Karen Raugust takes us to Japan where animated merchandise can produce huge profits in a very competitive marketplace.
In Japan, licensed merchandise inspired by animation is, as a rule, available for a short time only--usually from three months to two years--before it disappears from store shelves. During this brief period, however, licensers can profit significantly. In fact, licensing hits can generate sales levels nearly equal to those associated with merchandising blockbusters in the United States, a country with twice Japan's population.
According to EPM Communications, publisher of The Licensing Letter, retail sales of all types of licensed merchandise in Japan totaled U.S.$10.6 billion in 1996, translating to annual purchases of U.S.$86 per capita. Approximately 45% of the total, or U.S.$4.8 billion, is attributable to entertainment and character licensing, largely driven by animation. Industry observers estimate that about 50% of all merchandising activity in Japan is based on local properties, with the remainder primarily due to those from the United States and Europe.
Licensed animation properties in Japan can be grouped into three main categories. The first includes television programming aimed at youngsters aged 3-12. This sector is where the most lucrative short-term properties arise. For example, Sailor Moon, a series produced by Toei Animation and one of the top licensed properties of the 1990s, generated approximately U.S.$800 million in retail sales of licensed merchandise in Japan in two years. Children's properties are extensively licensed for nearly every type of product, ranging from snowboards and apparel to chopsticks and instant noodles. Federico Colpi, senior manager of the international department at Dynamic Planning, the Japanese licenser of properties including Devilman and Mazinger Z, says that Dynamic's property Cutey Honey F has been licensed for more than 200 products in less than six months, a typical situation. Toys and video games are among the most important categories; some toy manufacturers are even affiliated with animation companies. Toymaker Bandai, for example, owns Sunrise, an animation house known for such toy-driven properties as Gundam, which debuted in 1979. Merchandise is sold in nearly every distribution channel, from toy, book and candy shops to department and convenience stores.
The Hello Kitty character is featuredon all kinds of products in Japan. The "digital pets" which have recently become so popular in the U.S. started in Japan, with products like this Hello Kitty digital charm from Sanrio. © Sanrion Hello Kitty, the animated series produced by DIC Entertainment. © Sanrio, Inc.
The Teen and Young Adult Market
Whereas licensed properties for children are primarily supported by exposure on broadcast television, awareness for the second category of animation properties, those targeted at teens and young adults, is created mainly by direct-to-home video productions (known in Japan as original animated video, or OAV) and comic books. Much of the merchandise, which includes t-shirts, vinyl figure/model kits, collectible action figures, posters, and cigarette lighters, is sold through anime and manga shops. Properties for teens and young adults do not drive as extensive product sales as those for younger children, but they can be very lucrative. Retail sales of merchandise based on the 1996 hit Evangelion, for example, exceeded U.S.$255 million.
Both of these sectors of the animation licensing business are primarily centered around short-term properties, as noted. "Only current television shows' characters are licensed for merchandising, and when a television show goes off the air, manufacturing and distribution of merchandise stops too," says Dynamic Planning's Colpi. This situation is beginning to change, however, as producers create serial OAVs and/or multiple television sequels. For example, Akira Toriyama's Dragon Ball Z has inspired 24 movies and more than 500 television episodes over 10 years, plus extensive licensing, and NTV's Anpanman and Shogakken Productions' Doraemon have also driven significant long-term merchandising activity directed at younger kids. In addition, several popular OAVs are based on television programs from the 1970s, including Tokyo Movie Shinsha's Lupin III and Dynamic's Mazinger, and merchandise is now marketed to consumers in their 30s. The Lucrative Classics The third type of animation licensing involves truly classic properties, a very different business from the two categories discussed above. These properties may have been based on animation originally, but they currently stand on their own. In fact, exposure created by the licensed merchandise itself often drives their popularity. The primary example of this sector, and the top licenser overall in Japan, is the Walt Disney Company, with its classic characters like Mickey Mouse, Donald Duck and Winnie the Pooh. Popular classic properties come from both Japan and abroad. Creations such as Tetsuan Atom (Astro Boy) and Jungle Taitei (Kimba, the White Lion) by Osamu Tezuka, considered the father of Japanese animation, have achieved classic status. Another classic licenser is Sanrio, owner of properties including Hello Kitty and Kerokerokeroppi. Non-Japanese classics, in addition to the Disney family, include Charles Schultz's Peanuts, licensed by United Media; Hanna-Barbera's sniggering dog Muttley, known in Japan as Ken Ken, from the 1970s TV series Wacky Races, licensed by Warner Bros.; and Warner's Looney Tunes characters. One characteristic that most classics have in common is that they are cute. "Cute is incredibly important in Japan," says David Buckley, president of Copyrights Japan Ltd., agent for properties including Paddington Bear, Spot, Musti and Brambly Hedge. "If it's cute, it's bound to sell." Cute classic characters, as well as some newer ones, appeal not only to kids, but also to adults, particularly women in their 20s and 30s.
