Licensing and merchandising is a US$180bn industry, as delegates at this week’s Licensing Expo in Las Vegas know too well. But with digital properties emerging as key drivers, what role do linear broadcast windows still play for brands? Jesse Whittock reports.
Something’s going on in the licensing and merchandising (L&M) business that television companies need to get a handle on quickly. In the past, a TV window was the one constant requirement for successful children’s retail brands – but this is changing fast.
The global media landscape is evolving out of all recognition, and the transformation is unlikely to stop soon. We’re currently in the tablet era and before that it was the smartphone, preceded by online and web platforms, and so on. Suffice to say, companies are now developing new IP away from the television screen, and more of it.
Furthermore, the global economy has also changed, directly impacting TV. When broadcast licence fees went down in line with the global downturn of 2008/9 rights negotiations got much fiercer. Television companies still want in on the L&M revenues but IP owners aren’t necessarily happily to bend to their will just to get a brand on the air anymore. There are different routes to market in today’s multimedia world.
It’s easy to see why licensing remains such an enticing market. According to the Licensing Industry Merchandisers’ Association (LIMA), the L&M industry is worth at least US$180bn. This is despite a weakened US economy leading to falling retail revenues. Developed territories that are growing, like the UK, and emerging economies such as Russia and India have levelled out the dips in the US, LIMA research shows. Significantly, digital revenue is also growing as online worlds emerge and app download figures and tablet sales rocket.
“Where digital is changing things is in allowing kids, teens and tweens to find characters in so many other ways and on so many other platforms apart from the TV,” says California-based SMC Entertainment’s senior VP of licensing Lisa Streff.
One-year-old SMC has fingers in both pies. It closed a deal worth a possible US$50m with India’s DQ Entertainment to represent the 3D re-working of The Jungle Book in North America and also owns L&M rights to the H2O: Just Add Water and Dance Academy brands. However, it is also close to acquiring its first non-TV property, saying only that it is “based on a very popular girls 2-5 publishing programme.”
SMC’s acquisitions suggest there’s still plenty of demand for top TV content, and The Jim Henson Company’s senior VP of global consumer products Melissa Segal agrees. “It’s still a very enticing proposition if you’re able to get your property on a strong broadcaster with a strong series,” she says.
But she adds: “I wouldn’t say digital entertainment is replacing television but it has given the marketplace opportunities that aren’t so dependent on the old model.”
The Jim Henson Company is currently launching two new non-TV brands: skater lifestyle franchise Skatelab and Psyclops, a property born out of a mobile app that allows users to create their own animation and music videos for their iPods.
Henson will next look at launching webisodes to grow the latter brand’s exposure. “Things can work both ways. There are some really successful apps that are acting as the IP for the brand and are the entertainment element. Angry Birds was the first one to do it but Cut The Rope and Fruit Ninja are similar. If you have 20 million downloads, that’s just as relevant as anything else,” says Segal.
“Digital can’t replace a TV show but a digital strategy is incredibly important,” adds SMC’s Streff. “We’ve hired a dedicated head of interactive and digital because it’s so important. The reality is kids are still watching TV shows, but there are so many other platforms and that strategy has been in place at the start.”
L&M has indeed welcomed digital platforms with open arms. For example, social gaming has emerged as a key form of content for children above preschool age. Aggressive Facebook app companies such as Zynga are snapping up IP as their profits swell in proportion to this growth. Mind Candy, the UK company behind the Moshi Monsters online franchise, is said to be worth more than US$200m without so much as a Christmas special having aired on TV.
“The interesting thing is digital opens up an alternative to television when it comes to reaching kids’ eyeballs,” says Amelia Johnson, co-founder of another children’s virtual world, Binweevils.com, which allows users to create their own avatars. “With Binweevils.com, those eyeballs were even more engaged because of its social world nature; it’s far more immersive and interactive.
