Royalties on licensed goods in the U.S. and Canada in 2015 started a second decade of long-term stability, once again showing little or no movement. The average royalty in 2015 was 8.73% compared to 8.68% in 2014, a change of just 0.6%. Since 2005, the average royalty rate across property types and product categories has been in the 8.6% to 8.8% range.
More than half (59%) of respondents to TLL’s Annual Licensing Business Survey report that royalties were flat in 2015, an increase over the 56% who judged royalties to be flat in 2014. Among those who saw a fluctuation in average royalty rates, however, more than three quarters (77%) said royalties increased and just 23% reported a decrease.
In addition to that subtle upward movement in payments, some survey respondents also told of an increase in marketing requirements for those who have them. A smaller percentage of survey participants (32%, compared to 42% in 2014) report that they are required to commit a percentage of annual wholesale or net sales to their own advertising or marketing of the license (or require such a contribution). But among those who are obligated to an advertising outlay, a significantly larger portion (31%) were required to spend greater than 5% of sales than last year, when just 15% were committed to ad spending at that level.
In another change for 2015, there was an increase in the percentage of new contract lengths longer than two years.
Entertainment Royalties Jump Again
Changes to average royalties were slight – less than 1%–across most property types and product categories. Entertainment/character, for the third consecutive year, was the property type with the highest rise in average royalties, increasing to 9.84% in 2014 from 9.70%. The percentage gain, at 1.4% was only about half of 2014’s 2.9% increase. Many of the respondents reporting increases in royalties identified entertainment as the property type with the most fluctuation (in an upwards direction), but there were fewer mentions of specific platinum properties, when compared to a year earlier. Disney, which commands unequaled property type market share of about 50% since it added Marvel and Star Wars to its existing Disney brands through acquisitions over the past five years, has fueled much of the sales growth in the entertainment property type but also much of the increase in royalties and other payments in recnet years. Licensees have generally absorbed those gains over the last two to three years, a licensee respondent related, noting that the industry has already gone through the “sticker shock.”
“Royalties are generally flat, but anything specific to a movie is going to have an uptick,” this licensee says.
Royalties Trends of Other Property Types
Sports and videogames were the other property types respondents cited for increases in average royalty rates in 2015, though the increases were very small—0.2% and 0.1%, respectively. At 10.02%, sports is the property type with the second highest average royalty, trailing only celebrities, which fell slightly to 10.25%, but remained securely atop average rates. Within the celebrity property type, average royalties in the entertainers/models subset grew a bit, but the overall rate may have brought down by increased activity in the digital celebrities/other category (which is not broken out in this report), where emerging properties have not yet established licensing track records.
Overall, eight of the 13 major property types saw slight dips (all less than 1.0%) in their average royalty rates: art, celebrities, estates, fashion, music, non-profit, publishing and trademarks/brands. Three were up (entertainment, sports and videogames) and two were flat (collegiate and toys).
Property Type | Average Royalty 2015 | Average Royalty 2014 | % Change 2014-2015 | Range of Royalties, 2015 |
---|---|---|---|---|
Art | 6.20% | 6.25% | -0.8% | 4%-12% |
Art and Artists | 6.25% | 6.35% | -1.6% | 4%-12% |
Museums | 6.12% | 6.15% | -0.5% | 4%-15% |
Celebrities | 10.28% | 10.31% | -0.3% | 3%-18% |
Entertainers/Models | 10.48% | 10.44% | 0.4% | 4%-16% |
Chefs/Home-related | 9.74% | 9.74% | 0.0% | 2%-18% |
Collegiate | 10.00% | 10.00% | 0.0% | 5%-18% |
Entertainment/Character | 9.84% | 9.70% | 1.4% | 4%-20% |
Estates | 9.60% | 9.65% | -0.5% | 4%-18% |
Fashion | 8.46% | 8.50% | -0.5% | 2%-16% |
Apparel | 8.38% | 8.40% | -0.2% | 5%-16% |
Footwear | 7.13% | 7.13% | 0.0% | 2%-14% |
Home | 7.50% | 7.50% | 0.0% | 2%-14% |
Music | 8.22% | 8.28% | -0.7% | 4%-20% |
Non-profit | 8.28% | 8.30% | -0.2% | 4%-14% |
Publishing | 8.49% | 8.55% | -0.7% | 2%-18% |
Books | 7.92% | 7.94% | -0.3% | 6%-14% |
Newspapers/Magazines | 8.14% | 8.17% | -0.4% | 2%-12% |
Comic Books/Strips | 9.55% | 9.55% | 0.0% | 5%-18% |
Sports | 10.02% | 10.00% | 0.2% | 5%-18% |
Trademarks/Brands | 7.73% | 7.78% | -0.6% | 1%-16% |
Automotive/Motor Vehicle | 4.07% | 4.09% | -0.5% | 1%-16% |
Food/Beverage | 5.55% | 5.53% | 0.4% | 1%-10% |
Restaurants | 5.91% | 5.91% | 0.0% | 4%-8% |
Sporting Goods | 7.01% | 7.01% | 0.0% | 6%-14% |
Traditional Toys/Games | 8.16% | 8.16% | 0.0% | 5%-12% |
Videogames/Interactive/Online | 8.92% | 8.91% | 0.1% | 6%-15% |
OVERALL AVERAGE | 8.73% | 8.68% | 0.6% | 1%-20% |
Royalty Trends by Product Category
On the product side, more than one third of the 16 major product categories had average royalty rates that did not budge: apparel, consumer electronics, domestics, health and beauty, housewares and sporting goods. The largest fluctuations were in produced categories that saw their average royalties decline by 0.5% to 0.9%, including accessories, footwear, gifts/novelties, infant products, publishing and stationery/paper. The categories that gained all did so by less than 0.5%: food/beverages, furniture/home furnishings, toys and videogames.
