Hearst Entertainment’s vice president of marketing, Steve Herman, has been around long enough to see licensing grow from a little-understood ancillary business into a multimillion dollar operation vital to any animated property.

But he also fears that as everyone tries to share the licensing dollar, the relationship between licensor and licensee is becoming less amicable.

Just a little over a decade ago, the process of reaching kids was very simple. Three networks showed cartoons on Saturday mornings, networks paid animators a licensing fee, and advertisers paid networks premium rates to reach kids.

As everyone knows, the playing field has changed. Audience erosion created by alternative entertainment sources, including cable, video games and computers, has caused fees and rates to fall as production costs have risen. Animation studios had to look into ancillary businesses, such as licensing and international distribution, to make up the deficit.

‘You have to have your fingers crossed that you can generate some significant revenues from licensing and merchandising to plug that [production] deficit,’ says Herman. ‘If the show is a hit, then all of those ancillary rights become much more important than broadcast rights because they can generate tens of millions of dollars.’

Hearst Entertainment, which produces and licenses such series as the upcoming Flash Gordon, the live-action movie The Phantom, and classic properties like Popeye and Blondie finds itself like all other companies in a high stakes game of maximizing the consumer product potential of a property without saturating the market.

Because revenue from licensing has become vital to cost-effective animation production, the department is involved with projects from the initial concept. Herman says it isn’t his department’s job to write or edit scripts, but rather to look at them from a ‘down in the trenches’ perspective. ‘Our number one priority is to produce good animation,’ he says. ‘However, within that statement, there is room for marketing to have an influence. We have market awareness, and we try to bring that to bear when we meet with the development people.’

Hearst provides licensees with style guides and selected cels from each episode of the animated series to inspire their creativity. However, Herman understands that since he is dealing in characters that have been around for decades, these characters have been rendered in many forms over the years. He allows manufacturers to develop their own looks provided they stay within the confines of the written description and definition of the character. ‘I am looking for my licensees to bring me the unusual concept or the unusual pose or unusual interpretation of the scene,’ he says.

As the marketplace changes over time, and the potential for both risk and reward grows, Herman observes that the level of trust and cooperation between licensor and licensee has lessened, creating less of a partnership and more of an adversarial environment. ‘As retail has tightened, I think licensees are nervous because they are taking inventory risks that they used to be able to off-load on retailers. Therefore they are approaching licensors out of fear of being stuck with inventory, and they are taking a more conservative approach with contracts.’

It’s become a more sophisticated market. ‘I don’t think that there is one license now, like Mighty Morphin Power Rangers, that works in every category,’ says Herman. ‘I’m not sure if we’re going to have that as often as we once did. I think we’re entering more of a phase of niche marketing, where certain properties work in certain product classifications and don’t work in other product classifications.’

Herman believes that this relationship will change again over time as licensors become more responsive to the types of pressure licensees are under and everybody learns to adjust to the continually changing media in order to reach children where they live.

The biggest issue for the industry, says Herman, is reaching kids. ‘It really is a fragmented audience now. The watchword for marketing to kids has always been ‘You have to reach them where they live.’ The difference now is they don’t live in front of the TV anymore. If their attention is going to be scattered among five or six different forms of media, then we have to make sure our properties are in those five or six different media.’