“The internet is now reaching as many eyeballs and is as widespread as television viewing. You’ve suddenly got this new medium that’s not TV, not film and not books, through which you’re reaching kids in a different way.”
Binweevils.com launched out of web shorts on Nickelodeon, which still retains a stake in the firm. In March, it reached two million unique users – a “breakthrough metric,” according to Johnson. “In terms of engagement, we’re up to 24 to 26 minutes per user on average. Growth in the past 18 months has been around 120% – pretty phenomenal.”
The virtual world medium leads when it comes to formats such as trading cards, thanks to the “flexibility of the characters” and the “environment kids really relate to,” she adds.
But broadcasters and TV-focused firms are naturally keen to play up their value to the food chain. “Having a TV window is still perceived to be really, really important for starting to expand a brand into books, DVDs or toys. There are always exceptions, like The Annoying Orange or Angry Birds, but these prove the rule,” says Sandy Wax, president of US preschool cablenet Sprout.
Hit Entertainment’s Edward Catchpole, senior VP of Hit Brands, adds: “In preschool, to build a major brand you need relevant, compelling content that captivates and entertains children. TV is still the main platform for children to access this content, but publishing is also key and digital is growing quickly.”
Indeed, there’s no getting away from the fact digital trends are sweeping through the L&M industry. Animated web series have been the launch pads for consumer product and plush toy lines, for example. As Classic Media’s executive VP of global marketing Nicole Blake says: “Now properties from mobile and digital spaces are cracking into consumer products, which means there is more competition. The truth is there isn’t just one route to market anymore.”
Michel Zgarka, CEO of Canada-based kids’ firm Les Gummybear Productions, which has clocked up more than two billion YouTube hits through its animated Gummybear (Gummibar) videos, has based his firm’s entire business model on that very mantra.
“As soon as Gummybear became a brand on YouTube, they created two dedicated channels and we started getting calls from all types of companies. Merchandising became an automatic element in our worldwide marketing strategy. We have quite a few licences in negotiation but have actually signed about eight or 10,” he says.
Meanwhile, Zodiak Rights has snapped up master licensee rights to another YouTube phenomenon, UK-produced shortform series Simon’s Cat, which is also a newspaper comic strip. “Online and digitally, we have revenue streams through our YouTube channels, website and apps,” says the property’s brand manager Mike Cook. “Plus, we have major UK licensing deals through Zodiak and have a great selection of partners in other territories, including Germany, Italy and Russia, and a direct online shop.”
The publishing and licensing industries are generally “quite conservative, and sometimes saying you don’t already have major TV platforms or a catalogue of 22-minute episodes can prove challenging,” says Cook. “However, with Simon’s Cat we have grown and developed organically and are now at over 243 million YouTube views with only 30 minutes of animated film content.”
This comes as debate around YouTube as a distribution platform intensifies, with the Google-owned video site set to launch its 100-channel professional content drive in the US while a similar initiative is underway in Europe.
“Whether YouTube distribution can be a viable business model depends largely on your content’s production and marketing costs. If you have a popular show or programming that is quick and cheap to produce, then monetising it through a portal like YouTube from an ad perspective could work very well for you,” says Cook.
New monetisation models are also emerging and leading the way down untrodden paths. LA-based IP manager and licensor Evolution Management Group has acquired rights to new girls-skewing property Taffy Saltwater. The firm is planning a TV series but only after both production and toy partners – and by extension rights agreements – have been lined up.
Bundling toy licensing at the pre-production stage alleviates risk for a broadcast partner and “also guarantees there is revenue downstream,” says Travis Rutherford, CEO and founder of Evolution. “Everything is subject to what the property is and how you approach negotiation. We put ourselves in a stronger position by having a strategic plan and having the pieces already in place to monetise the property.”
