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Average Royalty Rates in U.S. & Canada Steady for Decade; Entertainment Fees Climb, Guarantees & Advances Flat

Royalties on licensed retail goods in U.S. and Canada in 2014 represented the picture of longterm stability, capping a decade-long trend of little to no movement. The average royalty in 2014 was 8.68%, compared to 8.67% in 2013, a change of just 0.01%. 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 (56%) of respondents to TLL’s Annual Licensing Business Survey this year reported that royalties were flat in 2014 compared to 2013, with 29% saying that their average royalty increased (two-thirds of the time by 5% or less), and 15% saying they decreased (with most of the declines in the one- to threepoint range). A very discerning eye might see the subtlest hint of upward movement compared to 2013, when 62% of respondents said payments were flat and only 20% reported increases, most often of only one or two points.

However, one place where 2014 did diverge from recent trends was with regard to guarantees. Recent patterns have been for guarantees to decline as royalties remained steady. But in 2014, guarantees were just as flat as royalties, with almost half of respondents (48%) reporting no change in average guarantees. The rest of the respondents were evenly split, with about one quarter (23%) of all respondents reporting decreases in dollar value of the average guarantee range and another quarter (23%) reporting increases in guarantees.

Entertainment Royalties Make Biggest Jump

Changes to average royalties were slight across individual property types and product categories. Entertainment/character, for the second year in a row, was the property type with the highest rise in average royalties, increasing from 9.43% in 2013 to 9.70%. The percentage gain, at 2.9%, was more than twice 2013’s 1.2% increase. As they did in 2013, many of the respondents reporting increases attributed the rise in royalties to platinum properties, particularly those owned by Disney, which commands unequaled market share since it added Marvel and Star Wars to its existing Disney brands through acquisitions over the past five years.

“Definitely on the entertainment/character front–from Nickelodeon to Disney,” there have been royalty increases, one licensee says. “Any brand that is showing marked success will be able to leverage that on the royalty end.” “Disney brands all raised their royalty percentage,” comments another respondent.

Royalties Trends of Other Property Types

Sports is one of the other property type respondents cited for increases in average royalty rates in 2014, though the increase was just 0.2%. At 10.0% (up from 9.98% in 2013), sports is the property type with the second highest average royalty, trailing only celebrities, which remained flat at 10.31% in 2014.

Fashion, music & collegiate were also reported as having higher average royalty rates in 2014, albeit below 1% in each case. Fashion had the second largest increase of any property type, behind only entertainment, with a 0.5% percentage rise in average royalty from 8.46% in 2013 to 8.50% in 2014.

Publishing saw its average royalty rates fall the most, declining 1.5% to 8.55%, compared with 8.68% in 2013. It was the only property type with a decline above 1.0%. Declines in average royalty rates were also reported for three other property types in 2014:

  • Art declined from 6.30% to 6.25%;
  • Estate properties fell from 9.70% to 9.65%; and
  • Non-profit dropped from 8.34% to 8.30%

Almost one-third of the 13 major property types tracked by TLL saw no change at all in average royalties.

Average Royalty Rate and Range of Royalties,
by Property Type, 2013–2014
Property Type Average Royalty, 2014 Average Royalty, 2013 Percent change, 2013-2014 Range of Royalties, 2014
Art 6.25% 6.30% -0.8% 4%-12%
Art and Artists 6.35% 6.43% -1.2% 4%-12%
Museums 6.15% 6.18% -0.5% 4%-15%
Celebrities 10.31% 10.31% 0.0% 3%-18%
Entertainers/Models 10.44% 10.44% 0.0% 4%-16%
Chefs/Home-related 9.74% 9.74% 0.0% 2%-18%
Collegiate 10.00% 9.97% 0.3% 5%-18%
Entertainment/Character 9.70% 9.43% 2.9% 4%-18%
Estates 9.65% 9.70% -0.5% 4%-18%
Fashion 8.50% 8.46% 0.5% 2%-16%
Apparel 8.40% 8.37% 0.4% 5%-16%
Footwear 7.13% 7.13% 0.0% 2%-14%
Home 7.50% 7.46% 0.5% 2%-14%
Music 8.28% 8.26% 0.2% 4%-20%
Non-profit 8.30% 8.34% -0.5% 4%-14%
Publishing 8.55% 8.68% -1.5% 2%-18%
Books 7.94% 7.96% -0.3% 6%-14%
Newspapers/Magazines 8.17% 8.15% 0.2% 2%-12%
Comic Books/Strips 9.55% 9.60% -0.5% 5%-18%
Sports 10.00% 9.98% 0.2% 5%-18%
Trademarks/Brands 7.78% 7.78% 0.0% 1%-16%
Automotive/Motor Vehicle 4.09% 4.09% 0.0% 1%-16%
Food/Beverage 5.53% 5.53% 0.0% 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 8.91% 8.91% 0.0% 6%-15%
OVERALL AVERAGE 8.68% 8.67% 0.1% 1%-20%

On the product category side, for the second year in a row, apparel goods had the highest increase in average royalties in 2014, growing 0.6% from 9.44% to 9.50%. Next came video games and software, whose average royalty rose from 10.41% to 10.45%, a change of 0.4%.

Other product categories in which royalties rose were accessories, food/beverage and toys/games. The percentage change in each of these categories was about one-third of one percent. Gifts/novelties and stationery/paper were the only two product categories in which the average royalty dropped.

