Depending on the type of property you are considering, the benefits differ. For example, the benefits of obtaining the license for a well-known corporate brand name are different than licensing a typical character/entertainment property. Both offer benefits, but the value and benefits vary from property type to property type.
If managed correctly, licensing can be a tremendous sales and marketing tool. You will need a clear understanding of the licensing business and its potential benefits in order to help you formulate a winning licensing strategy. What are some of those benefits?
For the Licensee/Manufacturer:
- If executed properly, licensing should help a licensee/manufacturer generate additional sales. Not only will a licensed product sell on its own merits, but often, it will help manufacturers sell the rest of their line by using marketing and merchandising leverage.
- Margins can often be improved with licensed goods, even with a royalty tacked on.
- Licensing can help you build additional exposure and awareness for your brand and company. It helps create excitement and can often lead to PR opportunities
- It can help build your company’s image by being selected to be a licensee of a prestigious brand or icon such as Batman, Star Wars, the NFL, Calvin Klein, and so on.
- Licensing gives you opportunities to develop marketing partnerships not only with the licensors, but also with your fellow licensees.
- You can use licensing to create an “event,” and have something exclusive to you and your sales force.
- Licensing can help open up new distribution channels, and at the same time, it might even enhance your relationship with your retailer.
The above are just a few of the benefits and there are more. But that is not the point.
The point is that regardless of whether or not there is a list of hundreds of benefits, or just one, it is important for you to keep your product line in the forefront. Product is king!
If your product is good to begin with, use licensing to enhance it. Do not depend on any license to help sell an inferior product or products driven by obsolete merchandising or marketing plans!
While the advantages of licensing are many, one must be aware of the possible risks, and more importantly, how to minimize them or avoid them altogether.
Here are some of the risks that can accompany an entertainment-based license. First of all there are the financial risks, including:
- A guarantee and an advance.
- There are usually additional product development, tooling, and research costs.
- There will be an early inventory investment. In fact, if you are lucky enough to obtain a license that becomes “hot,” you may have a problem meeting product demands in the early stages only to possibly see those demands stop with little warning.
- Depending on your policy with your retail customers, there might be markdowns and possibly returns.
- Often, there will be advertising, promotions, and marketing expenditures to which you will have to commit in order to properly support the property.
- There is always the risk that the license may disappoint, or worse yet, fail completely. Nobody bats 1,000 in licensing (or in any area of new product development for that matter).
Are there ways to avoid or minimize these risks? Yes, we believe that there are definite ways for a manufacturer to protect themselves.
Licensing is an effective and creative marketing tool that when used properly, should bring financial success and excitement to your company. There are many benefits to licensing. If you pay close attention to the development and management of your licensing program, you can be sure that the benefits will outweigh the risks.
When you call GCI, we will be prepared to discuss all sides of the business.
According to THE LICENSING LETTER, the following were listed as property types:
- Art: Original art and designs. Examples would be Norman Rockwell, Thomas Kincade, Picasso, and Mary Engelbreit.
- Character / Entertainment: Characters who are best known from entertainment, publishing and toys. Examples would include Sesame Street characters, Star Wars, Hello Kitty, Spiderman, Batman, the Muppets and hundreds of others.
- Celebrity / Estates: Examples include Albert Einstein, James Dean, Marilyn Monroe, and the Three Stooges and hundreds more.
- Collegiate: Schools who license their names to manufacturers. Examples are Ohio State, Notre Dame, UCLA, Harvard, and hundreds of other NCAA schools, and the various Bowl games and athletic conferences.
- Fashion: Licenses from the world of design and fashion. Examples are Calvin Klein, Ralph Lauren, Tommy Hilfiger, and many others.
- Music: Elvis, KISS, the Beatles, Bob Marley, and dozens of other artists from a wide range of music and performers.
- Non-profit: Examples would be American Red Cross, ASPCA, National Audubon Society, American Heart Association, and the World Wildlife Fund.
