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2022: A Year of Recovery and Radical Change in the Licensing Industry

A Licensing Letter Special Report For Members Only

By Gary Symons

TLL Editor in Chief

The modern licensing industry has never been through a period like the years of the COVID-19 pandemic, which makes it difficult to predict how the industry will perform as lockdowns lift and life returns to what we considered normal prior to 2020.

After all, most experts in the field consider modern licensing to have begun in 1932, when Kay Kamen joined the Walt Disney Company, and promised to sell a Disney product into every home in the United States. That was long after the only other major pandemic in recent times, the Spanish Influenza outbreak that killed millions of people globally at the end of the First World War.

But in December, economists predicted 2022 will see a full recovery in the US and most other industrialized nations as vaccinations rates increase and pandemic restrictions ease. After two years of COVID-19, it’s hard to believe the world could be mere months away from a return to normalcy, but barring another global crisis, it does appear the world is on track for a strong economic resurgence.

On Dec. 8, for example, the US investment bank JP Morgan predicted in a note to investors that 2022 will see the end of the coronavirus pandemic, and the world will see a full economic recovery, including gains in employment and in the stock markets around the globe. JP Morgan’s Chief Global Markets Strategist & Co-Head of Global Research, Marko Kolanovic, said the bank expects the S&P 500 (.SPX) to rise nearly 8% to 5050 points, emerging market stocks to surge 18% and 10-year U.S. Treasury yields—key driver of global borrowing costs—to rise to 2.25% by the end of 2022.

“Our view is that 2022 will be the year of a full global recovery, an end of the pandemic, and a return to normal economic and market conditions we had prior to the COVID-19 outbreak,” Kolanovic said.

And it’s not just JP Morgan that holds this sunny outlook. The International Monetary Fund (IMF), The Conference Board, and the OECD (Organization for Economic Co-operation and Development) all agree that the global economy will boomerang into a full recovery by the end of 2022, and will continue showing strong growth in the ensuing years.

In this Special Report, The Licensing Letter will explore what that economic rebound looks like globally, how it will play out regionally, and how the recovery will affect different segments of the brand licensing industry.

Additionally, we’ll look at the top growth opportunities for licensing over the next three to five years, as well as the greatest potential threats to continued growth.

THE GLOBAL RECOVERY

Despite the current threat posed by the Omicron variant of the COVID-19 virus, as well as ongoing supply chain disruptions, economists are almost universally bullish about the world economy in 2022.

The IMF, for example, says global GDP will grow 5.9% in 2021, and another 4.9% in 2022, largely reversing the -3.1% decline in global GDP caused when the COVID-19 pandemic caused most countries to implement restrictions on travel and any kind of indoor group activity, such as attending theatres, concerts, sporting events, and restaurants.

That impact was felt the most in what the IMF calls Advanced Economies like the US and Western Europe, where GDP plunged by an almost unprecedented 4.5%. However, by the end of this year the GDP for those countries is expected to ring in at an increase of 5.2%, and another 4.5% by the end of next year.

The Conference Board largely agrees with those estimates, saying, “Global GDP returned to its pre-pandemic level by Q1 2021. After growing by 5.1% in 2021, the global economy will expand by 3.9% in 2022.”

The OECD paints a similar picture, saying it expects a rebound of 5.6% in 2021, a still strong increase in GDP of 4.5% in 2022, and a more moderate growth rate of 3.2% in 2023.

As well, all three organizations expect to see unemployment levels dropping to pre-pandemic levels in many countries, and particularly those with high uptake of the COVID-19 vaccination programs.

However, all three organizations say there are risks to the recovery, and also argue the recovery could have been even stronger had it not been for a failure in some countries to achieve high vaccination rates. “The global recovery continues but the momentum has weakened, hobbled by the pandemic,” the IMF report states. “Fueled by the highly transmissible Delta variant, the recorded global COVID-19 death toll has risen close to 5 million and health risks abound, holding back a full return to normalcy.

“Pandemic outbreaks in critical links of global supply chains have resulted in longer-than-expected supply disruptions, further feeding inflation in many countries. Overall, risks to economic prospects have increased, and policy trade-offs have become more complex.”

For all those reasons, the IMF marginally downgraded their GDP numbers for 2021 by 0.1%, although their forecast for 2022 remains unchanged, at least for now.

