Licensed merchandise

74Let’s have a look at licensed merchandise, how it works, what are the advantages and disadvantages for the manufacturer, retailer, consumer.

Licensing is a business arrangement in which one company gives another company permission to manufacture and sell products bearing images to which it owns the copyright. In return the licensor gets a percentage of the revenue from products sold under the license.

By licensed merchandise we mean the agreement to use copyright material, perhaps images made popular by film, TV, video games, or sporting events.

Typical licensed merchandise would be kids wear, clothes, underwear, nightwear, footwear, or kids merchandise such as stationery sets, school satchels or toys and books.

Popular characters would be Disney characters such as Elsa from Frozen, or Sleeping Beauty and Snow White. Also popular is Batman, Superman, and Ninja Turtles.. Barbie, Action man, Bob the Builder or Teletubbies.

There are also sports related licenses for events such as the Football World Cup or the Olympics or Winter Olympics. Appropriate merchandise might be T shirts, sweatshirts, footballs, flags and mugs.

Licensed revenues are significant for organisations such as the Major Baseball League who grants licenses for products to be sold which bear their team logos. In 2010, the MBL sold licensed merchandise worth approximately $2.75 billion.

Songs may be licensed for use in films or TV, and technology may be licensed for use in other products, for example Dolby technology in music players.

Designers make huge revenue from sales of licensed products such as perfume, handbags and clothing.

Licensing agreements

The license is granted by the licensor, (who owns or manages the rights to the copyright or images) to the licensee, who is usually a manufacturer or retailer. Contracts are negotiated individually, and although there are some generally accepted conventions, the licensor and licensee can agree anything they like.

The agreement will clearly identify the product to be licensed, and will specify sizes, colours and materials to be used, and will usually allow control over the quality of the product, and any changes to design.

It will grant the right to manufacture, import, advertise or sell and distribute the product in specifically agreed territories. It will also state whether the license is exclusive or not in a particular territory. It may specify the trade channels the license can be used for, such as department stores, or mass market retailers.

The licensor will usually specify that they approve quality of the product at every stage, and that they approve packaging, advertising and marketing,

Revenue agreement

The licensor will want to be assured that the licensee will make every effort to market the licensed product and to optimise revenue return for them, so they may specify that certain Trade Fairs and Exhibitions are attended. They may specify shipments are available for certain dates that will be crucial to retailers, for example in time for Halloween, Christmas, back to school, or related sporting events.

They may specify a minimum sales revenue, or that royalties reach a minimum amount. A royalty rate will be agreed.

Failure to comply with the specification may incur a penalty payment and almost certainly termination of the license.