With broadcasters increasingly keen on back-end shares and rights, L&M firms and IP rights groups have to be flexible and willing to co-own content, says Rutherford. But the broadcaster has to play ball too, as licensing firms will “weigh up” where their content is on the channel’s priority list. “You have to ask, ‘Does my property have weight against their own IP, and how much attention will their consumer products division give it in comparison with my resources as a smaller company with less IP in the mix?’”
In the US, Evolution manages preschool brand Pocoyo, which was recently picked up for broadcast by Nick Jr. Maria Dolan, MD of brands for Pocoyo’s Spain-based producer Zinkia Entertainment, says the franchise could not have grown to its current stature without a TV window. “The financing model follows a natural flow of investing what it costs to make high-end animation. Not relying on the TV platform would be kind of crazy, as we see a direct and positive reflection from it in the purchase of consumer goods. Once the show moves around in a programming schedule we see the effect immediately.”
Dolan says television will be an important aspect of brands – especially in preschool – for “at least the next 10 years,” and notes: “However far we move away from the traditional platform into the digital space, TV is our core.”
Classic Media’s Blake adds: “TV will always be a key element of consumer products. It’s not the only route but it is always going to be important and probably the main driver for consumer products, especially for preschool and boys’ action, and for a new property.”
Heritage brands remain another healthy space for children’s licensing, something New York-based Classic – which owns brands as varied as Noddy, The Lone Ranger and Postman Pat – is all too aware of. Indeed, the entire business model relies on this fact.
“Classic properties have been very popular over the past couple of years because they’re tried and true and retailers have been testing new properties less. This plays well into our core franchises’ hands,” says Blake.
The relevance of TV windows depends on the demographic, she adds. Older children, such as tweens and teens, react better to feature films or digital platforms, whereas preschoolers need an animated series to connect with characters. “We have properties that were built on TV and properties that were built on books, toys, video games and comics. Each started uniquely and for each property we look at where it’s been and how it got there, and then decide where we want it to go next,” she says.
Classic’s ongoing reinvention of 1980s and ‘90s book series Where’s Wally? (aka Where’s Waldo?) is linked to its play pattern: search and find. “It’s a literary property in its heritage and we wanted to focus on that and reinvigorate the book side as a base for children today. We also thought the ultimate translation of Where’s Wally?, looking at the play pattern in his books, was the digital world. So it’s a book property supplemented by digital,” says Blake.
Conversely, reimagining Postman Pat, with its strong television heritage, required a new season (airing on BBC diginet CBeebies in 2013) and an accompanying movie, she adds.
Hit’s Catchpole agrees brands are different depending on their audience. “For preschool properties, TV is key if one wants a major brand. Digital is a component and growing. For older children, brands can be launched and developed on just a digital platform,” he says.
Hit hired Catchpole when it came under the control of toy company Mattel in February, to oversee classic franchises such as Thomas the Tank Engine and new ones like Mike the Knight, which has clocked up an impressive 30 licences since its launch in October last year. Last month, a toy range based on the brand was launched.
The fact a toy firm paid £426m (US$682m) for Hit demonstrates that TV-led brands still have a lot going for them. It’s an outlook shared by RTL-owned FremantleMedia, which recently launched L&M programmes for kids’ TV franchises Tree Fu Tom, Monsuno and Max Steel.
“Brand awareness and consumer loyalty are still key drivers in any successful L&M campaign,” says David Luner, executive VP of consumer products, interactive and mobile for the firm’s brand extension arm FremantleMedia Enterprises.
That said, Luner also subscribes to a familiar school of thought. “As the media, content and entertainment landscape continues to change, those key foundations can be built in number of new and exciting ways. Although television remains a high-profile and extremely attractive brand-launch platform, other content and entertainment options, like gaming, social platforms and digital content syndication, will continue to grow audiences and launch brands with loyal and engaged consumers.”
Noddy’s place in Toytown is assured, and digital brands like Moshi Monsters have unpacked their bags for good. Children’s TV needs to work hard to keep its shop open for business too.