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Licensing 101: How to Create Additional Revenue from Animation-Based Merchandise

Karen Raugust takes a comprehensive look at licensing of animated-related merchandise. Experts give advice about trying to tackle this area on your own and what it can mean to your bottom line.

Kenn Viselman advises producers to ask themselves if a product is unique, and has a proven audience reaction.

Kenn Viselman advises producers to ask themselves if a product is unique, and has a proven audience reaction.

As producers seek multiple revenue streams to help them recoup production and marketing costs in the face of reduced TV license fees, animation houses are increasingly interested in generating cash flow from licensed merchandise. At the same time, however, licensing is a difficult proposition due to fragmentation of the animation market, which decreases awareness for individual programs; retail consolidation, which lessens the shelf space available for products; and consolidation among manufacturing companies, which leaves fewer licensees from which to choose. All of these factors combine to make merchandise licensing a challenge for property owners.

Assessing Potential

The first step in a licensing effort is to realistically examine whether a given property has merchandising potential. The hardest thing for property owners is that first step of asking: Does the thing Ive created on the screen have anything to offer off the screen? says Kenn Viselman, founder of Kenn Viselman presents, who has licensed properties ranging from Thomas The Tank Engine to Teletubbies. If its unique and has proven audience reaction, then its possible it does. Those are two very basic criteria, but those alone dont mean its merchandisable.

DIC promoted Strawberry Shortcake with 80 million packages of Little Debbie snacks. © 2003 DIC Ent. Strawberry Shortcake character designs  & © 2004 Those Characters from Cleveland Inc. Used under license. All rights res

DIC promoted Strawberry Shortcake with 80 million packages of Little Debbie snacks. © 2003 DIC Ent. Strawberry Shortcake character designs & © 2004 Those Characters from Cleveland Inc. Used under license. All rights res

Other criteria to consider include the look, story and themes of the show and whether they lend themselves to a wide range merchandise; who the viewers are and whether they tend to purchase licensed products; and where, what time and how often the show airs. Instinct also plays a role. At the end of the day, the property has to grab us in the gut and make our hearts beat faster, says Jennifer Bennett, vp merchandising and licensing at Alliance Atlantis Communications, a Canadian creator, broadcaster and distributor.

There are lots of terrific shows on the air that are not merchandisable at all, explains Joy Tashjian, head of Joy Tashjian Marketing Group, who works with Mainframe, Fathom Studios, LevyMann Entertainment and others. Not everything needs to be merchandisable. But when you invest in a property you have to make your money back. If merchandising will help you do that, the property has to be merchandisable. Thats a creative question as well the two are related.

Jennifer Bennett points out merchandise and licensing fees can help a project succeed.

Jennifer Bennett points out merchandise and licensing fees can help a project succeed.

Of course, the creative comes first, regardless of licensing potential. While merchandisers may have input into elements such as choice of music, design of clothing or vehicles, or color palettes, in addition to marketing, they are not involved in developing a shows story or vision. We dont set out saying were going to make a lot of t-shirts and key chains, says Nancy Bassett, senior vp of worldwide consumer products for DIC Entertainment. When you think about the greatest stories ever, I dont think the producers were thinking about doll play.

Viselman believes animation houses need to start thinking of themselves broadly, as childrens entertainment creators. People segment themselves into a box, he says. If you think of yourself as a TV producer or animator, youre going to fail. What you need to do first thing is to identify yourself as a producer of entertainment for children. You need to think on and off the shelf at the same time. That separates the successful properties from the not-successful properties.

Financial Considerations

Revenues from licensed merchandise are an increasingly important part of the recoupment and profit picture for an animated program. With childrens broadcast license fees what they are these days, hopefully your M&L [merchandising and licensing] income is making a significant contribution to your overall financing and/or revenue, says Bennett. Even though there are many failures for every mega-success, there is still that possibility that you have the next big thing. And while there is a ceiling to what you are going to get in broadcast license fees, with merchandising there is unlimited potential for success.

Licensing offers nonfinancial benefits including trademark protection and exposure says John Fraser of Classic Media, which owns. Mr. Magoo. © 2002 Classic Media.

Licensing offers nonfinancial benefits including trademark protection and exposure says John Fraser of Classic Media, which owns. Mr. Magoo. © 2002 Classic Media.

At the same time, merchandising is just one of many revenue streams, along with home video/DVD, international TV, interactive games, etc. [Licensing] is not the panacea people think it is, Tashjian stresses. The $500 million to $1 billion sales figures featured in news stories are for homeruns, such as SpongeBob SquarePants or The Simpsons. Most properties do far less than that and many fail entirely. Published numbers also represent retail sales; licensors receive a 10% royalty on net sales (often about 50%-60% of retail), so total licensing revenues are only about 5% of retail totals. And this pool is split among all participating shareholders, including coproducers, licensing agents and broadcasters around the world.

While licensing income is not as great as many people think, in no deal is it considered ancillary anymore, Viselman says. Its an integral part of any business deal.

Joy Tashjian points out that its important to remember that licensing is just one income source for a project.

