What's Keeping the Licensing World Up at Night

Observations From the Industry International Expo -- Day Three

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LAS VEGAS (AdAge.com) -- After a very busy three days, the Licensing International Expo has come to a close. I would like to conclude my daily observation posts with some thoughts on what I believe to be the emerging themes the industry will be dealing with over the next 12 months, leading up to next year's show:

For corporate licensing, measurement remains an issue
This morning I met with a number of my competitors to discuss licensing best practices. Everyone agreed that, in the 30 years we've all been coming to the Licensing International Expo, we are still no closer to developing a reliable system for measuring impressions generated by licensed product and the value of those impressions. Unlike advertising, for example, which has developed rigorous methods to weigh effectiveness, licensing has relied on a very crude method -- royalties from the sale of licensed product and impressions associated with royalties -- in order to measure impressions based on the amount of product on shelf.

While royalties are certainly important, they should not be the sole measurement or the reflection of the true value of the program to the brand. Royalties alone cannot measure the beneficial impact of licensing on the brand itself. Intuitively, we know that licensed products support and enhance brand equity, but if the licensing industry wants to receive the same credibility as advertising, for example, then it needs to finally address this issue.

Entertainment is the new product
Licensing is all about brand and product extensions, but many here have been commiserating that consumers, especially children, are no longer interested in products. Today's consumer is focused on entertainment and experiences much more so than products. And when they are interested in products, i.e., the iTouch/iPad, they are tools for providing entertaining experiences.

Case in point: Notwithstanding the iPad, how many big-toy phenomena have we had in the past year? All that comes to mind for me are Zhu Zhu pets this past holiday season and maybe Silly Bandz. But after that, I'm drawing a blank.

So what does this mean for licensors and licensees? For licensors it means they have to figure out ways to extend their brands into brand-new categories. Many of the old standbys, such as publishing, die-cast and stationery, are no longer as viable as they once were. For licensees, it means that they have to figure out better ways to monetize these new product categories to support the licensing royalties they would have to pay. Take smartphone applications, for example: they seem like a very fertile place for brands to license themselves, but most applications are free or very inexpensive. So how can the licensee (the application developer) afford to pay for the license? Right now it doesn't make financial sense.

For the licensing industry to remain vibrant and growing, we have to crack this code. At this year's show, our client Ford has taken some important strides. It decided to partner with licensee AvantWave, a wireless-connectivity company, to create model cars that use the iPhone and Android platforms for the remote control. Model car enthusiasts will now be able to use their smartphones (after downloading an application) to "drive" their new model cars. It's an interesting blend of experience and product. I am very confident that we will see lots more of these types of hybrid product extensions over the next year.

Celebrities out of step with the licensing industry?
While there has been an incredible amount of celebrity licensing deals this year -- namely Cindy Crawford at J.C. Penney, Vera Wang at David's Bridal, and Selena Gomez at Kmart (to name just a few) -- I am struck by how few celebrity brands are represented at this show. There are certainly no shortages of corporate and entertainment brands here, but I am hard-pressed to find many living celebrities! With the exception of Buzz Aldrin's Rocket Hero brand and Muhammad Ali, among a few others, the majority of celebrities here are actually estates (John Wayne, Elvis, etc.).

What this means to me is the majority of celebrity licensors understand the importance of licensing, but have yet to fully embrace the industry. In my opinion, this is a big missed opportunity for them and I hope more of them attend next year.

Consumers will demand greater transparency around product extensions
In light of the ongoing "Shrek-gate" fiasco, involving McDonald's and manufacturer ARC International of Millville, N.J., I believe licensors and licensees will have no choice but to provide even greater truth and transparency into exactly how licensed products are made.

If you are not familiar with what's going on with McDonald's "Shrek"-themed drinking glasses, you clearly have not been at this show. Here is a quick rundown: Toxic cadmium was discovered in the painted glasses, which were being sold nationwide for $2 apiece to promote "Shrek Forever After." Late last week, McDonald's began to recall 13.4 million glasses in the U.S. and Canada. According to reports, approximately 7 million of the glasses were sold in May and June, forcing McDonald's to offer consumers $3 for each returned glass.

The recall has even prompted a congressional investigation into the prevalence of cadmium in children's products. According to the Christian Science Monitor, as part of the larger inquiry, Rep. Henry Waxman, chairman of the House Energy and Commerce Committee, sent McDonald's a letter yesterday asking the company officials to reveal the measures it takes to ensure its products do not contain hazardous materials.

Whether it is driven by the government, consumers or the industry itself, moving forward we will all have to do a better job of communicating the measures we take to ensure the product and environmental safety of our licensed products as well as our fair trade compliance.

And those are my observations from this year's Licensing International Expo. See you next year in Las Vegas!

Michael Stone is the president-CEO of Beanstalk, an Omnicom Group-owned global brand licensing consultancy.
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