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Are Toy Manufacturers Suddenly in the Licensing Driving Seat?

The paramount role of toys and games in the success of any contemporary product licensing initiative has brought about a distinct shift in the balance of power in this competitive sector, argues John Baulch, Publisher of Toy World magazine.

Photo: Batman vs Superman: Dawn of a New Licensing War?
Batman vs Superman: Dawn of a New Licensing War?
Photo: Batman vs Superman: Dawn of a New Licensing War?
Batman vs Superman: Dawn of a New Licensing War?

October once again saw the Brand Licensing Europe exhibition take place in London. The event is the European counterpart to the Las Vegas Licensing Expo, an event that lays claim to being a global trade show, albeit one with a significant domestic bias. The worlds of toys and licensing have always been inextricably linked – licensed merchandise is officially said to represent 27% of the total UK toy market, although many believe the true figure is even higher.

So far this year, sales of licensed merchandise have been reported as growing twice as fast as the total market, a development largely down to the success of a number of movie-related ranges. With the launch of the new Star Wars movie at the end of 2015 and other major films, notably Batman Vs Superman, on the way in 2016, this trend is widely expected to continue. The importance of licensing to the toy market has been well documented in the past. Perhaps a more interesting perspective, though, can be gained by reversing the question and looking at the importance of toys within the overall pantheon of licensed merchandise.

In years gone by, it was widely assumed that the toy sector was essentially a mature category, with limited capacity for growth. Instead, licensing companies focussed their attention on developing emerging product sectors, such as electronics, home entertainment (DVDs and Blu-Rays) and video games. Figures for the last 12 months, however, suggest that the potential for growth within the toy sector was sorely underestimated, while some of the so-called emerging categories have struggled over the same period.

Taking a look at the numbers is quite revealing. More than £11 billion was spent on children aged 0-14 years over the past 12 months. Licensed merchandise – including toys, clothing, DVDs, publishing, health and beauty, and greeting cards – accounted for 22% of the total spend, making licensing for children worth some £2.4 billion a year.

Perhaps unsurprisingly, the largest category – accounting for more than £1 in every £3 spent on licensed products – is the toy market. More interestingly, the toy market was actually responsible for 50% of the overall growth in the sales of licensed merchandise over the past 12 months. The clothing category, meanwhile, contributed a further 41%. It's also worth bearing in mind that a significant percentage of clothing sales are represented by dress-up costumes, many of which are sold through toy retail channels. If you combine these two figures, it effectively makes the toy market responsible for as much as 91% of the growth of the licensed merchandise sector. Given the broad number of categories that make up the overall total, it is no understatement to say the toy market is driving the licensed merchandise category, just as much as licensed products are driving the toy sector.

In fact, the total volume of licensed merchandise sales in the 0-14 years category actually declined by 2% over the last 12 months. Three areas in particular are said have driven this decline – electronics, DVDs and video games. The non-stop growth of streaming services, such as NetFlix and Amazon Prime, both offering alternative methods of viewing films and TV shows, has clearly had a major impact on the sales of licensed DVDs.

In terms of video games, there have been some notable success stories over the last couple of years, including Skylanders, Minecraft and Disney Infinity – although, once again, the success of these ranges has arguably been driven by the toy market. Any decline, however, appears to be largely the result of video games companies focussing on older gamers rather than the 0-14 years market.

So, the nett result is that the toy category has become ever more important to the overall licensed market. At the same time, previously strong sectors of the licensed market have declined over the past few years as a result of changes in consumer behaviour.

What, though, does all of this mean for the toy market? First and foremost, it would seem to strengthen toy companies' negotiating position with licensors. While it has always been crucial for licensors to secure the right toy partner (as opposed to just a toy partner), there has always been a suspicion that some property owners felt that they held the balance of power and behaved accordingly. These figures show the pivotal role that the toy industry now plays in creating a successful licence. Indeed, within the mainstream children's market, it is difficult to think of a major property that has not been a hit in the toy sector, but has gone on to enjoy success in other categories.

As well as toy suppliers, it also seems likely that the toy retail channel could benefit from this turn of events. With the toy market now paramount in determining the success of any property, licensors will hopefully see the benefit of engaging more with their retail partners and supporting them through in-store activities and other marketing initiatives.

Indeed, there have been a number of recent examples that suggest this process is already underway. The Toy Store, the successful Middle-East based toy retailer, recently opened its inaugural European flagship store in London. A tour around the new outlet reveals a major emphasis on licensed merchandise at the expense of generic brands and products.

Photo: The Toy Store: A magical environment for children.
The Toy Store: A magical environment for children.
Photo: The Toy Store: A magical environment for children.
The Toy Store: A magical environment for children.

Visitors are greeted, for instance, by a giant model of Toothless, the eponymous dragon from DreamWorks' popular How to Train Your Dragon movie series, which hovers above the escalator leading to the main store floor. Throughout the store, the product selection is heavily dominated by character merchandise, with the chosen properties featuring a wide array of products, not just toys.

Photo: Baulch: “Heavily dominated.”
Baulch: "Heavily dominated."
Photo: Baulch: “Heavily dominated.”
Baulch: "Heavily dominated."

It seems that the owners of The Toy Store have decided that focussing predominantly on character licensed products was the best approach from a commercial perspective, while license owners and licensees have enthusiastically supported the store's launch with in-store fixtures and features. As a result, it feels like a true 21st century toy shop, one intended to engage children and create a magical environment for them to enjoy. Of course, licensed products play a key role in creating this desired effect.

Several licensors have gone a step further, working directly with retailers to create character ranges that are exclusive to the store in question – a phenomenon known as DTRs (direct-to-retail). Nickelodeon, for instance, has recently teamed up with the UK's leading chain of independent toy stores, The Entertainer, to develop a range of Nickelodeon-branded toys, including craft kits, science sets and magic sets.

The range has just launched in-store and will be TV-advertised in the run-up to Christmas. It may be a DTR deal, but it is being sold and marketed in exactly the same way as a branded range. If this approach succeeds – and early signs are said to be encouraging – we can expect to see more direct interaction between property owners and retailers, much to the chagrin of many licensees, who may feel that cutting them out of the equation will have major repercussions in the long term.

Either way, the global toy market will undoubtedly continue its symbiotic relationship with the licensing community for many years to come. As a result, for now at least, the toy industry finds itself in a very strong position indeed.

John Baulch is the Publisher of Toy World magazine

Content provided by Picture: HKTDC Research
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