Dec 5, 2017

Toy Licensing

Written by Avantgarde
Reading time: 4 mins

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What is Toy Licensing– basically, this is where the owner of a Brand or Brands wants to generate 3rd party income from their Brands. They might not have the capability or interest in commercialising their Brands in every category, and might choose to ‘License’ the rights to particular product categories to companies focused on those products. These companies can then use the imagery, logos and other assets owned by the Brand holder.

Licensee & Licensor– The Brand owner, the one who is Licensing their rights out is the Licensor. The company who will commercialise the product is the Licensee.

Commercial Terms– The Licensor gets paid via royalties paid on the Licensee’s sales, royalty rates would typically be c. 8-12% of Licensee’s net sales. The Licensee would normally be required to commit to an M.G. (minimum guarantee), which is a minimum amount they will pay the Licensor for the rights, regardless of whether they sell anything or not. The M.G. is normally split into an initial ‘Advance’, and subsequent installments over the period of the term of the license. The Licensee does not pay any additional royalties until they’ve sold enough to cover the M.G.

How the process works?

Every property is different and for a licensing programme to succeed it needs to be carefully thought out. At_The Copyright__Promotions Licensing Group_a marketing plan is put together for each character taking a number of things into consideration:

-The anticipated lifespan of the programme
-The programme’s core target audience
-The appropriate distribution channels for product- will it retail through department stores, independents or both? What about catalogues?
-The merchandising strategy- what other product categories is the character is licensed to?
What is the timing on any planned media support?
Once the direction of the programme has been finalised the property can be presented to licensees.

AsiaPacific isone of the biggest licence-driven traditionaltoysand games markets globally, with half of the world’s top 10mostheavily licensedtoysmarkets in this region. In almost all these countries the proportion of 0-14 year olds in the total population was below 20% , suggesting that the grown-up population also has a say in whichlicensedtoysare purchased.

Licensing is continuing to have an increasing impact on traditional toys and games with more toy manufacturerslooking to create fresh intellectual property using TV and films and then leveraging these characters’ popularity to increase toy sales

Which markets are shaping up?

South Korea, Indonesia and Singapore are the top three countries in terms of licensing penetration in the region, with more than 40% oftoysbeing licenced properties. South Korea is themostheavilylicensedtoysmarketglobally, with over half of products beinglicensed, valued at US$274 million.

Japan is the largestlicensedtoysmarketin the region in actual terms, with a value of just shy of US$1.7 billion, accounting for 35% ofAsiaPacific’s sales.

By contrast, in India and China, licensing penetration remained well below the regional average, at around 6-15% .

Chinais one of themostinteresting markets in terms oftoyslicensing, as the country’s regulations prevent foreign companies fully developing their properties in the country. There is national policy imposed by the State Administration of Radio Film and Television that compulsorily requires TV channels to broadcast only domestic animated TV series during prime time. Imported animated TV series can be aired, but the proportion of foreign programmes must be lower than 40%. In order to survive in this unfavourable environment, a number of multinational companies competing in traditionaltoysand games have resorted to the online video platform in recent years.

International franchises such as Barbie, Cars, Marvel and Transformers enjoy loyal consumer bases that they have built up over the years.

China offers the greatest opportunity, as it has the lowest percentage of licensed traditional toys and games, at barely around 15%, while it is also predicted to see the strongest growth in per capita annual disposable income over the forecast period. Despite this low percentage, China is still the fourth largest market for licensed toys globally (behind the US, Japan and the UK), reaffirming its position as a strong future market for licensed toys, which is still far from reaching saturation.

More toy tie-in films scheduled to be released will continue to drive sales of licensed toys and as licensed toys still only make up around 25% of sales of traditional toys and games, there is still scope for growth globally.

Toy sales still linked to new film releases. However, film franchise fatigue could hamper growth in film tie-in product sales

As more licensing opportunities become available from new film content, increasing competition between toy manufacturers for the best licences could leave smaller toy companies in the dark and bigger companies with lower margins from licensed products. Therefore, a well-balanced licensing strategy is potentially more important now than it has ever been.

Toy manufacturers should continue to invest in developed markets whilst looking to grow in emerging markets

Many developed market consumers already have the per capita disposable income to afford the more expensive licensed versions of toys, so they are more likely to purchase them. Emerging markets’ per capita disposable incomes are forecast to grow further, so gaining a foothold in the licensing market across these countries should pay off.

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