Product Category | Average Royalty, 2015 | Average Royalty, 2014 | % Change 2014-2015 | Range of Royalties, 2014 |
---|---|---|---|---|
Accessories | 9.10% | 9.15% | -0.5% | 3%-18% |
Eyewear | 8.28% | 8.28% | 0.0% | 5%-16% |
Handbags, Backpacks, Messenger Bags | 8.92% | 9.00% | -0.9% | 5%-18% |
Headwear | 9.85% | 9.80% | 0.5% | 7%-14% |
Hosiery | 8.59% | 8.59% | 0.0% | 5%-14% |
Jewelry and Watches | 7.70% | 7.75% | -0.6% | 3%-18% |
Luggage and Travel Accessories | 10.10% | 10.15% | -0.5% | 5%-18% |
Scarves and Ties | 7.34% | 7.33% | 0.1% | 5%-14% |
Apparel | 9.50% | 9.50% | 0.0% | 5%-18% |
Consumer Electronics | 5.25% | 5.25% | 0.0% | 3%-10% |
Domestics | 8.85% | 8.85% | 0.0% | 4%-14% |
Food/Beverages | 5.97% | 5.95% | 0.3% | 1%-12% |
Footwear | 8.13% | 8.19% | -0.7% | 3%-16% |
Funiture/Home Furnishings | 7.52% | 7.51% | 0.1% | 3%-14% |
Gifts/Novelties | 8.63% | 8.70% | -0.8% | 4%-15% |
HBA | 8.99% | 8.99% | 0.0% | 5%-14% |
Fragrance | 9.29% | 9.29% | 0.0% | 5%-18% |
Cosmetics, Hair Accessories, Other | 8.43% | 8.43% | 0.0% | 6%-14% |
Housewares | 6.28% | 6.28% | 0.0% | 3%-14% |
Infant Products | 8.65% | 8.70% | -0.6% | 5%-14% |
Publishing | 9.67% | 9.73% | -0.6% | 5%-15% |
Sporting Goods | 9.81% | 9.81% | 0.0% | 4%-15% |
Stationery/Paper | 8.92% | 9.00% | -0.9% | 4%-12% |
Toys/Games | 10.44% | 10.40% | 0.4% | 5%-20% |
Videogames/Software | 10.48% | 10.45% | 0.3% | 1%-20% |
OVERALL AVERAGE | 8.73% | 8.68% | 0.6% | 1%-20% |
Guarantees, Advances Also Rise for Entertainment
In 2014, guarantees were just as flat as royalties, breaking with a previous pattern in which guarantees had been declining as royalties remained steady. The guarantee flatness continued in 2015, with more than one third of respondents (39%) reporting no change in average guarantees last year. The rest of the respondents were split, with slightly more (32%) reporting increases in dollar value of the average guarantee range and 29% reporting decreases in guarantees.
Following the theme of higher royalties in the entertainment sector, the increases came from largely from the entertainment/character property type, with some movement in areas including fashion, food/beverage and gaming. Overall, minimum guarantees generally remained flat in most categories, however.
“Guarantees rose on the character side, much to the detriment of the programs,” said one survey respondent. “Licensors seem more in the guarantee business than offering a reasonable guarantee, resulting in shortfalls particularly in the character area.”
The trend in advances mirrored guarantees, with 39% of survey respondents saying they were flat year-on-year, compared to 29% reporting increases in advances and 32% reporting decreases.
“Advances rose on the character entertainment side, including quarterly advances,” said one respondent. “Licensors are demanding more front loading of agreements over the term, thus squeezing manufacturers’ cash flow.”
In the art property type, however, one participant reported that guarantees and advances are being phased out completely, particularly in the U.S. “Regarding art licensing, advances and guarantees seem to be a thing of the past for most of us!,” this respondent wrote.
Fewer Marketing Requirements Imposed
The percentage of respondents saying that they pay into or require a contribution to a central marketing fund (CMF) continued to trend downward, falling from 45% in 2014 to 41% in 2015.
A smaller percentage of survey participants (32%) also report that they are required to commit a percentage of annual wholesale or net sales to their own advertising or marketing of the license (or require such a contribution).It should be noted that these figures are likely to be higher than is actually the case for the licensing business as a whole. This is, perhaps, because the respondents who answered the questions about marketing contributions were skewed toward property types where such requirements are more common, such as corporate trademarks, fashion, sports and entertainment/character.