There’s been much gnashing of teeth this year about the cascading number of major releases of licensing-heavy films, and the effect that’s had on both box office receipts and retail sales of the goods tied to those films.

It’s a situation that has caused companies on all sides of the entertainment licensing business to evaluate how they’ll do business going forward. To be sure, there has been heavy volume done on some of the big films, but perhaps not to expected levels. So in our discussions with licensors, licensees and agents, the accent for 2018 and beyond is maintaining realistic expectations.

“I think there has to be an honesty within the licensing community as far as what the business can sustain and what is a realistic number of films,” says Entertainment One’s Andrew Carley. “The number of film programs coming through the marketplace is just simply too many. The slate of films coming through is more than one a week and that presents a huge difficulty as far as to where you choose to place your emphasis.”

The roster of 2018 films includes Avengers: Infinity Wars, Jurassic Park 2, Han Solo: A Star Wars Story, Barbie, Aquaman, The Flash, Transformers: Bumblebee and The Incredibles 2.

Going into 2018, licensees will increasingly seek to strike a balance between major film releases and niche properties where there might be less risk and better margins. For example, USAopoly, which has had licenses for major films such as the recent Pirates of the Caribbean: Dead Men Tell No Tales, also is readying puzzles and board games tied to less mainstream properties such as 1950s TV series “The Thing” and Court of the Dead (a collectibles brand that has branched into comic books). Those licensed products are the first to emerge from the company’s newly formed Project Raygun Division that focuses on higher priced items that can sell for $60 or more versus the more standard $24-$29 range, says USAopoly’s Jake Davis.

And Diamond Select Toys, which once invested heavily in developing action figures for high-profile films, is now focusing on smaller properties that can be sold in smaller quantities (3,000 units in some cases) through specialty toy stores and comic book shops, says Diamond’s Zach Oat. For example, rather than creating a line for the release of Ghostbusters in 2016, Diamond took a license for characters from the original 1984 film.

There aren’t just hedges among properties, but also within them. One major retailer was said to have told licensees that the chain is going to focus on evergreen properties going forward, seeking home goods – blankets, towels and sheets – with multiple characters within a franchise as a hedge against a single character not being popular and leaving the retailer saddled with invenory.

Meanwhile, studios and their licensees are increasingly carving out exclusives for toys for some major properties with top retailers to help set them apart in the marketplace. Retailers such as Walmart, Toys R Us and Target typically carry products tied to the major film releases, but each is increasingly getting exclusive characters or items with slightly different designs, a trend will like accelerate in the future, say industry executives.

“You will see more companies not only giving retailers more toys exclusively, but also getting together with them earlier in the design cycle and planning with them,” says Hasbro Bryony Bouyer. “It is a question of what retailers are looking to do and how we can design product to meet that need. We are increasingly being forced to think about what we need to do to make each retailer feel special.”

In a way, the advanced planning with retailers is becoming a requirement given that windows in which film-licensed products can be sold are getting shorter with the increased pace of movie releases. And a movie also now more than ever needs a strategy to carry the business beyond the release date, including having property available for live entertainment, online and mobile and videogames, say industry executives.

“The windows to entertainment are shorter and the DVD business is drying up so it’s a question of how you continue to maintain that relationship with the consumer,” says Striker Entertainment’s Russell Binder. “I think everyone is getting a little bit more gun shy and it is harder to justify adjusting planograms for a short window if all you have is a movie.”

Even the largest entertainment developers have to make choices about what properties will be supported to the max. Marvel is focusing toy licensing to the three films scheduled for release next year, but not so some of its 14 TV series, says Marvel’s Jesse Falcon.

“We are supporting three vertical films [Black Panther, The Avengers: Infinity War, The Ant Man and The Wasp], but not the edgier TV series to the same degree,” says Falcon. “We recognize that if there were companies creating products for all our properties across the board, much of it would fall off the retail shelves because buyers wouldn’t be able to take it all in.”

For the most part, the over-saturation of film properties is being felt most heavily in toys, a category with lead times that can stretch 18-24 months, but also will likely find its way into other categories. BMO Capital Markets cut its forecast for toy industry sales this year to a two percent increase (down from the prior forecast of a three percent jump) and to 1.5 percent in 2018 from a prior forecast of a two percent gain.

In doing so, BMO analyst Gerrick Johnson noted that entertainment-related toys have grown to 38% of industry revenue from 15% a decade ago. He also points to the fact that in 2016, 17 of the top 20 films at the U.S. box office had major licensing programs – a quantum leap from the average of eight out of 20 annually from 2001 to 2015. And the beat goes on, he says: so far this year, 13 films with licensed toy programs have cracked the top 20 grossing films domestically.

The plethora of franchises and sequels caused BMO to slash its revenue forecast for several publicly-traded toymakers. Lego also recently reported a 5% decline in first-half revenue due partly to a slip in sales of Star Wars sets. Toys R Us also said earlier this year that merchandise program tied to the “The Lego Batman Movie” fell short of its sales forecast. With total U.S. movie box office receipts down 5% so far this year and Labor Day weekend posting the weakest results in 17 years, licensing executives find themselves increasingly hedging their bets rather than plunging headlong into broad product assortments

Contacts:

BMO Capital Markets, Gerrick Johnson, 212-883-5192, gerrick.johnson@bmo.com

Diamond Select Toys, Zach Oat, Marketing Supervisor, 646-375-2406, ozach@diamondselecttoys.com

Entertainment One, Andrew Carley, Managing Dir., +44 203 691 8513, acarley@entonegroup.com

Hasbro, Bryony Bouyer, SVP Global Category Management, Marketing and Creative, 401-431-8697, bryony.bouyer@hasbro.com

Marvel Entertainment, Jesse Falcon, Merchandising Dir., 212-576-4000, jesse.falcon@disney.com

Striker Entertainment, Russel Binder, Partner, 818-225-9355, russel@strikerent.com

USAopoly, Jake Davis, Marketing Coorindator, 760-431-5910 x235, jdavis@usaopoly.com