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Contracts Face Increased Scrutiny

With consumers cutting back on spending, companies have stepped up the scrutiny of their licensing contracts, industry executives said.

It’s not that licensors were ever lax in enforcing contract terms. But three years after the pandemic caused licensors to ease certain terms or extend contracts, there is now an increased emphasis on ensuring that all territories included in an agreement are revenue producers.

That may mean increasing royalties or minimum guarantees, or ensuring that royalties are consistent across categories. There have also been a growing number of audits, typically done when a licensee falls 3-5% short of a minimum guarantee, licensing executives said. In many cases, it has meant granting fewer global agreement unless the licensee has the resources needed to produce revenue in all the territories included in a contract.

“Global deals are very hard to get. Regional agreements are easier, but it is still very hard to get too many countries in a contract because licensors want to see plans and numbers for each one,” said Julian Montoya, SVP at The Noble Collection and a former Warner Bros. executive. “Licensors don’t want rights to sit unexploited and the days of paying for rights and sitting on them so that no one else gets them are gone. It is about keeping focused on the opportunities.”

In order to ensure they have the necessary resources (including staff) to produce revenue in each of the territories covered by an agreement, some licensees are partnering to increase their global reach. Basic Fun, which has a smaller presence in international markets, is working with Character Options to handle the European market for Hasbro’s Lite Brite brand. And in the case of Hasbro’s Littlest Pet Shop brand, Basic Fun splits the rights with Bandai, which handles Europe.

“If we are missing a few territories, we get a distributor or licensee because all licensors are trying to maximize resources,” said Casey Collins, President of Licensed Consumer Products at Hasbro, which also works with WildBrain CPLG on licensing deals. “We incentivize licensees to make sure they don’t lose focus on some territories.”

In addition to expanding their reach into various territories through strategic partnerships and more specific contracts in an effort to take full advantage of all possible revenue, there is also an incentive for licensors to broaden their brands into new categories for the same reason. Similarly, many licensors are sharpening their focus on licensing out underused brands to create new revenue streams.

“With the departure of Toys “R” Us and with Walmart and Target reducing some shelf space, you have to get the money from somewhere. That is going to be through expanded distribution, new channels, new points of sale, or territories that haven’t been focused on,” Montoya said. “Licensors are not trying to increase the price or squeeze more from the licensees. It is about making sure they aren’t passively allowing some opportunities to go unexploited.”

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