But the IMF says that relatively small downgrade “masks large downgrades for some countries.”

“The dangerous divergence in economic prospects across countries remains a major concern,” the report adds. “Aggregate output for the advanced economy group is expected to regain its pre-pandemic trend path in 2022 and exceed it by 0.9 percent in 2024.

“By contrast, aggregate output for the emerging market and developing economy group (excluding China) is expected to remain 5.5 percent below the pre-pandemic forecast in 2024, resulting in a larger setback to improvements in their living standards.”

For licensing companies trying to predict where deals will provide the most bang for the buck, it’s also important to know where the recovery is strongest, and where it will be weakest. For that reason, TLL also looked at regional data from a wide range of sources.

THE REGIONAL ECONOMIC RECOVERY

Again, the world’s economic thinkers are largely in agreement on how the recovery will roll out on a regional basis, and what forces are affecting that growth. In addition to the impact of ongoing outbreaks of the Omicron variant, regional economies are also be affected by supply chain issues, resulting product shortages, and by an ongoing shortage of labor in certain markets. These issues have also combined to drive up inflation rates, so even as the world economy struggles to return to normal, that recovery is being somewhat hampered as central banks grapple with a balancing act between economic stimulus spending and inflationary pressures.

When one looks at the IMF charts for regional growth below, the picture generally looks pretty positive.

The areas with weaker growth also tended to have less shrinkage in their GDP during the first year of the pandemic. The Middle East and Central Asia saw a decline in GDP of -2.8%, as opposed to -3.4% in the US, but the region’s growth rate is smaller at 4.1% for 2021 and 2022. The difference is even more pronounced in the Sub-Saharan Africa region, which saw a relatively minor decline of 1.7% in 2020, but conversely is only expecting a boost to GDP of 3.7% and 3.8% over this year and next.

It’s also worth taking a much harder look at the market in Asia. Thanks largely to several Asian nations that did a very good job controlling the COVID-19 outbreak in 2020, that region saw only a 0.8% decline in overall GDP, but also is expected to see the highest growth in 2021 and 2022.

That is largely due to the influence of China, however, as some other countries in that region were hard hit by continued outbreaks, mainly driven by the Delta variant.

For example, while China experienced GDP growth in 2020 of 2.3%, its neighbor India saw its GDP fall by a precipitous -7.3% in the same year.

Both countries are again experiencing rapid growth, with India topping the entire region by posting an expected 9.5% GDP rise this year and 8.5% next year.

On the other side of the coin, the five nations of the ASEAN trading bloc (Indonesia, Malaysia, the Philippines, Singapore and Thailand) are suffering through another round of pandemic restrictions that has greatly hampered their growth. Collectively, the so-called ASEAN 5 are expected to post only 2.9% growth in 2021.

The IMF chart, “Latest World Economic Outlook Growth Projections” shows clearly some of these regional disparities, but not all are due to COVID-19. For example, Japan is forecasting lackluster growth for 2021-22, but the reasons have more to do with the country’s continuing populations decline due to its extremely low birthrate.

To sum up the expectations for world economies, most regions in the world, other than Sub-Saharan Africa, should experience vigorous growth over the coming years, and that recovery is likely to be very positive for licensing and consumer products in general.

In addition to the expected growth in GDP, the latest forecasts for household savings from the IMF show that most countries in the world, and particularly those in the G20, are experiencing much higher levels of household savings, which is also driving consumer confidence. Unable to spend on accustomed activities like travel, dining out, fitness classes, and other areas impacted by pandemic restrictions, families have much more money in the bank than they did prior to the outbreak.

In the US, household savings soared from 7.6% of disposable income to 12.5% in 2021, and neighboring Canada saw an even more dramatic increase, going from just 1.4% in 2019 to 11.9% this year.

The picture in Europe was very similar, with Eurozone savings climbing from 7.2% to 11.1%. For G20 countries in Asia, Japan saw its household saving climb from 2.7% to 7.1%, and Korea’s rate rose six points to 12.0% this year.

As a result, consumers around the world not only have a lot of pent-up expectations for getting back to normal; they also have the money on hand to pay for vacations, consumer goods, and all the other activities people took for granted prior to the declaration of the pandemic in March 2020.

Despite the impact of the Delta variant, consumer confidence advanced to another record high in the third quarter of 2021, according to The Conference Board Global Consumer Confidence Survey.

