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Editorial

The Language of Licensing

By Karina Masolova

The language of licensing is slowly shifting to reflect new practices and perceptions. To this end, TLL surveyed our readers to gauge the extent of these changes—and while the implications for the business are not necessarily immediate or obvious, they run deep and true.

Walking the floor of Licensing Expo 2016, it was clear that there exists a strict divide between the “old guard,” of licensing and the contemporary “new wave.” To be clear: the tides of change are being led by those who have been in the industry when it was far more volatile than it is today. More than anyone else, they are in a position to recognize that the business has room to evolve. And they are interested in self-referential questions: over 90% of respondents to the survey have been involved in licensing for 10 years or more.

The majority of respondents identify as agents (36%) or consultants and service providers (36%) with licensors (18%) rounding out the top three. Over half (55%) are based in and do their primary business in the U.S. and Canada, with international respondents hailing primarily from Australia/New Zealand (18%) and Latin America (9%).

Note that the makeup of respondents is skewed for this survey, which asks questions about change in language over time. But our findings are not surprising: over the years, TLL sources have described this very same trend in our Annual Licensing Business Survey. A more accurate picture of who’s who; as of July 2016, 48% of listees in the Licensing Source Book are licensees, 28% licensors, 14% agents and 10% consultants. And in TLL’s 2016 Salary Survey, which has a broader scope, just half of respondents (54%) have been involved in the licensing business for 10 years or more.

In the Beginning

While the origin myth varies, most agree that the modern form of entertainment/character licensing took off from the first Star Wars film (1977). That program, led by toy licensee Kenner, helped to introduce licensing in the minds of business executives as a profitable business strategy.

TLL was founded in 1977 and LIMA in 1985 to serve an ad hoc community of individuals who pursue licensing as a career. And these professionals are not necessarily tied down to any one industry—their specific skill set allows them to easily move from film studios to magazine publishers to car manufacturers. Although there is no standard certification, dedicated courses at colleges and universities as well as informal training programs began appearing with the maturation of licensing in the 2000’s. In the shadow of the great recession, the 2010’s have been the most dynamic decade yet—licensing efforts have become more strategic as companies are pressured by economic factors.

For all the millions in revenue licensing provides in royalties and marketing value, it is a remarkably silent industry. That is changing in recent years as licensing enters the public and corporate lexicon, in no small part thanks to headline snatching programs such as Angry Birds and Star Wars. There is no question that more companies are recognizing the value of licensing, but, as one consultant notes, “it still feels isolated from the rest of marketing.” Another adds that although companies are comfortable with spending money on advertising and sponsorships, “many brands are too fixated on royalty revenue as opposed to the tremendous [marketing] value,” licensing provides. In introducing new players to the licensing model, practitioners often face the added hurdle of education. While it is growing, the “lack of  sophistication in the licensing industry as a whole,” as one agent puts it, means that a select number of A-list properties dominate an increasingly competitive retail landscape.

“Licensing is following the path of public relations, which has developed into a real industry after decades of being just a business model,” says Stu Seltzer of Seltzer Licensing Group. Having recently completed his 13th year teaching a licensing course at New York University, Seltzer notes that the “business has evolved and has become more sophisticated over the past 15 years,” with thicker contracts and more educational material available. The question is whether or not the current trend in changing language will facilitate greater diversity in the players involved and encourage smarter programs.

Business vs. Industry

The most common ways we describe what we do are the “business of licensing/licensing business” and “licensing industry.” The former implies that practitioners engage in a standard commercial activity or procedure, while the latter connotes that they are involved in an organized commercial enterprise. In this way, using industry infers that there exists a community of professionals dedicated to the production of licensed goods or related services, complete with their own business subculture. See the difference in tone between shows like Licensing Expo and Toy Fair or MAGIC. Interestingly, there is no significant correlation between the language people use and the frequency with which they attend trade shows.