- Publishing: Examples would be Good Housekeeping, Playboy, Sports Illustrated, Popular Mechanics, Hot Rod Magazine, Seventeen, New York Times, and Rolling Stone.
- Sports (leagues, individuals): Leagues including the NBA, NFL, NHL, MLB, NASCAR, WWE, Wimbledon, Indy 500, and The Masters. Individual athletes would include Mike Trout, LeBron James, Arnold Palmer, Tom Brady, and Steph Curry.
- Toys & Games: Barbie, Lego, Hot Wheels, and Monopoly, among many others.
- Trademarks / Brands: Examples of this type would be Samsonite, Jeep, Crayola, Harley Davidson, Anheuser-Busch, McDonald’s, Coca Cola, Ford Motors, Pillsbury, General Motors family of products and many others.
The important thing to remember is that regardless of the licenses you select to apply to your product, treat them as an important part of your marketing plan. By that we mean that the success of licensing is directly proportionate to the amount of work and the quality of the preparation that you put into the project.
Licensing seems to have its own language. What are some of the key elements of a licensing agreement?
This is a question that is often asked. In Karen Raugust’s book, The Licensing Business Handbook, the following concise definitions were given:
- Advance: Part of the payment required for a license, usually due upon contract signing. Most often, it is a portion of the guarantee rather than an additional payment.
- Guarantee: A minimum royalty payment, usually based on expected sales. Actual royalty payments accrue against the guarantee amount: Whatever remains of the guarantee after total royalties are tallied is due at the end of the contract period. If royalties exceed the minimum guarantee, no further money is owed.
- Royalty: The basic form of payment in a licensing agreement; usually a percentage of the net sales price of each unit sold.
- Royalty Reporting: The act of providing licensors with accurate and detailed information on sales results and royalties due over a period of time.
- Licensing fee: 1) A flat fee required as payment for use of a license. An alternative to a royalty, generally for promotional or advertising uses rather than retail products. 2) Sometimes used in reference to the guarantee.
- Net Sales: Amount to which royalties are applied. Usually is the wholesale price to retailers, less certain allowable deductions.
- Term: Duration of a licensing agreement. Varies, but commonly two to three years for entertainment properties, longer for fashion and corporate trademarks.
- Sell-off period: A specified period of time after the termination of a licensing agreement during which licensees have the opportunity to dispose of excess inventories of licensed merchandise on a non-exclusive basis. After the sell-off period, the licensee is not allowed to let merchandise reach the market.
The answer is that it depends on a number of factors. As for royalty rates, they can range from as low as 1% to as much as 20%. The average ranges from 8% to 12% of the wholesale net price. As for the guarantee, we recommend that a guarantee relate in some way to realistic sales forecasts. There is nothing wrong with asking questions or even negotiating. Understandably, you will find that properties represented by large licensors or properties with a high demand are tougher to negotiate.
GCI can help guide you through the negotiating process.
Sounds like a very simple question, but it is a question that requires a very long answer. The answer is, “it depends.”
This is not a very complete answer but if you want to learn more about exclusive grants, call us and we will be happy to give you an answer that fits your specific situation.
Thanks to Greg Battersby of The Battersby Law Group, a prominent law firm based in Westport CT and renowned for its work in the field of licensing, here are some basic definitions:
What is a patent?
The grant of a U.S. patent confers upon the inventor the right to exclude others from making, using or selling his or her invention throughout the United States during the term of the patent. In order to obtain any type of patent protection, an invention must be novel and unobvious over what has been invented before. Patent protection in this country is obtained from the United States Patent & Trademark Office in Washington, DC.
There are three forms of patents: design patents, utility patents and plant patents. Design patents are granted for any new, original and ornamental design for an article of manufacture. Design patents cover the aesthetic appearance of an invention. The term of a design patent is fourteen years. Utility patents have a term of seventeen years in the United States and cover the functional features of an invention. Utility patents are granted for any new and useful process, machine, manufacture or composition of matter or for any new and useful improvement thereof.