Overall, global consumer confidence climbed to 115 in Q3 2021, up from 109 in Q2. Any figure above 100 is considered positive, and a 115 rating is much higher than average even in pre-pandemic times.

It is worth noting that the recent increase was driven largely by one country, however. While confidence rose in 40 of 65 markets (62%) surveyed, that surge was led by a 57-point gain in India. If India were excluded, the Conference Board says the Global Consumer Confidence Index would have ticked down from 108 in Q2 to 106 in Q3.

That is still a positive number for consumer confidence, but while the news is generally good, anyone planning major product launches should consider that several of the major economies saw a decline in confidence between Q2 and Q3. Those include the US, China, Mexico, Australia, much of Eastern Europe, and several smaller Asian emerging markets.

“While consumer confidence remains historically high globally, regional weakness linked to the Delta variant casts a pall over prospects for spending and economic revival through the rest of 2021,” said Dana Peterson, Chief Economist of The Conference Board. “These setbacks notwithstanding, consumer spending intentions, job prospects, and personal finances remain elevated and signal continued recovery through 2022, where we project global GDP to grow by 3.9%—a full percentage point higher than the average in the wake of the Great Recession (2011-2019).”

To sum up, pretty much all of the indicators for economic growth are looking positive for 2022 and beyond, and it is very likely the licensing industry in general will see a major rebound, particularly in those areas of licensing that were most impacted by the pandemic.

That said, the recovery does face several threats that could derail these projections. For example, the most recent figures from the Consumer Confidence Survey were gathered prior to Nov. 19, 2021, before news of the Omicron variant became widely known.

While The Licensing Letter is still forecasting a strong recovery in 2022, there are four major threats to the economy that could change the outcome.

Omicron Leads Economic Threats In 2022

Those threats are led, of course, by the impact of COVID-19 variants, including but not limited to the Omicron variant. At the time of writing, nations throughout the world were beginning to announce new pandemic restrictions on travel, large gatherings, and the number of people allowed in restaurants, bars, and other public places. Many governments are also launching a wave of vaccination booster shots.

Studies to date indicate Omicron is roughly three times more transmissible than early variants, but there is also some inconclusive evidence the variant may be less deadly than the Delta variant it is rapidly replacing.

The most positive outcome would be a variant that spreads rapidly but results in relatively few deaths or hospital stays, but many nations are bracing for the worst. Health ministers from the G7 nations described Omicron as “the biggest current threat to global public health,” and warned that widespread infections could overwhelm hospitals. US President Joe Biden said those people who are vaccinated and who ideally have had booster shots will not likely be too badly affected, but he also predicted a “winter of severe illness and death” for unvaccinated Americans.

Incredibly, in four countries Omicron has already caused more daily COVID-19 infections than at any point in the pandemic, including in Denmark, Norway, South Africa and the United Kingdom. In fact, the daily infection count in Denmark hit 1,320 people on Dec. 16, more than double the highest previous rate in late 2020.

Omicron is now present in most countries, and infections are doubling in just over two days. The key question facing the economy is whether those infections will cause enough severe illness to overwhelm hospitals, or whether most of the cases will be mild. It’s simply too early to say, but it is very possible that the economic recovery could be pushed back if the Omicron variant is more virulent than currently believed.

The other major threats to the recovery are the potential for a major trade war between China and the West; the impact of natural disasters fueled by climate change; and the ongoing supply chain disruptions.

A Cold War with The World’s Largest Exporter

While current economic indicators are looking positive, a major trade war between China and the West could seriously dampen expectations, and the likelihood of that happening appears to be increasing.

China and the United States have been at odds since near the beginning of the Trump presidency, and the enmity between the two countries is continuing under the Biden administration.

Biden met with his counterpart President Xi Jinping on Nov. 16 to discuss key areas of dispute, including Taiwan, Hong Kong, free passage in the South China Sea, and human rights violations in the Chinese region of Xinjiang, but no agreements were reached.

Since then, the US has announced a diplomatic boycott of the 2022 Winter Olympics, sanctioned a number of Chinese companies and individuals, and the Senate passed the Uighur Forced Labor Prevention Act, which would ban imports from Xinjiang unless the importer can prove they were not made with forced labor.

As well, the Biden administration is reportedly considering banning the sale of US technology to Chinese chipmaker SMIC and may discuss with allies further restricting the sale of chip-making equipment to China.