Overall, most respondents prefer industry (36%) to business (18%). Twenty-seven percent use both terms interchangeably, claiming there is no significant difference between the two. Eighteen percent of respondents do not use either, but refer to licensing explicitly as a tool or model; of these, the majority are consultants or agents. As one agent puts it, “I am in the business of brand building, licensing is a tool.”

Licensors prefer industry or both, while agents tend to favor business. Consultants were the least likely cohort to accept the terms as interchangeable, and were equally split between both.

TLL uses industry and business interchangeably for practical purposes. When conducting our Annual Licensing Business Survey, for example, we will necessarily treat licensing as an industry in determining retail sales of licensing merchandise. The growth rate and volume of retail sales of licensed merchandise sales will differ from that of generic merchandise, especially since the companies involved, retail trends and even business models might differ. But it is true, as Karen Raugust explains in her Licensing Business Handbook, that licensing is “really a business tool that crosses over many separate industries, including apparel manufacturing, […] publishing, entertainment, and so on.”

According to Google Book’s Ngram Viewer, which shows the use of a particular phrase in books through time, licensing industry is now on a downturn compared to licensing business. The chart below tracks from 1900 to 2008. Note that these terms are also used for software, liquor and other industries, so the trends should be taken with a grain of salt.

And here is the same search performed through Google Trends, which tracks search terms from Feb. 2014 through July 2016.

Professional Labels

When asked which labels they most identify with in a professional capacity, 60% of respondents state that they prefer licensing, followed by a role-based label (marketing, business development, etc.; 50%) and industry (apparel manufacturing, entertainment, etc.; 40%, multiple responses allowed). Including neutral responses, licensing and role-based led in popularity with 90% each. Licensing professionals wear many hats: in the 2016 Salary Survey, 66% of respondents indicated that their primary function is licensing, 14% business development and 9% product development.

Half do not identify with or the least as an industry professional—that is, an individual who works at an apparel manufacturer would not self-identify as an apparel professional. This trend is strongest amongst those who prefer to use the term licensing industry, or whose company functions as a licensor. Licensors are the most likely cohort to strongly identify as licensing professionals, followed by agents.

A Deal by Any Other Name

As readers of the Deal Sheet will recognize, TLL refers to licensing agreements as deals. We avoid the term partnership as it implies that parties are equal investors in a joint venture, with profits and losses shared proportionally. Most deals that fall under this definition are not considered typical consumer products programs.

Despite this, the majority of respondents prefer to use partnership (91%) when referring to deals—in the colloquial sense. The standard labels of licensee and licensor are falling to the wayside as some companies consciously use partner instead. This is especially common in outside communication, such as in press releases. One possible reason for this shift is increased collaboration in deal making; the former language can imply that the conversation ends once a deal is signed. Ten years ago that was exactly the case: the onus was placed on a licensee to develop products, with or without a style guide, which they would peddle to their retailer buyers. For the brand owner, licensing was a quick and easy way to collect royalties with little effort.

But that does not have to be the case. Relationships can extend to product development, retail, marketing and beyond—and respondents agree that this is increasingly becoming the case. The current landscape is split between those companies who are “more concerned with profit margins,” and “others who will truly partner with you from both a marketing and product perspective,” according to one consultant. The latter relationship might involve a brand’s stewards providing support for a program years after initial product has launched. And frequently, the spark for these relationships does not begin with a royalty-generating arrangement. In order to facilitate these types of growing relationships and preserve business secrecy, companies might treat all of their partners equally in terms of language. And indeed, the lines have blurred: what does it mean when a celebrity licenses their name to a manufacturer, while at the same time their agent buys shares in the company and said celebrity sits on the board of directors? For one thing, the relationship will extend for years rather than months.

LEGO is one example of a company that works with other brands such as Star Wars to develop properties beyond short term, limited collaborations by producing films as well as construction toy sets. It seems like businesses are chasing a unicorn: see the recent expansion of a two year collaboration between adidas and Kanye West with the launch of adidas + KANYE WEST. A new business unit will be established within adidas to develop retail stores; a line of apparel, footwear and accessories for men and women; and handle licensing for the new brand.

