Consumer product licensing of TV characters finally takes off in India...
How much would you pay to buy a Ben 10 water bottle or a Harry Potter T-shirt? What about a Dora the Explorer tiffin box, a Dexter bicycle or an MTV condom?
About $125 million or just over Rs 550 crore, reckons Gaurav Brar, director, Cartoon Network Enterprises, South Asia. That is how much consumers paid last year to buy anything from bed sheets and mobile phones to credit cards and pencils sporting their favourite characters. “The consumer product (CP) licensing market in India has exploded in the last two years,” says Brar.
Roshini Bakshi, vice-president, consumer products, publishing and retail, The Walt Disney Company (India), agrees. “In the last five years we have seen 10 times growth and going forward we are going to grow six times over the current figure. A large portion of our India revenue comes from CP licensing and it is growing aggressively,” says she. “Brazil, Australia and most recently India have been among our three fastest growing international markets,” says Jeffrey Whalen, the Los Angeles-based senior vice-president for Warner Bros Consumer Products.
Much of what you are about to read refers to consumer product licensing by media and entertainment companies only. And none of them share numbers on revenues from CP licensing. Estimates for Viacom’s CP business for the financial year 2010 put it at Rs 10 crore. The Disney and Turner numbers should be way higher simply because globally they are much bigger players in this game. For instance, at $2.67 billion in CP revenues, Disney is the world’s largest marketer of licensed products. (These are the revenues the companies earned. The retail value of these sales will be three-four times more than that.)
Even if Disney and Turner’s India numbers are in the Rs 50-200 crore range, they don’t seem scintillating. Not unless you know that CP is a pure gravy business. There are almost no overheads, so a bulk of the money, more than 80 per cent, goes straight to the bottom-line.
Also, these numbers are great in a market where nothing, absolutely nothing, has worked on the CP and merchandising front. For years merchandising has been about cheap rip-offs, a grey market that undercuts brutally, and a consumer who doesn’t care whether or not he is buying a genuine Mickey Mouse T-shirt. What then has changed?
There are four things at work — the growth of kids’ television, the growth of organised manufacturing and retail and the investment in this area by the global majors. The confluence of these four factors means that the eco-system needed is just falling into place.
The result has been the nascent success that TV companies are seeing in CP sales. It couldn’t have come at a better time for the television industry as it struggles with slower ad growth, stagnant pay revenues and higher costs. It is an avenue to monetise content from sources other than advertising and pay. In the film business, however, character licensing has a long way to go because the organised film business is not as mature as TV is in India.
In the wizarding world Harry Potter is a hero. In the muggle world he is a money-spinner who has generated more than $7 billion in retail sales of everything from pens, pencils, sheets, wands and games among scores of other things. He has been after Batman one of the biggest money spinners for the $42-billion Time-Warner Incorporated. “Harry Potter stands out as one of the most successful merchandise licensing programmes of all time,” says Jeffrey Whalen, the Los Angeles-based senior vice-president for Warner Bros Consumer Products. The game in licensing or merchandising for film characters is significantly different from the one on TV. The deal structure maybe the same (see main story). But unlike TV, films are usually one-offs. The osmotic relationship between what we watch and our need to be closer to it, is what consumer product licensing or CP exploits. But if what we watch is a one off, like it is in films, then that relationship becomes difficult to exploit. It is very rare to get a film which has the potential to be a ‘franchise’. This means a film that lends itself to sequels, prequels and to characters that can be spun off. That is when you hit gold. “There are only a few kind of films that lend themselves to merchandising,” says Ram Mirchandani, chief creative officer, Eros International. Eros is the largest film studio operating out of India. |
No wonder then that studios love films like Spiderman, Batman, Lord of the Rings or Harry Potter. There are lots of predictable stories (Potter had seven), characters that grow on you and can be moved around globally and made to speak in different languages. Remember Spiderman came in Bhojpuri last time. Or they can be moved across formats — to TV, comic strips, mobile phones, the internet and so on. And then they can be licensed to anyone wanting to make merchandise around the characters from a film.
In India, while the odd apparel line around a film is announced by Pantaloon or Shopper’s Stop, there has been nothing that spans a long period of time, categories and distribution channels, a la Spiderman or Harry Potter. Nothing that even hit '10 crore, let alone '50 crore. Om Shanti Om and Kkrish were the only big scale organised efforts that found some success. “Historically film merchandising hasn’t worked in India,” says Mirchandani. Why is it that TV companies seem to be getting it but not the film guys?
One big reason could be that the trigger has to come from a character that children love. And besides Hanuman and Kkrish perhaps, we simply haven’t seen a film that developed a character for children and then leveraged it across other formats and revenue streams. Superman or Batman were children’s characters before the grown ups appropriated them. Also, there are hardly any character films made in India. Some of the releases expected this year, Shah Rukh Khan’s Ra.One for instance, are about a superhero.
These, however, are very rare. UTV, Eros and Yashraj, the three main studios in India, are just about establishing themselves as studios. It will be some time before they churn out franchises a la Fox or Warner.
The kids started it
Globally, the kick-off point for CP has come from children’s entertainment and the characters it spawns. In India, nothing much happened on that front for very long. Local characters such as Tenali Raman or Chacha Chaudhary have remained small and limited in appeal even if they came to TV. None went on to be licensed for consumer products.
In fact, till about 2003-04, only 2 per cent of all TV viewing in India went to kids’ channels. As Disney, Viacom (Nick) and Turner (Cartoon Network, Pogo) invested in this market, this rose steadily to over 6 per cent in 2010. An entire generation of kids exposed to Ben 10, Mickey Mouse, Dora, Doraemon or Dexter can relate to a pencil, T-shirt, or cup with those characters. They ask their parents to buy it. Or parents who know that their kids love these characters end up picking up a licensed pencil or tiffin box instead of a regular unbranded one.