Patent protection is governed exclusively by the scope of the claims of the issued patent. Similarly, patent protection is only effective in the country in which the patent has issued.
What is a trademark?
A trademark is ” . . . any word, name, symbol or device, or any combination thereof used… to identify and distinguish one’s goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown.” Trademark rights in the United States are based on use of the mark, not by registration. Accordingly, common law rights accrue from the date the mark is first used to identify goods or services. However, a trademark may be federally registered with the U.S. Patent & Trademark Office by filing an application to register the mark for certain types of products or services and paying the statutory filing fee. While registration of a trademark or service mark is not a prerequisite to establishing trademark protection for a mark, registration does offer the trademark owner substantial procedural advantages when suing an infringer. Accordingly, registration of a trademark is strongly advised.
With respect to applying for federal trademark protection, the U.S. trademark law was amended several years ago to permit the filing of “intent to use” applications. Historically, in order to receive a federal trademark registration, the applicant had to have already commenced use of the mark in commerce. With the revision to the trademark law, applicants can now register a mark with the U.S. Patent and Trademark Office based on a bona fide intent to use the mark in the future. Intent to use applications accord applicants protective rights as of the filing date of their applications, so long as the applicants do, in fact, commence use of the mark and thereby obtain a registration. Unlike patents, which only protect the underlying invention for a finite period of time, trademark protection exists as long as the owner of the mark continues to use that mark.
What is a copyright?
Copyright protection is provided for original works of authorship fixed in a tangible medium of expression. That means one cannot copyright an idea, only the expression of the idea. The various categories of copyrightable works include:
literary works; musical works, including accompanying words; dramatic works, including accompanying music; pantomimes and choreographic works; pictorial, graphic and sculptural works; motion pictures and other audiovisual works; sound recordings; and architectural works.
Copyright rights are limited in duration to a term of the life of the author plus 50 years for individuals, or a term of 75 years from the first publication or 100 years from creation (whichever expires first) for works made for hire by employees.
Copyright rights commence upon the creation of the underlying work, and registration is not absolutely required. Registration of a copyright claim with the U.S. Copyright Office, however, is a prerequisite for commencing an action for copyright infringement.
Copyright applications are frequently filed without the services of an attorney and are the biggest bargain in the intellectual property field. The current copyright filing fee is $20 per application, and it typically takes about six weeks for the Copyright Office to process the application and issue a registration. No separate foreign filing is required. The U.S. filing achieves rights in all countries adhering to the Universal Copyright Convention or Berne Convention.
We strongly recommend that you consult regularly with an experienced licensing and merchandising attorney, or at least one with Intellectual Property experience. GCI will be happy to recommend firms that are knowledgeable about licensing and merchandising. Just contact us.
NOTE: If you are doing business in countries other than the United States, your need for legal counsel with international experience is especially important.
It is not unusual for retailers to request “hot” licenses from their suppliers. And as a supplier, it is great when you have a so-called “hot” property or two. But, the reality of the business is that chasing only “hot” properties will in the long run “burn” you.
It goes without saying that a manufacturer should develop a reputation with its retailers as being a dependable supplier that consistently offers innovative products at competitive prices. In other words, work on your product development and marketing plans first, and then look for licenses that will enhance your products. If the licenses become “hot,” that is great, but our point is that you should not have to depend on “hot” properties to be successful in licensing. In baseball, winning teams do not depend solely on home runs. They play the game with all the tools at their disposal. The same is true in the licensing business.
Nevertheless, in trying to find the next “hot” property, you will find no single answer to the question as to how to find and secure it. The best advice we can give you is for you to educate yourself about licensing and make a serious commitment to the business. Think about developing some sort of suitable criteria that will assist you in evaluating the many licenses you will have to review. From our point of view, evaluation of licensing opportunities is one of the key reasons you should consider retaining the services of a consulting firm such as GCI.