In response, China responded through Foreign Ministry spokesperson Zhao Lijian that it will take action against the US and any of its allies that impose similar sanctions. “This is political manipulation and economic bullying under the banner of human rights. It will only further damage the credibility and image of the US government and Congress in China,” Zhao said. “China’s determination to defend its national security and development interests is unwavering. If the US insists on advancing the relevant bill, China will definitely respond.”

The rising tensions have raised the possibility of a full-blown trade war between the two countries, which could dramatically impact the production of goods for Western economies.

An even worse possibility is the outbreak of an actual shooting war between China and Taiwan, which China continues to claim as its own. China has stepped up its threats against Taiwan and appears to be testing the West’s resolve to defend the small island nation.

A war involving Taiwan could potentially see Western nations forced to move their production out of China, and would just as likely see most exports to China halted for the foreseeable future.

However, most analysts believe China is years away from an invasion of Taiwan, if it happens at all.

The Fragility of Supply Chains and Infrastructure

While the pandemic had the greatest impact on the world economy over the past two years, 2021 also exposed the surprising fragility of our global supply network. And while it’s true that many of the issues with global logistics happened due to the pandemic, it’s also true other factors affected global shipping. One example is the ongoing issue in the Port of Vancouver, the third largest port in North America, which was hamstrung after storms fueled by global warming destroyed every highway and rail line connecting it to the rest of Canada.

While the country miraculously managed to reopen those highways to some traffic in just one month, shipping traffic is still seriously backlogged.

Unfortunately, Vancouver is not the only port facing long delays. According to the shipping company Maersk, similar bottlenecks are clogging ports on the US West Coast, in China, and in Europe, and these are being made worse by the onset of the Omicron variant.

In mid-December, for example, the world’s largest cargo port in Ningbo-Zhoushan was hit by another major COVID outbreak, with tens of thousands of workers now quarantined.

According to Maersk, things will get worse before they get better.

“With winter, year-end holidays in North America and Europe, Chinese New Year in Asia, the already stretched supply chain will get even further stretched as workers, truckers and terminals are off for holidays,” a Maersk spokesperson said.

“Normally we can absorb these seasonal impacts fairly quickly, but when already stretched, it just becomes a multiplier. We do not see major improvements as long as we have line of sight, which is into 2022. (It is) very likely that it continues thereafter and for North America even longer.”

Case in point, at the time of writing, the Port of Los Angeles was so clogged with containers that 80% of the 434,000 containers leaving that port went out empty. In Felixstowe, the largest container port in the UK, the docks are jam-packed with containers to the point they had to be shipped empty to other British ports.

All of this has pushed container shipping prices 170% higher than a year ago, and shortages caused by shipping delays is impacting countries around the world. Coffee and oats, for example, have doubled in wholesale price, while lumber, wheat, cotton and palm oil all soared by more than 30%.

Climate Change Now Impacting Global Trade

The specter of global warming hangs over the world economy like a vengeful ghost, but in itself, climate change is unlikely to have a major impact on the consumer product and licensing industry in the short term.

To be sure, there will be dislocations caused by climate change in 2022, just as there were in 2021. As mentioned above, the Port of Vancouver was shut down by a global warming-related weather disaster, and in fact, the entire province of British Columbia was hit by three major climate change events, including massive flooding, the widely publicized heat dome that killed 800 people in Canada, and the runaway wildfires that destroyed three communities.

The prospect of more damaging hurricanes, tornadoes, wildfires, droughts and floods are terrifying to be sure, but the true economic impacts of climate change are longer term, and would not be expected to dramatically affect the current recovery.

However, it is worth looking at some of those threats, which many scientists say will hit the planet by 2030 unless greenhouse gas emissions are dramatically reduced.

Likely the most important of these is impacts to the so-called ‘breadbaskets’ of the world, those regions where humanity produces most of its food. These include the Central Valley in California; the prairies stretching across the US Midwest and the Prairie Provinces of Canada; the 10 countries that form Southeast Asia plus southern China; the agricultural areas of Brazil; and the area of Russia known as Chemozemie, aka the Central Black Earth Region.

Together, these regions produce the vast majority of the planet’s foods, and particularly its grains.