As the viewership numbers started rising, 2005 onwards most broadcasters starting investing in separate teams and business heads for the CP business. Disney and Turner started in 2005 and Viacom a couple of years later. So the pull that television was creating was being converted into a revenue opportunity.
The second reason CP has taken off is the growth of organised manufacturing. Usually media companies just license the character to a company that manufactures and distributes products based on that character. A bulk of the investment, anything between Rs 10 crore and Rs 100 crore, has to come from the licensee. The media company invests in the design of the product and monitors the manufacturing. It may or may not invest in marketing. In exchange for this it gets a royalty of anywhere from 5-15 per cent of sales.
The actual deal structure — pure royalty, royalty plus revenue share or minimum guarantee, co-branding — depends on the market, the brand and the category, among other things. “In a category where price points are high or technology superiority needs to be established, a media company would prefer co-branding — like credit cards or mobile phones,” points out Sandeep Dahiya, senior vice-president, communications and consumer products, Viacom18. Apparel, for instance, doesn’t need any after-sales service, so there is no need for co-branding there.
Earlier, one of the biggest problems with getting a good CP business going was convincing small-scale manufacturers to invest in your brands and then asking them to pay you. This was doomed because there wasn’t enough evidence that it worked. Most usually found that just copying the brand name and selling it did the job, so why bother with the original brand.
“There are now more professional manufacturers because of the export boom. They are financially more robust,” says Brar. Dahiya also reckons that deal structuring has got clearer — ideas such as minimum guarantee or royalty are more acceptable in an India where multiplexes and mobile phones are commonplace. Also transparency has improved. “If they (licensees) think that you are only interested in increasing your share then they focus on what they can get. But if they see you investing in the brand then it is about increasing ‘our share.’ More than 40 per cent of Nick’s licensees pay over and above the minimum guarantee, because they are transparent,” says Dahiya.
The knights in retail
The third reason why growth is happening is organised retail. In the US more than half of all licensed products were brought at discount stores and Walmart. A Pantaloon or a Shopper’s Stop has the space to allow Disney to invest in a shelf, brand it as Disney and let it do its own thing there. Most conventional mom and pop stores can never offer that kind of space.
At 83, Mickey Mouse is arguably the world’s oldest licensed character. Then came George Lucas’ Star Wars in 1977. It was another big event in the licensing business. Over the years it has grown to close to $200 billion in retail sales — that would mean roughly $60 billion has gone to companies such as Harley Davidson or Disney which license the images of their characters, brand names or products for use on other products and services. |
In the US, entertainment character licensing sales form 18 per cent of all sales from licensing according to a 2007 report for The Licensing Business Databook. Apparel and food remain the two largest categories of licensed consumer products sold. And Walmart and discount stores are where Americans bought more than half the stuff with their favourite characters on it.
According to License! Global, a trade magazine, in 2008 Disney brought in more than 14 per cent of all the sales of licensed merchandise across categories and countries. This would include, say, Harley Davidson, Marvel Comics, Discovery or any other company that licenses its characters or products for merchandising. At $2.67 billion or about 7 per cent of its $38 billion global revenues coming from its licensing business, it is the biggest and most profitable player in this game. In 2009-10 Disney’s operating margins on licensing were 25 per cent, second only to the 30 per cent its television business made.
Not everyone agrees that organised retail has had a huge impact on CP sales. R Sriram, co-founder, Next Practice Retail, reckons that much depends on how well-penetrated organised retail is in a category. For instance, in apparel or some electronic products it is well-penetrated; the availability of shelf space helps sales. But in mass categories, say stationery, it is not well-penetrated; so CP can’t do as well here. Brar agrees that, “Distribution remains a challenge.”
A big reason for Disney’s top-ranking CP status globally is the 363 stores it owns and operates in the US, Europe and Japan. The first Disney store is due to open in China in 2012. However, FDI restrictions have stopped the company from exploring this avenue for growth in India.
So while organised retail has certainly chipped in, it is a long way from giving CP the push that could truly tap into the potential of this market. Consider that there are more than 600 million people watching TV in India. That is certainly a lot of water bottles or bed sheets or pencils that can be sold. China, for instance, bought about a billion dollars worth of stuff, more than ten times the value of what Indians did in 2010.
Why the MNCs dominate
Doesn’t it seem that foreign characters and foreign companies have had better luck with CP licensing? This is because the big five — Disney, Time-Warner, News Corp et al — own both film studios as well as television stations. They have a broad array of content from which they can choose characters to license. This in turn increases the number of characters on offer from one company.
Warner, for instance, has characters like Batman, Superman and Harry Potter from the film business and all the Cartoon Network and Pogo characters from its TV business under Turner. “We have something on offer to drive business and speak to either a very broad base or very specialised base of consumers,” says Whalen. This makes it viable for a manufacturer investing anywhere frpm Rs 10-100 crore to put money, time and effort in making a whole range of things and distributing them.
It is irrelevant whether it is Indian or foreign characters that find success in the Indian market. If CP takes off and the eco-system works, then Indian characters too could benefit. For instance, Diamond Comics recently licensed all rights (except print) to MediaGuru, a media consultancy. MediaGuru will soon launch a channel based on Chacha Chaudhary, Sabu and all the characters that an entire generation in India has grown up on. And the fact that the eco-system to license and distribute TV characters now exists makes it easier for it to monetise them further.
One of the biggest strengths of the $17 billion Indian media and entertainment industry is a competitive and robust content industry. On that one count it is way ahead of China and many other markets. Its biggest weakness, however, has been its inability to monetise content better. CP licensing offers a great opportunity to do that.
