Licensing is prevalent in the toy industry. While Germany has a somewhat lower reliance on licensed products versus other countries, in many major toy markets including the USA, UK, France, Spain and Italy, licensing is a critical part of the toy industry. In some of these markets, licensed toys make up as much as 25% of the total market.
I previously worked on many large brands, both toy industry brands and brands from outside the toy industry which lend themselves to toys. I have also conducted hundreds of research focus groups with consumers looking at issues relating to licensing. This experience has shown me that consumers embrace licensed products because they feature known, familiar & trusted brands, as well as those super-hot licenses which at certain times are the must have items.
What Disney made right by acquiring Lucasfilm/Star Wars
Furthermore, if we look at the major trend/happenings in the last few years relating to licensing and the toy industry, we need look no further than Disney’s acquisition of Lucasfilm/Star Wars and Marvel. These two acquisitions bring some of the most "toyetic" licenses around under one roof. In fact, I would argue that Star Wars is the ultimate "toyetic" license, with such a vast array of strong characters, good versus bad theming, vehicles, weapons, action etc. These mighty properties previously competed and the movie slate thus was some years very strong and other year very weak. This created a major problem for the toy industry as a whole, because things become difficult when a bad year follows a good year – and a weak movie slate can be the difference between a year where the market is plus 5% or minus 5%. With a combined approach, the movie slate automatically becomes more balanced as the corporation seeks to balance out revenues on a year by year basis. I see this being the major driver of 5 years of strong performance for the toy industry.
6 Tips on how toy companies can benefit from toy licenses
So having looked at licensing overall, the question becomes how can individual companies take best advantage of the opportunities. Here are some points to consider:
- Strong licenses are usually an easy/easier sell to retail, so having licensed products in your portfolio should help you ensure retail support for your company as a whole.
- Not all licensed perform at retail, and not all products work, so be wary of ‘betting the house’ on any one licensed initiative.
- Successful toy companies tend to leverage must have licensed products to ensure their own brands/products are listed as well – because while licensed products may drive sales, they don’t tend to drive high levels of profit. A balanced approach can deliver strong sales and profits.
- Beware of "slicensing" – this refers to the situation where license owners grant rights in overlapping/directly competitive areas to two or more companies. The reality is that the retailer only needs so many products per license per category, so beware of incurring high minimum guarantee payments for a sales opportunity that has been over licensed.
- Be clear what rights you are & aren’t getting. For instance, at various times in the past I have worked with TV gameshows, which can often drive strong sales of board games & other products based on the TV game show in question. However, with many of these programs, the TV show host is as important to the potential sales of toy/game products as the brand itself, and these hosts are often very expensive. So a good licensing deal would deliver both brand and host image rights in the same deal. This applies in other ways e.g. if your product features sound, music or video beware of content licensing & ensure your licensing deal delivers exactly what you need.
- Consider the brand lifecycle of the license you are looking at. Some licenses are perennial i.e. they never fade away - Disney would be a classic example of this for instance. Some licenses though come and go e.g. a movie driven property will come and go in line with cinema/dvd releases, and is likely to have quiet years in between versions. Also, some brands/properties burn very brightly quickly, before fading away. Products which sell forever tend to be slightly lower sellers, but are more consistent. Hot licenses drive strong sales, but usually either die off or level off at a lower level of sales. This kind of bright burning star product can leave toy companies with stock problems if a sudden fade occurs. The critical factor here is to select the right type of licenses for the right type of company. If you are a small and nimble company, you may be able to get in and out quick enough to take advantage of bright burning licenses, and may be able to make sufficient sales in only one or two selling cycles. For larger or slower companies, this ‘in and out’ approach may not work for you. The trick is to pick the right type of license for your company…most often when I have seen a disastrous licensing initiative for a toy company it went wrong because either the license failed and they bet the house on it or else it was fundamentally the wrong type of license for them.
So the reality is that licensing can be lucrative and can make selling in to retailers easier. However, it does come with risks and steps should be taken to ensure you have a strategy that works towards long term success.