While many classic properties have some support from animation, their licensers primarily create awareness through other means. Theme parks such as Disneyland Tokyo and Sanrio's two parks -- Puroland, an indoor facility near Tokyo, and Harmonyland, an outdoor attraction in Beppu City -- are especially beneficial in generating exposure. Merchandise based on classic properties is increasingly boutiqued at retail outlets, both in free-standing stores and shop-in-shops. A free-standing store is a store that only features a certain company's or character's merchandise, whereas a shop-in-shop is a kiosk or area within a store that only features a company's or character's merchandise. This boutique technique not only drives purchases, but also helps to create awareness. Disney Stores, Sanrio Gift Gates and Warner Studio Stores are examples, as are shops dedicated to Snoopy, Babar, Beatrix Potter and Paddington Bear in Tokyo, Yokohama and Osaka. Some fad characters, those featured in television series or targeted toward children, are also merchandised in dedicated shops, such as those overseen by television station NTV.
Classic properties are licensed for virtually every category, with stationery, novelties and gift items (known collectively in Japan as "fancy goods"), accessories and foods being especially important. Products are high quality, and are positioned as brands (labeled products that consumers can trust) rather than as novelty merchandise. Promotions are also very significant for classic characters in Japan (and increasingly for any licensed animation property), with tie-in partners ranging from food companies to airlines to banks. Annie Morita, director of publicity at Warner Bros. Consumer Products, says that Warner characters including Looney Tunes, Wacky Races and Tom & Jerry recently have been involved in bank tie-ins, which are currently popular as financial institutions employ animated characters to promote junior savings programs and to appeal to women, traditionally Japanese households' financial decision makers.
The Limited Role of Animated Features Unlike in most countries, animated films do not play a large role in Japan's licensing market, although movies based on video games, OAVs or television series can help extend a property's life. Even the top licenser in the country, Disney, does not generate significant licensing revenues from its film properties in Japan. One notable exception to this rule is Studio Ghibli, the producer of movies directed by Hayao Miyazaki and Isao Takahata. Their annual releases are among the top-grossing films in the country. Miyazaki's 1997 Princess Mononoke quickly became the top Japanese film of all time. Some of their properties that have generated licensed merchandise include Miyazaki's My Neighbor Totoro (1988) and Porco Rosso (1992) and Takahata's Pom Poko (1994). A few films by other studios, such as Katsuhiro Otomo's Akira (1988) and Mamoru Oshii's Ghost in the Shell (1995), have driven licensing activity for older audiences. With the exception of classic properties, foreign animation is rare, although some international programs, such as Teenage Mutant Ninja Turtles and X-Men, can break through. A popular morning show, Ponkikies, ends with rotating vignettes of foreign programs Thomas the Tank Engine, Postman Pat and The Busy World of Richard Scarry, all of which are licensed in Japan. Fuji TV has even introduced a Ponkikies merchandising effort as well. Operations - Japan Style From an operational standpoint, some differences exist between licensing in Japan and in other countries. For example, in most regions royalties are based on the number of items sold, whereas in Japan they are pegged to the number of pieces manufactured. "Of course, there are no sales reports either," says Dynamic's Colpi. "All the amount is paid beforehand, and the licenser does not take any risk in the case that a product or a book does not sell as expected." Another difference is the use of royalty seals. "We use certificate stamps to control the quantity of the licensed products to be released to the market," says Mr. Kurozumi, licensing manager at Cosmo Merchandising, agent for non-Japanese properties including Harvey Comics. These seals or stamps, which are attached to all officially licensed items, are color coded by price, assisting licensers in their efforts to spot counterfeiting. Kurozumi also notes that royalties in Japan are often based on the retail rather than the wholesale price, unlike most other countries.
All told, more than 200 animation studios do business in Japan, and many of them, including Toei, Nippon Animation, Tokyo Movie Shinsha and Tatsunoko, have licensing arms, as do several of the seven terrestrial broadcasters. This situation is indicative of the competitive nature of the marketplace. While emphasizing that licensed merchandise inspired by animation can be lucrative, experts point out that breaking into the Japanese market can be difficult for domestic and international licensers alike.
Karen Raugust is the author of several books and reports on licensing and entertainment, including The Licensing Business Handbook,International Licensing: A Status Report (both available from EPM Communications, New York) and Merchandise Licensing for the Television Industry (available from Focal Press, Newton, Mass.). She also writes about licensing, animation and other topics for publications including The Hollywood Reporter, Publishers Weekly and Animation Magazine, and acts as a consultant to the licensing and entertainment industries. She is the former Executive Editor of The Licensing Letter.
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