With flat sales Stateside, companies go abroad
Now, more than any other time, U.S.-based entertainment companies are registering their intellectual property abroad as they try to tap into emerging markets.
From Brazil to China, previously untouched territories offer licensors the opportunity to connect consumers with their properties in entirely new ways — and greatly increase their slice of the $100 billion worldwide licensing pie.
“There’s sort of been a plateau here (in the U.S.) for the licensing business, generally,” notes Al Ovadia, president of global entertainment licensing firm Al Ovadia & Associates.
Indeed, according to the Licensing Letter, retail sales of licensed merchandise in the U.S. and Canada have been virtually flat of late, growing to $71.25 billion last year from $71.21 billion in 2005.
In looking for fresh ways to drive revenue, Ovadia adds, “The viability of these emerging markets is an exciting possibility.”
The challenges, however, can be as steep as potential profits.
“There’s a lot of hype about getting into developing markets,” says David Jacobs, president of licensing consultancy HiHat Media, “but the business model requires deep pockets and long-term vision.”
For its part, Disney has “experienced tremendous success in emerging markets,” says Jim Fielding, exec VP of global retail sales and marketing for the Mouse’s consumer products division.
In part, he says, that’s due to Disney’s strategy of entering new markets via existing global accounts with major retailers, as well as “going in and signing local licensees and retailers.”
But it’s essential to have a local agent or company team on the ground to address specific market dynamics, Fielding notes.
“You must know the culture and customs of consumers to make the right products,” emphasizes Sheila Clark, head of international licensing for DreamWorks Animation.
While China, for example, “is a very, very interesting locale because of the sheer volume of people there,” it’s critical for licensors to be fully aware of local tastes and linguistic, financial and legal differences, she says.
Still, “We’re definitely seeing a greater interest in licensing in parts of the world where it was relatively non-existent up to this point,” notes Charles Riotto, president of the Licensing Industry Merchandisers’ Assn.
With the growth of an emerging middle class in markets such as Brazil and China, retail sales of licensed merchandise have already reached more than $1 billion annually in those countries. And opportunities exist to generate 10 times that amount, Riotto adds.
But as in most developing markets, piracy is definitely a stumbling block to licensing success. An additional challenge: Emerging environments often lack a strongly organized retail sector.
“At the end of the day, you can have great exposure, but if there’s not product available at the right place and right price, you’ll have no business,” says Manuel Torres, VP of Nickelodeon & Viacom Consumer Products, Latin America. “In Latin America, the wholesale market is huge and important.”
To that end, it’s essential that licensors working in that territory not only establish relationships with top mass marketers and retailers, but also with licensees and companies able to provide goods for wholesale distribution.
For FremantleMedia, new frontiers include South America and Asia; in both territories, regional television networks are running localized “American Idol” formats, and complementary licensing programs are already under way.
But because of the imminent threat of piracy, to tap into emerging-market opportunities, an entertainment company “must bring some type of unique element” to its licensing program, says Olivier Gers, FremantleMedia G.M.
While it’s practically impossible to compete in the T-shirt business in Asia, he says, a licensed phone card preloaded with content is something only a legitimate licensor can provide.
By taking steps like that, challenges can be overcome, adds Jack Alfandry, FremantleMedia’s VP licensing and new business development for Latin America.
What’s most important to remember is that when entering any emerging market, one should expect “a different way of doing business,” he says. “It’s part of a process, a reflection of the direction that (emerging) economies are going. Licensing potential will continue to grow along with them.”