only produced for the Chinese market and the response has been very encouraging.’
This year, CN also shipped DVD box sets for both properties to more than 100 cities in China.
‘We’ll continue to build the Ben 10 and Powerpuff brands,’ says Lim-Chen, adding partners are paying particular attention to catering to local tastes. ‘We plan to roll out toys, games, books and home entertainment specifically designed for Chinese kids.’
Retail challenges remain
It’s no fluke that major multinational licensors are having the most success in the country. They have the resources and expertise to get over that hurdle known to consumer products pros the world over – retail. China’s retail landscape is certainly no place for independents.
The country’s retail market has been split into three tiers, measured according to their economic maturity and investment regulations and not necessarily their population base. The first tier covers the major urban centers, including Beijing, Shanghai, Tianjin and Guangzhou, which all have fairly sophisticated retail infrastructures. Tier Two cities include Xi’an, Chengdu, Chongqing, Nanjing and Shenyang and they are widely regarded as being most fertile for growth as first-tier cities already have highly organized retail nearing saturation. Tier Three cities are numerous and mostly centered around one or two main industries. Since there are 87 cities in China with a population of more than one million, it creates an almost mind-boggling number of issues in terms of retail distribution.
‘When people think China, a single market might come to mind,’ says CN’s Lim-Chen. ‘However, China should be viewed as a collection of local markets with many small and medium-sized retailers.’
While international retailers like Isetan, Carrefour, Tesco and Walmart have joined local companies such as Beijing Hualien Group and Wumart, and have significant presence and centralized distribution in Tier One cities, they still do not cover the whole territory. In fact, it is estimated that smaller specialty stores have as much as 40% market share. Convenience stores and one-off outlets also regularly dot China’s roughly 3.7 million square miles.
‘The market is very large and fragmented,’ says Nick’s Yew. ‘The cities being so far apart makes distribution difficult, as most outlets’ buying decisions are decentralized.’
The pachyderm in the room when discussing licensing in China is, of course, piracy. While everyone agrees that the problem is still one of the most pressing for IP owners working in the territory, there have been some positive developments over the past few years. According to BBCW’s Cheung, meticulous attention must be paid to filing IP with the central Trademark Office. The office has proven more successful at protecting foreign-owned IP of late and continues to improve as licensing becomes more prevalent in the region.
Cheung adds that the burgeoning middle class is demanding better products, and quality has become another way to protect against IP theft. ‘We have really seen a rise in demand for premium products with a focus on brand and quality,’ he says.
Nick’s Yew agrees. He contends IP owners must be almost militant in performing due diligence to protect their properties. ‘We have constant checks on markets to ensure counterfeits do not enter organized retail,’ he says. ‘We also engage the right partners for the license so that legitimate merchandise is made available.’