Licensors Face Digital Challenge: Toys vs. DVDs

by Lucy Cohen

It’s a highly digitalized world out there, and the 23,000-plus licensors, licensees and retailers attending the Licensing 2006 International show have taken note. With new mobile and distribution platforms garnering more attention within the licensing world, the business — worth about $175 billion worldwide (and $22 billion in North America alone) — is becoming more diverse than ever before. The market — which marks its 26th edition, June 20-22 — held at the Jacob Javits Convention Center in New York City, has seen double digit growth in attendance and exhibitors over the last five consecutive years. While corporate brands had an increased presence at last year’s exhibition — and will continue to this year — entertainment brands remain a major driver for the industry.

Accounting for approximately $2.6 billion in royalty revenue in North America alone, entertainment licensing is big business. But it’s also an evolving business. “Licensing in general is becoming more global,” said FremantleMedia Licensing Worldwide’s David Luner. “In an effort to avoid piracy, movies are being released day-and-date, because of that, and increased globalization, there has to be an international flavor to every movie, TV show and licensing campaign.”

In fact, Warner Bros. Consumer Products’ Kelly Gilmore, said, “We’re looking to exploit all of our categories internationally because some of the biggest markets in the world are outside the U.S.” She continued, “Master toy companies are looking for global deals, so we’ll have representatives from our Latin American, Asian, Canadian and U.S. offices on hand at the show.”

Superman Infato Suit
Warner Bros’ role-playing toys, such as this Superman
infato suit, have had continued success.

Bailey Beeken, show director of Licensing International confirmed that there has been a significant increase in international attendees. “There has been a striking shift on the show floor,” she said. In fact, Beeken said there was an approximately 12 percent increase in international exhibitors last year. The increased international presence is represented by various country pavilions — France, Korea, Spain and China to name a few — each comprised of six to 12 companies. In terms of the total number of international attendees, “We’ve seen double-digit attendance increases in the last three years,” Beeken said. “Last year, international attendance increased by 18 percent.” And she sees this show growth as a sign of the international potential, because, while “licensing has been legitimized in the U.S., it is still nascent in Europe.”

But besides having to aim more globally, licensors are also finding that they must take a more hands-on approach to their licensing properties. “Retailers and licensees are looking for a more cohesive strategy when dealing with licensors,” Gilmore asserted. “We, as licensors, are working much more in tandem with licensees and retailers to clear shelves.”

Fremantle’s Luner concurred: “Licensees demand much more from licensors. There used to be a time when you could just lend your brand name to a product, but now you have to bring marketing, and more proprietary assets — like talent — to a brand.”

Another demand retailers are making more often of their licensors and licensees, according to Warner Bros.’ Gilmore, is exclusivity. “Licensees demands have changed as a result of retailers looking for more customized products [product lines available only in particular stores].” While she recognized that “this isn’t a new demand,” she said that, “toy companies are getting smarter about designing pools of products that are customized upfront. There’s no doubt that these deals benefit both retailers and licensors,” Gilmore asserted.

As the world becomes more digital, and traditional toys are pulled from the shelves to make way for DVD games and personal electronics, the licensing industry is skewing older. “We are moving from toys to consumer electronics for kids,” said Fremantle’s Luner. “You have to skew much higher to reach younger kids,” he said.

While, in 2005, the North American toy industry saw an almost four percent drop in sales revenue, Warner Bros.’ Gilmore warned against being too discouraged by those results. “It’s important to realize that toys are a huge industry, and it’s only been a 3.7 percent drop. There are a lot of bright spots in the toy industry as well,” she said, pointing to preschool learning, “plug and play,” DVD games and role-play toys as burgeoning sectors of the licensing business.

But Fremantle’s Luner suggested the best way to combat plummeting sales is to change the definition of toys. “It’s going to have to be a joint effort by licensors and manufacturers. We’ll have to move more from [traditional] toys to consumer electronics for kids, which, if you think about it, is a great thing, because [it will give] licensors an opportunity to adapt more content than ever before,” he said. “Kids are becoming more technologically savvy, and that opens a whole new portion of the business,” he added, admitting that for him especially, “it’s great, because we’re not a toy brand.”

Speaking of digital entertainment, for the second year, the Licensing show will be preceded by a one-day “Mobile & Digital Licensing Summit,” which will also take place at the Jacob Javits Center. The event will explore how entertainment brands and traditional products are using interactive media to deliver messages to consumers. “We dipped our toe into [mobile] last year (with 400 people attending the event), and this year we expect to see even more [entertainment] companies focusing on how to license their characters out to other platforms. We expect there to be a shift from last year’s inbound discussions to outbound this year,” said Bailey Beeken.

Among the new facets of this year’s show is an appointment-setting software for registrants and exhibitors called DNA (Digital Network Assistant), which will allow attendees to solicit potential partners who have been identified by company, type of brand, property or intended demographic. And this year, those attendees who seek a little bit more privacy and respite from the busy exhibition floor can meet with clients at invitation-only, luxury Executive Deal-Making Suites.

As usual, the show will feature a plethora of conferences as part of “Licensing University.” Topics include “What a Difference a Year Makes: Podcasts, Blogging, Mobile Video, Digital Content and Other Things You Really Need to Know” and “What’s Hot in Entertainment Licensing?”

While corporate brands have begun to realize the revenue potential licensing offers them, and will continue to increase their presence at this year’s show — American Greetings, Yamaha, Snapple, Pringles, M&Ms, to name a few, will be exhibiting this year — show director Beeken explained that entertainment licensing continues to be the show’s focus. “[Entertainment brands] are our core, and have been since the beginning,” she said. “Licensing deals have underpinned studio business, which is why all the studios [and many independents] will be present.” She said another reason for the high entertainment company turnout is “because it’s the only entertainment-focused market dedicated to licensing rather than programming.” Beeken estimated that entertainment companies will account for over-30 percent of the exhibition booths at the show. “They are our best friends,” she asserted. “We grew up with them.”