The results are in! LIMA has released its annual Licensing Industry Survey temperature read of the North American licensing industry, and it looks like overall royalty income was down last year by just US$26 million, finishing at US$5.8 billion. Entertainment/character licenses continue to generate the most business, accounting for 43% of total industry revenue and pulling in US$2.5 billion (down 3% from 2002).

LIMA president Charles Riotto expects the influx of royalties from this year’s big movie properties – Spider-Man 2, Shrek 2 and Harry Potter: The Prisoner of Azkaban – will perk up the biz by the time next year’s survey rolls around since merch sales for all three franchises are going strong heading into the all-important Q4 retail period.

On the other hand, he doesn’t see TV properties as huge merch drivers right now. ‘Nothing is setting the world on fire,’ he says, noting that Nick’s SpongeBob SquarePants is one exception that continues to perform well. But for the all-important toy category, which the survey says accounts for 30% (US$750 million) of entertainment/character royalties, blockbuster film properties have returned as the primary merch movers. Toys/games royalties, accounting for 17.2% of the overall industry pie, were down 4.4% last year – a fact Riotto links to the absence of films from the three aforementioned feature franchises.

The other top-performing categories for entertainment/character properties were software/video games (14.5%, US$362 million), apparel (11%, US$275 million) and gifts/novelties (7%, US$175 million). And when you look at these categories in the context of licensing revenues generated by all property types, all three were down slightly from 2002’s figures: software/video games (-2.8%), apparel (-1%) and gifts/novelties (-0.3%).

It’s worth noting that royalties from promotions, which make up 0.7% of the total take, were hit the hardest, falling 27% to US$41.6 million. Meanwhile, the publishing category (3.4% of total royalties) made the biggest gain, jumping up 14% to US$194 million, with US$100 million of that generated by entertainment/character licenses. Riotto was at a loss to explain the plummeting promo figure, but says in the case of publishing, licensors of children’s properties are increasingly seeing books as viable brand extensions. And, as we pointed out in our June issue, book publishers are more aggressively pursuing licenses.

As for other trends not immediately discernible by looking at the numbers, Riotto points to increasing pressure to push royalty rates down in the entertainment/character property arena. Licensees, he says, are faced with resistance from retailers when it comes to putting mid-level and new properties on the shelf. So what’s evolving are tiered licensing agreements that provide greater flexibility and, ultimately, less capital outlay for licensees. They’re putting mid-level and/or new properties on a sliding royalty scale, paying smaller sums on initial product launches and increasing the rates if sales move beyond a certain unit threshold. Correspondingly, royalties will go down if the license is under-performing, too.