Right now, however, the Central Valley is going through a multi-year mega drought that is massively lowering productivity. Some scientists believe the region could run out of sufficient water to grow crops. As well, large swaths of the Canadian Prairies and the US Midwest are going through one of the worst droughts in history, and agricultural experts say Canada’s grain output could drop by 30% this year.

Unfortunately, most of the world’s breadbaskets are expected to be adversely impacted by climate change in a variety of ways. In Southeast Asia, for example, the threat is rising oceans causing flooding or the contamination of ground water. In North America, the prairies will be impacted by the melting of glaciers, causing more frequent droughts.

All of that said, the truly serious impacts of global warming are at least a decade away, and also may not be that serious if the world successfully reduces greenhouse gas emissions. Skeptics point out that efforts to corral global warming will be very expensive, but within those costs there are also economic opportunities. The infrastructure being built to slow and eventually reverse climate change, for example, already employ millions of people around the world, and many economists predict investment in climate change abatement will help strengthen the world economy for decades to come.

Whether that’s true or not, TLL does not expect climate change to have a major impact on the world economy for several years.

Currently, it is the threat of the Omicron variant that is most likely to thwart a full economic recovery, but that threat will almost certainly be dampened by increased rates of vaccination and improved treatment for COVID-19.

Despite the very real threats to the world economy, TLL believes most countries will see a full economic recovery in 2022, and that the recovery will be sustained through 2024 at the least.

The Greatest Opportunities for Licensing In 2022 And Beyond

While the COVID-19 pandemic has been a struggle for the licensing industry, it is often true that threats to society at large will often result in rapid change and new opportunities. For example, both the First and Second World Wars resulted in extremely rapid development of new technologies, and were followed by periods of prosperity in many parts of the world.

In this case, the adaptations made by society and industry to deal with the pandemic have changed the way we work, the products we make, and the ways we enjoy ourselves.

They have also accelerated already existing trends in ways that will have a profound impact on the entire licensing industry. While many sectors were affected by the pandemic in different ways, it is the area of entertainment and media that TLL believes has seen the greatest shift, and reflects the greatest opportunity during the recovery.

Among the reports and studies we’ve reviewed, the annual Global Entertainment & Media Outlook for 2021-2025 by PWC (GEMO) most clearly outlines that opportunity. (You can read the entire report at THIS LINK).

“In 2020, the pandemic triggered the sharpest contraction in overall E&M revenues in the history of this research,” the GEMO report states. “It accelerated changes in consumer behavior to pull forward digital disruption and industry tipping points by several years. In 2021, those tipping points morphed and coalesced into power shifts that are rapidly reshaping the industry.

“Whether it’s box-office revenues shifting to streaming platforms, creators of user-generated content tapping into vast new audiences, regulators taking on Big Tech, or studios losing ground to star individual producers who ink massive deals with streaming platforms, the internal dynamics of the industry continue to shift.

And yet the volatility masks a certain stability. However asymmetric the pandemic’s impacts on the segments, the forecast for revenues at an industry level remains robust. The pandemic-induced contraction of 2020 is giving way to a strong rebound this year and a return to continued growth above global GDP over the coming five years. The central role that the ever-expanding array of media experiences plays in consumers’ lives is set not just to endure but to strengthen over time.”

Within the Entertainment and Media space it’s apparent that some sectors will grow faster than  others, and this foreknowledge will shape where licensing companies invest their time, money and energy. On this, both PWC and TLL agree that there is one opportunity that stands clearly above the rest in terms of growth and future opportunity, and that is the rapid growth of the metaverse, involving both augmented reality (AR) and virtual reality (VR).

The other areas we see for rapid growth include:

  1. The recovery of cinema box office;
  2. The continued growth of music licensing, due to synchronous licenses;
  3. Video gaming and esports;
  4. Streaming video;
  5. Social media influencers, including virtual influencers.

It’s worth noting that over the past year, the main topics covered by The Licensing Letter’s monthly Special Reports included the growth of social media and virtual influencers; two separate Special Reports on the metaverse, and another on the associated topic of NFTs; one on the evolution of music licensing; a report on the changes to video streaming in 2020-2021; and an in depth look at the decline in movie box office returns during the pandemic.

These themes are returning for a reason. They are the areas most affected by the societal changes brought about or accelerated by the pandemic, and also the sectors that are either set for a rebound or for continuing rapid growth.

