The calendar has now flipped to 2018, and licensing executives remain an optimistic lot, though with a firm grasp of some of the big issues facing their companies and the business as a whole in the coming months.

They’re coming into the year with generally good feelings. Among respondents to LIMA’s annual end-of-year Global Licensing Industry Outlook Survey of licensing professionals, more than two thirds (69 percent) reported increases in their licensing business in 2017, including 38 percent reporting increases of 7 percent or more.

And they mostly expect the good times to keep rolling. Almost the exact same percentage (65 percent) expect increases in 2018, with more than a quarter of them (24 percent) forecasting gains of seven percent or more in their licensing business.

For retail as a whole, business surged to a 4.9 percent gain in the U.S. in the just concluded holiday season, according to the Mastercard SpendingPulse report, which measures retail business across all payment types.  That’s the largest seasonal jump in six years. Online shopping jumped 18.1 percent, but Mastercard also reported that specialty and department store business showed “moderate” increases, “particularly impressive given recent store closings.”

Optimism About Change

So what’s feeding the good feeling with which the executives are entering the new year? A few themes come to the fore, many of them were related to ascendant technologies and digital entertainment platforms. Several entertainment-oriented licensees and licensors cite positive licensing signs from the OTT market. There was “some success with new licensing programs being launched off digital channels such as YouTube and Netflix,” wrote one licensor. A sports licensor points to the “rise of eSports.” And, of course, digital merchandise distribution platforms are changing. One U.S.-based agent points optimistically to “excitement and energy coming from online/on-demand retailers.”

But even as optimism reigns in many corners, there’s acknowledgement of the challenges that lie ahead. Not surprisingly, the word “consolidation” pops up frequently in the responses – particularly since the survey was conducted just as Disney’s prospective purchase of a large chunk of 21st Century Fox was announced. “The centralization of all major brands in only one player makes it even tougher to get to the consumer,” hyperbolizes an agent in Mexico.

And it’s not just Disney. Writes a marketer for a UK firm of major challenges facing the licensing business in the next two years: “Outcomes with the merger of Disney and Fox, and potential others such as Hasbro and Mattel is going to be a big one.”

Supply and Demand Out of Balance?

One French consultant, responding to the LIMA survey, doesn’t point a finger at any specific companies, but rather notes that “Supply and demand for franchises will continue to be off balance, and this will probably get worse. Hundreds of franchises [are] offered but retailers (all under pressure, especially brick-and-mortar) [are] only buying Star Wars, Frozen, Paw Patrol – [a] very short list actually.”

Of course, there is other imminent consolidation that stretches well beyond the toy and juvenile entertainment business. A proposed merger of Discovery and Scripps Networks Interactive, expected to close early this year, would bring licensing-rich properties such as HGTV and Food Network, among others, into the Discovery family. Hearst’s acquisition of Rodale also is expected to close early in the year, and Meredith Corp.’s acquisition of Time Inc. that was announced at Thanksgiving is slated to be completed in the first quarter.

The challenges go far beyond big business combinations. There also are the effects of other commercial and societal forces, such as the velocity with which consumers adopt and subsequently move on from brands, cultural heroes and trends. A U.S. sports licensor points to the challenge of “establishing relevancy and lasting connection with younger demos that are reluctant to make long-term commitments, and tend to have fleeting engagements with brands.”

Era of New Shopping Patterns

Similarly, an art licensor points to macro forces. The industry, writes this executive, needs to confront “major brand fatigue, and [to continue] to figure out what ‘the new normal’ is for the retail industry. We are in an era of a new shopping pattern being established and, as licensors, the challenge is to stay open-minded to new ways of doing business.”

Writes a U.S. agent about issues confronting retailers, but ultimately everyone in the supply chain: “In general, brick-and-mortar [retailers] are struggling to increase in-store shopper traffic and gain a greater share of consumer spending dollars. More shoppers are spending dollars online or not shopping as much as they used to. Millennials [are] looking for immersive experiences and not so driven by acquiring more possessions. So, the traditional licensing opportunities and deals are more difficult to close. It is much more difficult to get healthy advances and minimum guarantees, if at all. Consequently, cash flow for licensors is an issue.”

A Japanese licensing consultant is concerned about unreasonable expectations on the part of businesses getting into licensing for the first time, unprepared for the challenge : “Lots of companies are entering the licensing business, simply expecting more profits, but with very scarce understanding over the business. You cannot earn money in a day or two, without a clear strategy over the brand/property and continuous effort to market.”

In the end, writes one philosophical licensing agent, “It’s still a competitive slog for retail attention. But that’s how it always has been and always will be.”

The Global Licensing Industry Outlook Survey is only one of the research projects that LIMA produces each year, free for members. There’s our Annual Global Licensing Survey – a detailed look at the how the business breaks down both regionally and in the top 50 countries around the world. LIMA also offers members free access to custom twice-a-year reports from Kidz Global on kids’ perceptions of their favorite characters, entertainment vehicles and licensed brands in more than 40 countries. We’ll be adding other research in the coming months.