The licensing business in the U.S. may be getting tougher, but players are hanging

in for the properties that hit big

The licensing business can be a risky and costly undertaking in which one poorly executed program can cause disappointing sales, and in the worst case, a disaster. Despite all of the experts and specialists who follow trends, nobody knows just what is going to grab kids’ attention and why.

So why do retailers and licensees get involved with licensing at all? It boils down to the old joke:

‘Doctor, my brother thinks he’s a chicken.’

‘Why don’t you take him to a psychiatrist?’

‘I would,’ replies the man, ‘but we need the eggs.’

The rewards justify the risks. Even though every retailer and every licensee can tell his own horror story of a licensing program that underachieved, that next great property may be around the corner, and the rewards can be terrific when the right mix of property and product combine to resonate with consumers.

The Growing Role of Retailers

The licensing business has become a more complex and tougher business than it was several years back because an overproliferation of properties-or a lack of great properties-battling for shrinking shelf space has not only made retailers more cautious, but has given them a weightier say in determining a license’s fate.

‘The strength, knowledge and role that retailers play is the most significant factor in licensing over the last four or five years,’ says Gary Caplan, a Studio City, California-based marketing consultant who specializes in licensed consumer products. ‘It used to be that the licensees managed their destinies. . . . Now, major retailers realize that licensing in itself is a very major category and they’d better learn more about the properties that are out there before they have their stores put the merchandise on the shelves.’

‘Licensing is being recognized as a sophisticated marketing tool, whereas in the past it has been looked at as a promotional tool, a quick way to get in and out [of retail] for the season,’ says John Gildea, vice president of corporate licensing and promotion for Hasbro.

Retailers are becoming experts in licensing themselves, as companies such as Toys `R’ Us now have their own point people to identify which properties they should back, as opposed to the old method of taking on every license out there.

‘We used to ask [licensors] who the master toy licensee is, but that’s not enough anymore,’ says Beverly Cannady, a licensing consultant to manufacturers. ‘You almost have to ask the licensor, `What retailers are supporting you?’ I don’t care if the show is getting high ratings, because if you can’t get product in the store, you are lost.’

‘It used to be that I was concerned about the consumer more than anyone else because I wanted to make sure that when the consumer saw the product, he would buy it,’ adds Caplan. ‘That’s an irrelevant issue if the product doesn’t get on the shelf.’

Rethinking Licensing Choices

Over the past several years, retailers have learned licensing lessons the hard way by supporting properties that underachieved or downright flopped. But that hasn’t stopped wave after wave of licensed product derived from big-budget movies, TV shows and other entertainment sources from ebbing. What has resulted is a change in the types of properties that retailers are backing, the length of time they are willing to display product on their shelves, and the amounts they are ordering.

Event movies will continue to be the sexiest properties out there because the payoff can be the greatest, but some cautious retailers have begun backing away from them and are finding safe haven in strong classic characters, like Winnie the Pooh, Looney Tunes and now Rugrats, because they know these properties have proven track records and will continue to be around in the long term. Hasbro has been trying to take advantage of this trend by creating licensing programs around some of its classic toy properties, such as Mr. Potato Head and Monopoly.

The volume of movies and TV shows with products associated with them means that event properties don’t have as long a period of time to succeed as they did in the past. Much like at theaters, where this weekend’s moderate grosser is quickly replaced by next week’s potential blockbuster, shorter windows of opportunity exist for licensed product. ‘It used to be that event licensing had one or two reorders,’ says Caplan. ‘Today, you have to get the goods on and off the shelf in a hurry, because there is such a battle for shelf space.’

‘SKU management is affecting us as a licensing industry,’ adds Gildea. ‘It used to be that any of our big customers would take, from a toy standpoint, any or all comers. Now, they are being incredibly selective.’

New (and Younger) Horizons

The one non-movie property that licensees have been most curious about is Teletubbies, because of its target audience (kids under age two and caregivers), its success in England and the unusual look of the characters, which seems to be naturally appealing to kids. ‘The industry as a whole is ready for a new property to appear, and I think everyone feels that Teletubbies has the chance to be that new property on the horizon,’ says licensing consultant Cheryl Stoebenau.

Teletubbies, Rugrats, Winnie the Pooh and the upcoming Blue’s Clues product lines are examples of a trend that the licensing industry is targeting the last frontier in the children’s area-preschoolers, particularly toddlers, infants and their caregivers. ‘Licensing is getting younger and younger and preschool is becoming much more important,’ says Caplan. ‘The older kids get, the less likely they are to wear character merchandise.’ The increased activity in targeting preschoolers reflects the fact that the overall quality of preschool television programs has improved to warrant licensing programs.

On the retail side, specialty outlets like Staples and Party City become logical points of distribution for licensees and licensors to get their product in stores where it makes the most sense. Distribution in niche stores is a means to having successful smaller-scale programs for properties that may get muscled out of, or don’t fit, the merchandising mix of larger, mass-market stores.

Product versus Property

What comes first in licensing, the property or the product? Can a great property overcome mediocre product? Does a good product succeed in spite of a poor property? It’s a chicken-versus-the-egg debate.

‘Product is king,’ says Caplan, ‘but in the last four or five years, we’ve relied way too much on the property and not enough on great innovative product with innovative marketing behind it.’

Caplan reasons that if a product sells well without a license, a good license can only enhance it. But if a product isn’t very good to begin with, or is overpriced, it’s not going to sell, no matter what license is associated with it.

‘If you are a licensor and you want to have a property that’s more than here today and gone tomorrow, product has to be king,’ adds Stoebenau. ‘You can have a wonderful property that you can ruin if you don’t have the right product out there.’

Staying Power

The licensing business has become tougher than it was just a few short years ago. ‘It used to be that licensing was relatively simple in this game of marketing methodology,’ says Caplan. ‘Today, every license has to be justified and substantiated and meet a set of criteria, because you can’t support them all.’

‘Every year, you hear people say that licensing is dead or that retailers want to get away from it,’ Stoebenau comments. ‘In my 20 years in the business, I’ve never seen that happen. Retailers may not take as many licenses, and they may become more cautious, but they are trying to make smarter choices. Licensing is still thriving, but it’s just always changing.’

Licensors and licensees will continue to seek out new ways to make licensed product fit into retailers’ merchandising mix, and look for new ways to sell the product, whether it’s via a catalogue, the Internet or some means that has yet to be created. And there’s no doubt that some can’t-miss properties will miss, and others will be stunning surprises. It’s the hope for those successes that keeps the licensing business thriving. Because we will always need more eggs.