Projections For the Future of the Metaverse

Gaming platform Roblox has become a leader both in development of the metaverse, and in licensing metaverse opportunities.

In 2020, as the pandemic took hold around the world, the revenues from VR headsets rose by 31.7% according to PWC, hitting revenues of $1.8 billion. Admittedly, this is a relatively small number, but revenues from VR technologies are expected to increase more rapidly than any other segment in the Entertainment and Media industry. From 2020 through 2025, PWC projects a compounded annual growth rate of 30.3%, increasing revenues from VR headsets to $6.9 billion by 2025.

But those figures only tell a part of the story. VR headsets like the ones produced by the Meta-owned company Oculus, are an underlying technology that allows the metaverse to operate.

The other development driving adoption was the NFT fad that began several years ago, but really began to trend with the general public in early 2021. NFTs and the cryptocurrencies that support them have become a major target for licensing deals this year, and we expect that will only grow in 2022.

When Facebook changed its name to Meta, and announced it would spend $10 billion to build its version of the metaverse, investment in the space exploded. As well, Meta is only one of several tech giants developing the metaverse, with the other big players including Apple, Microsoft (through Minecraft), Roblox, Epic Games, Unity, Nvidia, and Riot Games, among others.

The promise for licensing is vast, as the metaverse is creating a new world where people can literally enter a 3D version of the internet, and mingle with branded characters from books, movies, video games, and more. The current value of the internet to the global economy is about $15 trillion, and many experts believe the value of the metaverse will easily top that astronomical figure.

Over the next five years, the single most important focus for licensing will almost certainly be the metaverse, which will essentially subsume licensing from other sectors, from toys to publishing to movies to video games and books. A simpler way to look at metaverse licensing is this: If you can license something in the real world, you can license it in the metaverse.

The Recovery of Movie Box Office

Those who wrote off movie theaters probably spoke too soon, and the proof was seen this month when Spider-Man: No Way Home blew up all expectations. The latest Marvel epic’s opening weekend not only outpaced all other films released during the pandemic; it also notched the third highest North American weekend in history, beaten only by Avengers: Infinity Wars and Avengers: End Game.

It’s not just great news for rights holder Disney, but for the entire licensing industry, as time has shown major theatrical releases create a profitable halo effect around consumer products based on that brand.

This year we expect box office will still fall below pre-pandemic numbers, but will grow by 25 to 35% in 2022, with continued strong growth in 2023, fueled by a significant backlog of major blockbusters.

The Rebirth of Music Licensing

Legendary rocker Bruce Springsteen set the record for most valuable music catalog sale at more than $500 million in December, 2021.

The music industry has undergone a wholesale transformation since 2016, and that transformation resulted in an explosion of investment by music publishers who are investing billions in the purchase of music catalogs by well established artists.

The reasons for this transformation are complex, but to sum it up, there are two main reasons for the exponential growth in the value of music catalogs.

The first has much to do with the legions of older listeners who are converting to music streaming services. While music from older artists is not hitting the Top 40, people in their 40s through 60s typically have more disposable income, and they are spending much more on music streaming. As well, music publishers don’t have to invest heavily in Artist & Repertoire development for these well-established musicians, so the profit margin is much higher.

The math tells the story. For example, Universal Music Group reported that 57% of their digital music revenues came from older catalog music, and the profit margin was much higher. In the same year, UMG earned $8 billion in revenue, but spent $4.6 billion in A&R costs, almost all of that on newer artists. In short, the majority of revenue came from older music, but most of the costs were borne by new artists.

The second reason, which is much more important to licensing companies, is the way synchronous licenses are being used. Largely due to the rise of TikTok, music companies have been signing massive deals with social media networks that allow everyday users to add licensed music to their short videos.

This has not only promoted the music in question, but also has opened up an entirely new revenue stream for the music publishers, and also increased the value for music catalogs.

Just this month, in fact, Bruce Springsteen set a new record (see related story in this issue) as he sold his catalog for a stunning $500 million to Sony Music.

Video Gaming and eSports

The video gaming industry has been a rapid growth area for decades, so not much is new there.

What is new, however, is how the gaming industry is earning its revenues. In the past, developers primarily earned money by selling their games. These days, most major games are ‘free to play’ (f2p), and rely on the sale of in-game digital goods for most or all of their revenue. This has turned out to be a much more lucrative way to make money while at the same time increasing the potential fan base.

