When it comes to kids entertainment licensing, there’s still plenty of green to be made from the silver screen. But licensed movie hits have been few and far between for some time. So while mass-market outlets continue to look at movie-based merchandise, they are getting choosier when it comes to placing shelf-gobbling “blockbuster” programs in their stores. In fact, there’s a new landscape emerging when it comes to movie licensing in the US, where the notion of less is more is driving both retailers and studio licensors.

Shrinking flex space 

While total US toy sales declined by 1% last year, retail sales of licensed toys grew 3% to US$5.3 billion, according to industry tracker The NPD Group, with licensed toys representing 29% of total brick-and-mortar toy sales and 23% of total online sales.

But when it comes to movie licensing, “there is a lot of guesswork,” notes BMO Capital Markets analyst Gerrick Johnson. “Over the last 25 years, [retailers] have been guessing too high and getting stuck with a lot of leftover stuff.”

As evidence, Johnson points to the fact that you can go to Toys ‘R’ Us right now and still find Iron Man 3 products on the shelf from May 2013. But it’s not just Tony Stark that’s having performance issues. Many boy-targeted lines have met the same fate lately, and retailers have had enough.

“[Retailers] keep hitting themselves over the head with these movies,” notes Johnson. “But this year, they are finally going to learn their lesson.” It’s a learning curve that could translate into smaller retail gambles and the devotion of less prime real estate for feature programs.

In the US, for example, the three main retailers are Walmart, Target and Toys ‘R’ Us. Each has flex space to dedicate to merch for big film releases, if they choose. For Toys ‘R’ Us, that might be a 20-foot or 30-foot feature shop. For Walmart and Target, it can be specialized end-caps or trend pods. And it’s in that flex space that licenses might feel the pinch most.

Johnson observes that there was no feature shop at Toys ‘R’ Us this time around for The Amazing Spider-Man 2.  “Toys ‘R’ Us would not bring in all the extra product to fill a 30-foot section at the front of the store,” he notes. “They only gave it eight feet back in the action figure section. Retailers are getting a little more cautious.”

A welcome cold snap 

You can hardly blame them. Retailers in the US have had a tough time of late with a weak economy, increased competition and consolidation, a long winter, and a shortened and difficult 2013 holiday season. And while 85% of all toys are still purchased in stores, online retail is exacerbating the problem. Parents are increasingly conducting their research online and not in-store. The consolidation of shopping trips means parents make fewer impulse buys—and a lot of movie-related merch lives right in that US$20-or-less impulse price-point.

But it also has to be said that much of the current climate was precipitated by the industry going back to the well too many times—Iron Man 3, Toy Story 3, Smurfs 2, Cars 2, G.I. Joe 2. It’s a long list, and if you’re seeing a pattern, you’re not alone. Kids have picked up on it, too.

“A lot of these action movies are sequels,” says Johnson. “So kids already have those toys and know the story. Kids are smarter than a lot of people give them credit for. I think at this point they are kind of like, ‘Really? Spider-Man 2 is actually Spider-Man 5. Hello?'”

On the licensing side, the industry is arguably adrift in a sea of sequels, with studios more concerned about guaranteeing some certainty at the box office than with what might follow at the cash register. But then there was Frozen.

After so many licensing programs over-promised and under-delivered, Disney did the opposite with what has since become the highest-grossing animated feature ever. In fact, the House of Mouse held back to such an extent that Frozen merch is still almost impossible to find on shelves. Shortly after the film’s release, consumer demand in the US exploded in key categories like girls fashion, with breakout items like Anna and Elsa role-play costumes selling more than 250,000 dresses during the holiday season alone. The Frozen Storybook deluxe app hit top 10 in the Kids and Entertainment categories of Apple’s App Store in more than 100 countries. The Disney Store even produced exclusive, limited-edition Anna and Elsa dolls that sold out online in 45 minutes, setting a Disneystore.com record for highest orders per minute.

But the film did something more important—it reminded retailers that rules and history go out the window when an incredible property resonates with kids. The film’s November 27, 2013 launch date wasn’t welcome news to retailers, who prefer October debuts that build towards the holiday. But Frozen propelled sales into 2014 and blew Disney’s bottom line into orbit.

Michael Connolly, DreamWorks Animation’s global head of consumer products and a former retail exec, has spent 23 years in the business at Walmart, Disney, Nickelodeon and now DWA. He says Frozen reopened the eyes of retailers to considering new ideas at the year-end holiday season.

“They call that ‘the quarter of liability’ and they don’t want to set up merchandise,” he notes. “The saying in the retail business is ‘Everything the day before Christmas is a 50% markdown.'”

The post-Frozen lesson? “Judge it on the movie, not the timeline,” Connolly adds.

Mind you, that doesn’t mean that all retailers have changed their approach. “For How to Train Your Dragon 2 [launching June 13], we’re everywhere six weeks early, other than one retailer, which will remain nameless,” says Connolly. “That one retailer is setting three weeks out, and I think it’s a huge miss because they are going to wonder, ‘Hey, why am I 10% sold through in week one? I should be 20%.’ And we’ll say, ‘Well, your competition was set three weeks earlier.’ We try to get everyone on the same playing field. That’s our goal. But there is always one that will set later than the rest, and it makes it tough.”

