LIMA Survey: As 2019 Dawns, Optimism Reigns in a Changing Marketplace
As the calendar has turned to 2019, licensing professionals enter the new year with a sense of optimism but with their eyes wide open about challenges ahead.
Of all those responding to our annual global flash industry survey, more than four out of 10 (44 percent) expect their licensing-related business to increase seven percent or more this year, and another 19 percent predict gains of 4-6 percent.
That’s on the heels of a 2018 in which a third of those responding (33 percent) said their licensing business had increased seven percent or more, and another 22 percent reported increases of 4-6 percent.
Their comments on the year just ended and the 24 months ahead reflect the wide range of marketing, retail, social and political forces that must be navigated by any business, but particularly one so dependent on consumer sentiment and confidence.
And it’s definitely a business of change. One U.S.-based brand agent points, for example, to “a major sea change going on in the business, with brick and mortar retail going under, traditional entertainment (film and linear TV being replaced with VOD), traditional sports brands losing fans to new gen eSports fans, [and] traditional “Brands” losing out to non-branded merchandise.”
Experiential growing, retail changing
Asked about the most positive developments of 2018, they mentioned several aspects, but many comments centered around two topics – the changing face of retail, and the development of more experiential and relatively unexplored licensing opportunities.
One brand consultant combined those two aspects in a single answer, citing “Creative and experiential marketing on the rise, and specialty retail strengthening, both online and brick and mortar.”
And while many commented about the pressure brought to their businesses by a rising tide of store closing and retail bankruptcies, one U.S.-based licensing consultant took the opportunity to talk positively about the “Continued acceleration of sales to online channels and strong increase in online sales growth over the holiday season. The barriers to entry for online product placement are far lower and open up growth opportunities for new licensed products. The problem is getting more critical mass in terms of sales volumes is more difficult. Hit products still rely on Mass Market retailers, but a strong initial track record online creates an easier path to mass market retailer placement.”
Mostly, though, respondents cited strength in a variety of discrete sectors – videogames/eSports, museum brands, collectibles, the sneaker business – as well as a general sense that, in the words of one, “consumers are still clamoring for licenses.” And that’s even where the business climate was weak. “In Brazil, despite a declining [economy], licensing remains strong and consumers love it,” wrote one licensee based there.
A question about negative aspects of the just-ended year brought a familiar litany of comments about retail contraction in all parts of the globe; licensees citing overly aggressive royalty rates; and both licensees and property owners complaining about the vast number of properties and retailers’ private labels competing for shelf space and consumer attention.
“The market is oversaturated with media brands that signed multiple partners to compete for the
same retail space,” writes one brand development executive. This is harmful to licensees and has created unfair competition affecting how companies feel about the licensing industry.”
Said a U.S. brand owner: “Licensing is becoming a commodity due to the crowd of characters and properties – [it] no longer is a significant differential as a marketing tool.”
One consultant honed in on a specific sector, but the sentiment could be extended to the business at large, according to the broad scope of comments we received. “[I’m] Most concerned about an explosion of brands and celebrities pursuing licensing as an option. [It’s] almost becoming a prerequisite to check the box on doing brand licensing as part of the marketing mix. Agents need to be more selective about properties that are truly good licensing opportunities, as over-saturation of licensed brands can hurt industry growth as well. It seems counter-intuitive, but we as an industry need to be diligent that the right brands are entering licensing.” Of course, in a business in which nobody ever truly knows where the next hit will come from, it’s difficult to tell anyone that his or her brand isn’t “the right brand.”
Political and economic upheaval
Some of those same factors came into play when we asked respondents about challenges confronting the licensing business over the next two years. But many cite an aspect over which they have no control, but will need to adapt to – the shaky geopolitical and macroeconomic landscape characterized by such topics as Brexit, tariffs and trade wars. Says one U.S. executive: “[I’m] worried about the impact of higher tariffs due to… tariff war. Combine this with higher interest rates globally and higher raw material costs and wages in manufacturing countries and we could see licensed goods at significantly higher prices over next two years. Could cause strong downward pressure on royalty rates, as consumers no longer want to pay a premium for brands in an escalating product price environment. Something will have to give in this environment and it could be lower demand for licensing brands and lower royalties for existing licensed properties.”
As for the industry itself, several point to the challenges of understanding shifting media consumption patterns (“Changing media landscape with [fewer] children’s and family films becoming successful franchises, and still not enough correlation between SVOD-platforms and successful children’s merchandise and publishing formats”), and competing with a rising tide of retailers’ private labels, particularly from Amazon.
One sees “the challenges [as] always the same in a general sense: competition from new brands entering the marketplace; creating value-added products to excite consumer purchase; all of the changes happening in the retail marketplace.”
But one pointed to a more fundamental issue regarding how IP owners look at the licensing business. The challenge, writes this Spain-based consultant, is “redefining licensing as a brand equity model rather than a revenue model.”
But it all comes back to adaptation and reinvention. “It’s an ever-changing marketplace no matter what the product category,” sums up one agent. “This business is about non-stop change: in retailing, in products, in consumer tastes, etc. For all of us it’s a simple mantra: evolve or die.”