PROMOTIONS & INCENTIVES LICENSING PORTFOLIO 2003: Licensing - An overview

It's a lucrative business, as Andrew Levy reports in his round-up of the state of the licensing nation.

Licensing is one of the most dynamic elements of the marketing mix. It is a huge revenue generator for those directly involved in it and for those that supply an ancillary service.

The strength of the industry is reflected in the fact that its trade body, LIMA, has more than 1,000 members in 28 countries.

The concept of licensing has been around for decades. Early examples of licensed properties originated in the United States and include the Buster Brown comic strip character, which was licensed for various products in 1904; President Teddy Roosevelt permitting his name to be associated with the teddy bear in 1913, in exchange for a royalty used to support his efforts to establish a network of National Parks; and the licensing programme around the Mickey Mouse character at the Walt Disney Company in 1932.

Today, global product licensing generates approximately $178billion (£110billion) at retail (2002 research from LIMA's 2003 Licensing Industry Survey). The United States generates approximately $5.83billion (£3.6billion) in royalty payments, which equates to approximately $110.8billion (£68.2billion) at retail. In the UK, £371million in royalty payments was generated in 2002, which is approximately £7.04billion at retail.

Entertainment and character licensing is still the largest segment, accounting for about £162million in royalty revenues, or £3.08billion at retail.

The major product categories within entertainment/character licensing are apparel, and toys and games, which together accounts for about 39 per cent of revenues, or £2.75billion at retail.

The second-largest segment of the UK licensing industry is fashion, which accounts for about 25 per cent of total business, or approximately £1.76billion at retail. The leading categories here are apparel and health and beauty, which account for about £564million and £423million at retail respectively.

Trademarks and brands come next, with about 12.5per cent, or £517million at retail. This is the fastest-growing sector in the industry.

Though most companies do not release data on their licensing programmes, either in total or property by property, the industry generally acknowledges the top three largest licensors to be the Walt Disney Company, Warner Bros and Nickelodeon.

Walt Disney comes in at number one, generating an estimated $13billion ($8billion) in licensing revenues at retail. Its major properties today are Winnie the Pooh, Mickey Mouse, Disney Princess, Toy Story, Lilo & Stitch, Power Rangers and Monsters, Inc. In 2002, Pooh alone generated an estimated $7billion (£4.3billion).

Next is Warner Bros Consumer Products, generating about $6billion (£4.7billion) with major properties Harry Potter, Scooby-Doo, The Powerpuff Girls and Looney Tunes.

In third place in the entertainment category is Nickelodeon at about $2.4billion (£1.5billion) in licensing revenues. Its recent business has been driven by SpongeBob SquarePants, Jimmy Neutron, Blue's Clues and Dora the Explorer.

On the corporate brand side, General Motors is considered by many to be the highest-volume licensor at $2billion (£1.2billion) annually in retail sales of licensed merchandise. Daimler Chrysler is estimated to have generated $1.5billion (£0.9billion), Ford $1.1billion (£0.7billion) and Coca-Cola $1billion (£0.6billion). We can't ignore the power of Mattel's Barbie brand either.

Retail consolidations and the increase in the number of properties being licensed over the past few years have made obtaining shelf space more competitive than ever. There is greater dominance by the larger licensors, and the smaller ones fill niche-licensing roles. Retailers have also seen the value of developing their own brands, so as well as stocking licensed products they are also competitors to licensors' brands.

The market overall is in growth, with the UK posting a steady increase of 2.2 per cent over 2001. Corporations have discovered that their brands have a licensing potential outside their current activities. The key is to gain retail space and develop strong retail relationships.

Companies involved in promotional activity need to be aware of the trends and be adaptable in a fast-changing market. The power of TV shows that suddenly gaining huge ratings overnight is a good demonstration of how fast they need to act. Understanding the release schedules of all the major film studios is also key, as is a grasp of the classic characters, because their core equities can be used effectively in different types of promotion across market sectors.

With all this going on, the opportunity for promoters to capitalise on the increasing sophistication within the licensing industry is huge. Physical product is now harder to list in retail, so licensors are beginning to concentrate their efforts further on promotional routes. Traditional markets such as cereals, drinks, snacks and fast-food retail outlets are well developed, and there are great opportunities in accounting, banking, insurance, city councils, the car industry and so on. Essentially, opportunity knocks in any high-profile, high-volume industry.

- £110bn: Global product licensing at retail, according to LIMA research for 2002

- $13bn: Licensing revenues generated by the Walt Disney Company last year

- 39%: Share of revenues for apparel and toys and games in the UK market

- $2bn: Annual retail sales for the world's highest-volume licensor, General Motors.

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