Average Royalty Rate and Range of Royalties,
by Product Category, 2013–2014
Product Category Average Royalty, 2014 Average Royalty, 2013 Percent Change 2013-2014 Range of Royalties, 2014
Accessories 9.15% 9.12% 0.3% 3%-18%
Eyewear 8.28% 8.23% 0.6% 5%-16%
Handbags, Backpacks, Messenger Bags 9.00% 8.90% 1.1% 5%-18%
Headwear 9.80% 9.76% 0.4% 7%-14%
Hosiery 8.59% 8.59% 0.0% 5%-14%
Jewelry and Watches 7.75% 7.73% 0.3% 3%-18%
Luggage and Travel Accessories 10.15% 10.15% 0.0% 5%-18%
Scarves and Ties 7.33% 7.33% 0.0% 5%-14%
Apparel 9.50% 9.44% 0.6% 5%-18%
Consumer Electronics 5.25% 5.25% 0.0% 3%-10%
Domestics 8.85% 8.85% 0.0% 4%-14%
Food/Beverages 5.95% 5.93% 0.3% 1%-12%
Footwear 8.19% 8.19% 0.0% 3%-16%
Funiture/Home Furnishings 7.51% 7.51% 0.0% 3%-14%
Gifts/Novelties 8.70% 8.76% -0.7% 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 8.70% 8.70% 0.0% 5%-14%
Publishing 9.73% 9.73% 0.0% 5%-15%
Sporting Goods 9.81% 9.81% 0.0% 4%-15%
Stationery/Paper 9.00% 9.09% -1.0% 4%-12%
Toys/Games 10.40% 10.37% 0.3% 5%-20%
Videogames/Software 10.45% 10.41% 0.4% 1%-20%
OVERALL AVERAGE 8.68% 8.67% 0.1% 1%-20%

Almost half of the 16 major product categories tracked by TLL saw no change in average royalties in 2014.

Royalties Mirror Larger Licensed Sales Trends

Across both property types and product classifications, the relative increases and decreases in average royalties reflect the performance of retail sales of licensed goods in respective sectors in 2014. As a rule, the sectors performing the best in sales had slight increases in average royalty rates; and the sectors with weaker retail sales had slight decreases in royalties.

For instance, the product category that had the most dramatic change in average royalties in 2014 was stationery/ paper, which dropped by 1.0%, from 9.09% to 9.00%. Sales of licensed stationery and paper goods also fell 3.5% in 2014; meanwhile, gifts/novelties royalties, which experienced a 5.0% decrease in retail sales in 2014, also had lower average royalties for the year.

Survey respondents identify the U.S. as the region in which royalty rates fluctuated (either up or down) the most. However, the survey shows that the range of royalties actually narrowed within some property types and product categories, with these bucking the trend toward wider ranges over the last several years.

Guarantees & Advances Also Flat

Minimum guarantees generally remained flat in most categories. But there was movement in certain property types. Entertainment/character was the property type that respondents identified as the most likely to have fluctuated during 2014.

As with royalties, the Disney factor appears behind the movement in entertainment/character guarantees. “Brands in the Disney universe are extremely hot right now and are getting higher MG’s because they can,” one licensee explains. “I think they are an anomaly and we are actually seeing a lot more ‘wiggle room’ with other brands.”

One licensing agent alluded to licensee push back against guarantees and the effect that has on agencies. “Licensees are increasingly balking at paying guarantees, especially for lesser known character properties,” this agent comments. “[This] makes things difficult for agents who rely on guarantees and advances for operating cash flow.”

The trend in advances mirrored guarantees, with 53% of survey respondents saying they were flat year-on-year, compared to 26% reporting increases in advances and 18% reporting decreases. Following the themes of higher royalties and guarantees in the entertainment sector driven by Disney, most reported increases in advances were in the entertainment/character property type.

Fewer Marketing Requirements Imposed

The percentage of respondents saying that they pay into or require a contribution to a central marketing fund (CMF) actually fell from 52% in 2013 to 45% in 2014.

Roughly the same percentage of survey participants (42%) 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.

Among respondents who report making a CMF contribution, about three-quarters say it was 2% or less, while one-quarter report an average above 2% of net sales. For annual marketing commitments, respondents report a range of 1% to 10% (of either net sales or wholesale), with the most commonly reported amounts (cited by 55% of respondents) being in the 2% to 5% range.

Other licensee marketing contributions cited by survey respondents—sometimes in combination with one or both of the above—include requirements to:

  • Participate in trade shows and consumer exhibitions;
  • Buy TV advertising; and/or
  • Market their products in licensor-controlled venues such as Web sites and comic books

While the U.S. fluctuated most in terms of royalties, the distinction for most in flux region in terms of guarantees went to Europe (40%).

“Europe is definitely pushing for higher guarantees than in the past. Part of that is because with so many countries, MG’s need to be allocated to each individual region or territory to make sense from a business perspective,” comments one licensee. Others, however, remark that guarantees were down in European countries.

Three Years Most Popular Contract Term

Survey participants say that contract lengths in 2014 were, on average, steady from 2013, with more than four-fifths (84%) of respondents saying so, versus 11% saying the average length increased and 5% saying it decreased. The largest percentage of respondents (41%) say their average contracts were three years, followed by 37% who say the average was two years; 17% report their average contracts signed in 2014 were five years or longer in length.


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