Joy Tashjian points out that its important to remember that licensing is just one income source for a project.

There was a time it was considered gravy, agrees Bassett. But it has to go toward recoupment today. She recommends being conservative in estimating future revenue streams from licensing, and to wait until key licensees and retailers show concrete interest before forecasting. Its all about managing expectations, she says. Its also important to remember that, aside from early advances, most of the rewards from licensing dont come in until 18 to 24 months after products launch.

While financial considerations typically are a primary reason for an animation house to enter licensing, there are nonfinancial objectives as well, including trademark protection and exposure. It goes back to maintaining the communication with the fan base and the consumer, says John Fraser, head of marketing and branding for Classic Media, which represents established franchises ranging from VeggieTales to Mr. Magoo. Licensing is another form of media.

Exposure from licensing can be significant. DIC supported Strawberry Shortcake in a promotion involving 80 million packages of Little Debbie snack cakes and plans to repeat the effort. That kind of awareness at the kitchen table is invaluable, Bassett says.

Direct-to-video title Itty Bitty Heartbeats was launched exclusively at Toys R Us. The licensing and merchandising strategy for such a product is different from that of a feature film. © 2004 LevyMann Entertainment, LLC.

Direct-to-video title Itty Bitty Heartbeats was launched exclusively at Toys R Us. The licensing and merchandising strategy for such a product is different from that of a feature film. © 2004 LevyMann Entertainment, LLC.

Timing and Strategy

While merchandising is a consideration right from the start, selling to licensees usually doesnt begin until later in the process. While timing and strategy vary depending on a propertys characteristics, most TV-based merchandise wont reach stores until at least six months after the programs debut. If you can wait longer, even better, says Bennett. Turning a viewer into a consumer takes time, trust and loyalty.

The worst thing that could happen is getting merchandise out too early, cautions Bassett.

Although signing licensees isnt the first step in a propertys development, pre-selling can occur in the early phases. If youre smart, youre always talking to licensees because you want their input, says Fraser. Youre feeling out the market but not really selling.

Most studios license strategic and core categories first, for example starting with content-driven and/or high-profile items including publishing, home video, toys and fashion. A production such as LevyManns Itty Bitty Heartbeats, which launched as a direct-to-video exclusive at Toys R Us, will have a different strategy in terms of product categories, timing, retail focus, etc., than a feature film such as Fathom Studios Delgo. (Tashjian represents both.)

Some [properties] take a couple of years to mature before they are ready for licensing; others have strong mass market potential from the get-go, says Bennett. Certain properties have nothing more than publishing potential while others make sense in 30 categories. Also, different categories have different lead times, so ideally, I secure my cornerstone partners 18 months out and close categories with shorter lead times much closer to my merchandising launch.

According to Nancy Bassett of DIC Entertainment, it usually takes 18 to 24 months after a product launch before licensing money comes in.

According to Nancy Bassett of DIC Entertainment, it usually takes 18 to 24 months after a product launch before licensing money comes in.

Licensors emphasize the importance of a fit between product and property. You have to understand the core of why the property is appealing and carry that through in everything you do, Fraser says. A cartoon with slapsticky, gross-out humor might not have enough of a storyline or play pattern for a large range of toys, but might be appropriate for a joke book.

Viselman cautions against the literal translation of a property to merchandise. You have to look at each medium as its own medium, he explains. You have to take the essence of the property and convert it into product.

Property owners should be aware that creating a strategy and selling the property to manufacturing is only the start of the licensing process. It used to be once the deal was done you could walk away, Bassett remembers. You cant do that anymore. The hard work starts after the deal. Licensors help sell merchandise to retailers, create point-of-sale advertising, create promotions and coordinate licensees marketing activities, among other tasks. Its in our best interest to be involved, Bassett notes. You cant afford to sit back and wait.

Setting Up

Some houses set up internal licensing staffs and others use outside agencies. The decision is mainly a matter of weighing the financial burden of the overhead associated with an in-house department versus the commission (usually 35%-40%) taken by the agency. In general, those new to licensing or with just one or a few properties opt for an outside rep, while those with several ongoing programs have an internal staff in place.

Licensors also have to balance an agencys expertise in licensing versus an internal departments knowledge of the brand. Established agents have strong retail and licensee relationships and have a firm understanding of their markets respective cultural needs and tastes. Also, we can look to an agent who has expertise in a specific genre, say preschool, to ensure the program is well handled, says Bennett. The flip side, of course, is that you dont get the intimate knowledge of and attention to your property that an in-house department brings.

While there are several resources available trade publications such as The Licensing Letter and License!, the International Licensing Industry Merchandisers Association (LIMA) and the Licensing Show in New York, to name a few licensors agree that licensing should be overseen by someone with experience. Get somebody that knows what theyre talking about, either on staff or as a consultant, says Fraser.

Bennett agrees. If you dont know what youre doing, find someone who does. It could mean the difference between a few bucks and a fortune.

Karen Raugust is a Minneapolis-based freelance business writer specializing in animation, publishing, licensing and art. She is the author of The Licensing Business Handbook (EPM Communications).

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