Economy Has Impact on Price in Licensing Industry

CHRISTINA VEIDERS

The economy is having an impact on the licensing industry, with retail sales in the United States and Canada off by 3.4% in 2007 to $68.5 billion, according to EPM Communications, New York, which covers the entertainment marketing field and publishes The Licensing Letter. “The harder the economy gets, the less leeway there is in that premium. It is a matter of being competitive and understanding the marketplace,” said Ira Mayer, publisher of The Licensing Letter.

In considering the impact of royalties on the shelf price, those interviewed said that it isn't an issue, especially when weighing the value of the license to the quality of the product. “When done correctly, consumers shouldn't be aware of the price, because these are premium and quality products sold at premium prices. The royalty rate gets absorbed by the incremental margin,” said Blair McCaw, president of Constellation Management Group, based in Chicago and South Norwalk, Conn.

“We keep our assortment tight and at the right price point in order to ensure sell-through success,” said Irv Zakheim, president and chief executive officer of Zak Designs, a manufacturer of licensed children's dinnerware in Spokane, Wash.

How much royalties add to the retail price is a complicated matter, given the various licensing agreements. Mayer said that entertainment-character royalties are higher than other licensing categories. “Every deal is different. Direct-to-retail is different, because a lot of promotional opportunities are built into it. It changes the economics dramatically,” he said. Food and beverage licenses tend to be at the lower end of the royalty spectrum because of the high volume and the channel of distribution.

Last year, overall licensing fees averaged 8.7%. Average entertainment-character licensing fees were 10.3%. However, licenses on food products fell below the average to 6.7%, said Mayer.

Sales of entertainment-character licensed merchandise in the U.S. and Canada remained flat at $12.2 billion last year. Of that total, supermarkets, drug stores and variety-convenience stores accounted for just 9% of total sales. Mass merchandisers accounted for 45%. Canada generates about 10% of total licensing sales, Mayer said.