It’s also worth noting that video gaming is increasingly bleeding into other licensing sectors. Story telling within gaming has improved over time, and that naturally has led to video game characters being seen in films, TV series, books and comics. In fact, the very act of watching other people play video games has become a major generator of revenue through YouTube and Twitch.

As the metaverse continues to take shape, video gaming and eSports are expected to grow in importance, supplying many of the key brands and characters consumers will interact with in this 3D version of the internet.

Streaming Video

Despite the recovery of movie box office, the pandemic gave new streaming services a serious leg up in creating market share. Streaming is now embedded as the single most popular way to consume content, and that is only going to increase over the next five years.

That also means streaming video will become more important for licensing, and in ways that may not seem obvious.

The deal between LEGO and Amazon for streaming and retail rights to Monkie Kids is rewriting the way licensing deals are done.

Trends we are seeing include:

  1. Toy companies have transformed into entertainment studios, as streaming provides a simple and effective way to get their content in front of millions of viewers. The show is now the advertisement.
  2. Retail giants are now getting into streaming as a way to convert viewers into buyers. Amazon is leading the way, as it created an exclusive deal with LEGO for its hit show Monkie Kid. Under that agreement, Amazon’s Prime Video gets exclusive streaming rights, but the Amazon ecommerce site also got exclusive rights to sell the LEGO Monkie Kid building sets. Amazon followed that up by buying the rights to the kid’s show Do, Re & Mi, but that deal also means Amazon has the exclusive right to sell products based on the show’s IP. That means the retailer essentially has closed the circle on licensing: It owns the show, holds exclusivity on streaming, and also gets the exclusive on selling products based on the show.
  3. Following on Amazon’s bold moves in streaming licenses, Netflix hit back by opening its own ecommerce site and creating a large and growing licensing division. Then, in October, Netflix signed a deal with Walmart that creates a dedicated site to sell products based on Netflix shows.

The overall trend we are seeing, therefore, is that big players with their own consumer products organization are creating closed loops for the licensing and sale of IP. Disney+ is already there, bolstered by the parent company’s already robust CP division, but expect to see all the major streaming competitors following suit.

Social Media Influencers

Dwayne ‘The Rock’ Johnson surpassed Cristiano Ronaldo this year to become the highest value social media influencer on Instagram.

According to subject matter experts at Influencer Marketing Hub, influencer marketing has been and will remain one of the fastest growing areas for licensing. Over the past five years, revenue from influencer marketing has ballooned from $1.7 billion in 2016 to an estimated $13.8 billion in 2021.

That’s only expected to grow, as a survey by IMH found that 59% of brands have a dedicated budget for content marketing, and 75% intend to dedicate a budget for influencer marketing in 2021. The growth has spawned an entirely new segment for the licensing industry, as the number of influencer agencies or platforms grew to 1,360 by 2019.

Those social media influencers are expected to be even more … uh … influential in future years, as the metaverse grows in size and importance.

As well, the metaverse is expected to also grow the importance of virtual influencers, many of whom may be based on video game characters who now, through artificially intelligent chat bot features, will be able to interact directly with people in the metaverse.

While real life influencers still earn far more revenue, that intersection between video gaming and the metaverse will drive far more adoption of virtual influencers over the next five years.

Summary

Our look at the year ahead in 2022 has been heavily influenced by the wide-ranging impacts of the COVID-19 pandemic, but in general, TLL believes the coming year will see a broad recovery for areas of the economy that impact upon the licensing industry. As mentioned throughout this report, there are potential threats that could derail or at least slow down the overall economic recovery, but due to the wide availability of effective vaccines it now appears far more likely that GDP will increase by at least 3% globally this coming year, and will more likely increase by between 5.5% to 6%.

Just as importantly, sectors that were particularly hard hit, such as professional sports, concerts, and movie box office will be leading the recovery, despite some Omicron-related hiccups along the way.

But when economists and historians look back on 2021 from a licensing perspective many years from now, the most important story of this year will not be the effects of COVID-19, but the birth of the metaverse as an entirely new world for licensing of all types. And that, we would argue, is plenty of reason for licensing professionals to celebrate a Happy New Year.

McKinsey Report Studies Changing Face of China’s Retail Market

The Metaverse Is Growing Faster Than Expected: Is Your Company Ready?

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