The short answer is that a licensing agent typically represents the property owner. On the other hand, a consultant is usually associated with a manufacturer seeking and acquiring licenses and property owners seeking representation. Some firms act as both agent and consultant.
GCI represents manufacturers and also provides consulting services to brands and property owners, but, we do not act as agents. However, we will help you find one if that is what you determine you need.
There is no hard and fast rule, but agents are typically compensated on the basis of a commission. Often an agent will ask for a retainer as well.
Consultants operate in much the same way. GCI is a retainer-based firm charging a fixed monthly rate, or sometimes, a smaller monthly retainer combined with a commission.
GCI also welcomes “project fees,” which are usually one-time fees based on the length of time and amount of work the assignment requires.
While licensing has been around for a very long time in one form or another, it was not until the last twenty years or so that it has become recognized as a bona fide marketing tool. You are wise in thinking about a career in the business. It is an exciting, challenging, and ever changing business that needs bright, creative people.
What is your background? Are you a salesperson, a marketing manager, an artist/graphic designer, an attorney, or what? The licensing business is like any other business and people with all kinds of backgrounds are needed. So regardless of your training, there is probably a job somewhere out there for you. Investigate the business thoroughly so that you can be knowledgeable and prepared for interviews.
I would start my job search by searching online databases or obtaining the directory published by EPM (epm.com). This directory list almost all companies in the licensing business, broken down into a variety of categories. Also, you will find that licensees and licensors are located in all parts of the country, and in fact, the world.
Get a copy of directories and send emails with a resume included, to those companies that interest you most, and see what kind of responses you get.
In order to research the business and to prepare yourself for interviews, there is an introductory book that we would recommend that you examine. It is The Licensing Business Handbook also published by EPM.
LIMA – the International Licensing Industry Merchandisers’ Association – has several articles and much printed material about the business (licensing.org). They also offer educational videos and webinars that cover a variety of licensing topics. If you are new to the business, we would suggest that you start with “Licensing 101” videos from the past couple of years.
NYU and a handful of other colleges now offer a class on The Business of Brand Licensing, that provides credits towards graduation for undergrads, and UCLA and other schools will often offer extension programs focused on licensing.
Finally, an excellent way to get acquainted with the business is to attend the annual Licensing Show sponsored by UBM and LIMA, held each year during May or June in Las Vegas. The seminars are very good, and walking the floor will give you a great introduction into the business.
The answer to this question is a firm “yes”, with an explanation. First, keep in mind that in most cases business ‘successes’ are not based on being a “giant”. There is nothing wrong with hitting singles and doubles – getting constantly on base and then scoring. In other words, every base hit does not have to be a home run. The same is true of the licensing business.
So what are some of the steps you should keep in mind?
First, ask yourself what are your goals? Where are you today? Where do you want to be tomorrow? Most importantly, how are you going to get there? This is where a good consultant or agency can help.
It will take hard work, preparation/research, a plan, budget, knowledge …and some luck.
A few tips:
The licensing business responds to creativity both with products and marketing. My motto is: think creatively but act realistically. As I have said, you do not have to be a giant to be successful. Many people and firms have found great success by setting modest and reasonable goals. With great dedication and preparation you definitely have a chance to find success!
There is no doubt dozens of more questions are on your mind. Feel free to send an email to GCI or call Gary and introduce yourself. We will get back to you as soon as possible.
ASK THE COACH
Since 1984, Gary Caplan has helped hundreds of marketing executives, manufacturers, brands, rights holders, retailers, and entrepreneurs – from seasoned industry experts to novices just entering the industry – navigate the complex world of licensing. Thus, over the years, he has become known as ‘The Licensing Coach ®‘.
Have a question? Gary loves to help when he can. Fill out the form below and Gary will do his best to answer your question, or at least get you pointed in the right direction.