Reality check 

Real success at retail begins at the studio level. Connolly says DreamWorks gives a letter grade to each of its releases, comparing them to both the other studios’ features and historical releases. He says that while a B or a B+ property program used to get pushed hard by studios for big licensing programs and retail exposure, the key now is quality over quantity.

“We have to be realistic in our approach,” he says, “because the last thing we want to do is leave a bad taste in the retailer’s mouth.”

Part of that means landing partners that understand the DNA of the property and can produce exceptional products. After grading each property, DreamWorks looks for a lead partner, usually a toy partner, that fits the brand.

For DWA’s upcoming B.O.O. (Bureau of Otherworldly Operations), which hits June 2015, Connolly says it found the perfect partner in Hasbro, which did an outstanding job in the ’80s with another paranormal property, Ghostbusters.

“I think B.O.O. will have one of the most fantastic ranges,” he says. “And it doesn’t have to be a 20-foot range. But I will say that the eight feet it will have will be some of the most fantastic merchandise you’ll ever see.”

Karen McTier, EVP of domestic licensing and worldwide marketing at Warner Bros. Consumer Products, agrees with that approach. “The key to a successful program is getting the right partners on-board and working closely with each of them to tap into the most compelling themes and elements from these films—themes and elements that translate to great products and, as a result, great sell-through.”

For The Hobbit, WBCP partnered with Lego and others on playsets that bring the wildly imaginative settings of Middle Earth to life. “Ultimately,” she observes, “we’re developing product that will expand the life of a property beyond the theater.”

Beyond the six-week window

Longevity is now the key. Connolly says that when he started at DreamWorks it was essentially a promo company that tended to think about one landmark at a time, which contradicted the lessons he learned during his years in retail.

“We are pushing our teams to get that space year- round and let the feature space be exactly that—just a promotion feature,” he says. “So we have switched our tactics. Less promotion, more side counter. Coming from retail, I will take a sock in a sock modular in a 365-day space any time over an end cap of socks for a month.”

The caveat, Connolly says, is that those lines have to be frequently refreshed. Steadily selling products sometimes get taken for granted, right up to the moment they suddenly stop selling, he contends. So DreamWorks has a system by which every item is reviewed and refreshed each season. It also has teams dedicated to every major retailer and tier, from department stores and e-commerce to the increasingly important dollar store and halo specialty retailers such as Pottery Barn Kids.

“If you can come up with a great movie range that sells in the summertime and gets reordered in the wintertime, and you get placement the next year at 50% or 60%, then you have hit your stride,” he sums up. “When we develop a range, the first question I ask is: ‘How are we going to maintain 50% for year two and keep it as a franchise? What do we have to do from a content perspective to keep it alive?’ Because the most important year of a property is not year one, it’s year two.”

On the horizon 

Although 2014 might be a quiet year on the kids feature front, compared to 2013, there are still a few likely candidates for breakout L&M successes, such as Teenage Mutant Ninja Turtles, Godzilla, Transformers: Age of Extinction and How To Train Your Dragon 2.

WBCP, which licenses Godzilla, The Hobbit and other notables in 2014, is looking to be ambitious with the reach of its products, including plenty of special pieces.

“We create merchandise programs with the breadth and scope that offers something for fans of all ages,” says McTier. “WBCP has been able to offer younger fans the opportunity to share in the excitement generated by the studio’s theatrical films by creating programs that offer product for the older fan and serious collector, as well as product for a new generation of fans. We’re able to create lines of merchandise appropriate for younger audiences because the franchises have such a rich history—allowing us to create ‘inspired by’ products that are age-appropriate and give kids the opportunity to play out the film-adventure and be a part of the major event.”

She recognizes that mass-market retailers are moving faster than ever. More and more are interested in special and exclusive offerings designed to help them gain a competitive edge and studios have responded. Godzilla’s program, for example, features ambitious offerings from master toy partner Bandai America—including the Atomic Roar Action Figure with fearsome atomic-breathing action—and Jakks Pacific’s Massive Godzilla figure, which stands 43 inches tall.

Transformers: Age of Extinction also looks to be a potential hit when it barrels into US theaters on June 27. The franchise enjoys a special place in the hearts of consumers and retailers, thanks to its strong presence on TV and its wide demographic appeal, both attributes that allow property owner Hasbro to be aggressive with its licensing offerings.

The licensing programs for the film will play heavily with the “Transformers: More Than Meets the Eye” slogan, using it both as graphic branding on products and as an overall philosophy, with product lines that will have unexpected features or benefits for consumers.

“We have developed three global programs with each of our regions executing them with different retailers around the world,” says Simon Waters, SVP of global brand licensing & publishing at Hasbro. “So we’re able to satisfy our customers, but at the same time, we’re able to keep our brand on-message and create consistency, making sure our characters are all represented in the right way.”

Waters adds that constantly ensuring that products stay on-brand is really the nuts-and-bolts of the licensing business. “And as the brand and its new content and stories evolve, we are constantly developing in-line with consumer expectations. We are very driven by consumer insights. When we discover a new insight about a girl or a boy or a family, we make sure we take the appropriate franchise and develop solutions for it. That’s how [My Little Pony spin-off] Equestria Girls came about, for example.”