Respondents also prefer to use long term brand association (64%), official licensed product (64%), merchandising program (45%), marketing partnership (45%) and royalty-generating [deal] (27%, multiple responses allowed) when referring to licensing deals.

Merchandising program sparked the strongest negative reaction, with an equal number of respondents (45%) stating that they avoid using the term versus preferring to use it. It was by far the most unpopular term, followed by royalty-generating [deal] (27% dislike or avoid), partnership (9%) and officially licensed product (9%). Virtually no respondents disliked marketing partnership (which had the most neutral responses at 55%) or long term brand association.


Change From the Inside

When asked if their company made any internal changes over the last year with relation to licensing, 83% of respondents answered to the affirmative. These changes include increasing staff dedicated to licensing—per the 2016 Salary Survey, 31% of respondents said that the licensing head count in their company grew over the last year—as well as restructuring of current staff. The number of personnel changes over the last year was notable even for the oft-tumultuous licensing industry, where 55% of executives have been in their current position for five years or more, according to the 2016 Salary Survey.

For example, over the last year Endemol Shine North America combined their branding and licensing units. This move would theoretically allow for greater efficiencies in making deals. Most companies are structured so that their branding or marketing teams do not see returns from deals struck by their licensing colleagues. When the former have to sign off on those same deals, the agents, licensors and manufacturers who might have spent years on brokering an agreement would easily be left in the lurch. In this way, companies reposition licensing as just one part of a greater marketing strategy rather than as a source of royalty income. One example: the ability to sync advertising and merchandising campaigns, such as Pepsi’s emoji campaign organized by PepsiCo and the Joester Loria Group.

Another change mentioned is that companies have defined licensing one of their major strategic goals. The extent to which this applies to companies not explicitly dedicated to licensing is questionable, if only because royalties barely make a dent in most company’s bottom lines. One example of a big player that claims to have done this over the last year is DreamWorks; during the entertainment company’s showcase at Expo most top executives and every film director came to present their properties.

Retailers

Retailers have been essential in developing merchandising programs for years. Look no further than examples such as Hot Topic, which took home Retailer of the Year for Doctor Who at LIMA’s 2016 International Licensing Awards. And buyers have always had sway in determining which brands are licensable based on whether or not their consumer products have the potential to grab shelf space. One worrying trend, as one agent describes it, is the tendency of manufacturers to “‘run the idea past my buyer’ before even submitting a deal memo … doom[img] the potential before it even has a chance.”

But now there are new players in the game that are breaking traditional roles. One example is subscription box service Loot Crate. The company dubs itself a “fan-based commerce and community platform,” first and foremost, in addition to providing an alternate platform for merchandise to be sold. But Loot Crate also works with its brand partners to develop and manufacture new products available exclusively through its service. While brands are conscientious about developing a social media presence, most focus on homegrown or fan-generated entertainment content rather than merchandise. Respondents stressed the importance of social media, with one licensor stating “There is no other relevant means of communicating with the consumer.”

Other examples of growing alternatives to traditional brick-and-mortar stores (that have always been around) are branded stores, “shop-in-shop” experiences and mobile venues. In a way, this is a return to the most basic of retail models even as ecommerce grows and catalog and TV shrink in their share of licensed retail sales.

In Conclusion

What do you think? Contact Karina at karina@plainlanguagemedia.com with any comments or topics you feel TLL should cover. Next up, we’ll tackle branding: what makes a property a brand—lifestyle, evergreen or otherwise?

TLL thanks Gary Caplan for his valuable insight throughout the writing of this story. Please note that the opinions expressed are not necessarily representative of this LIMA Hall of Fame Member. Contact The Licensing Coach at gary@garycaplaninc.com.

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