Part one of this year’s series of Hong Kong Blogs was originally posted last Friday: you can catch up here if you were still in the Far East or in the process of travelling home. For my second Hong Kong Blog, I wanted to make a few observations about the state of play in the licensing arena, based on numerous conversations last week.
If retail continues to prove challenging, the same could be said for the licensing sector. I am not privy to the official NPD numbers as yet – we’ll have to wait for the first day of Toy Fair for those to be revealed. But if the overall market is expected to be down, I would hazard a guess that the share of business taken by licensed merchandise also decreased last year.
Anecdotally, buyers continue to be cautious about all but the hottest properties. The usual suspects like Paw Patrol and Peppa Pig, together with a sprinkling of new brands such as Fortnite, seem immune to the prevailing scepticism. For many other properties, it is getting harder to secure broad retail support, as online-driven trends and ‘generic’ fads like Unicorns, Llamas, Sloths, Mermaids and others hold ever-increasing sway.
It’s not rocket science to understand the logic: if you’re not paying upwards of 20% (and in some cases, north of 25% with certain big licensors) on royalties and having to fork out big minimum guarantees, you can use that money to improve the product and add more features; boost marketing activity; offer better margins and still end up with a keener price point. No surprise which of the two options buyers are tending to lean towards.
Of course, the situation is far more nuanced than that: some licensors are more flexible and adopt a ‘can do’ attitude more than others, which works in their favour. Some appreciate that speed to market is essential, and are quicker at agreeing deals and getting paperwork and approvals sorted. Others…. perhaps not so much. Some licensors are partnership-oriented and are prepared to take the prevailing retail conditions into consideration when negotiating. Again, others…. perhaps not so much. I have even heard some licensees say that after they decided to discontinue working with a major licensing player, they feel like a massive weight has been lifted off their shoulders. It’s also been said that working with some licensors is so demanding and time-consuming that it means either having to employ more people, or some employees have to be taken from other roles just to meet the administration requirements. This is fine if a property is a nailed-on winner, but I’m hearing that ‘middling’ brands from some big licensors are being shunned by licensees and retailers, with the aforementioned sky-high royalties and MGs, or an over-abundance of ‘slicensing’, becoming increasingly difficult to swallow.
Indeed, the number of licensees and particularly retailers who feel that a return to 10% royalties and sensible working practices is growing daily. Who knows, maybe the current swing away from licensing may ultimately work to everyone’s advantage – even licensors.
Another licensing approach being called into question is the tendency to wait a year after a TV programme’s release to launch product – one licensee told me that with kids’ attention spans getting shorter and shorter, this strategy is rapidly becoming a non-starter.
So, what are people excited about for 2019? On the boys’ side, Fortnite has got off to a very promising start – according to Funko’s Andy Oddie: “It’s been incredible, even better than I expected – and I had very high hopes to start with.” Fortnite became Funko’s number one brand of 2018, narrowly inching out Harry Potter – but it did that in just eight weeks of sales. I also saw the Moose Toys Fortnite range, which is being distributed in the UK by Worlds Apart. The range will be going trade-wide this month, and with figures starting at £4.99, it’s no surprise that it is already selling exceptionally well. There will be new waves released every 2-3 months, which will result in a range of 100 characters being available by the end of the year. This is where price point is absolutely key: at £4.99, a collection of that size is feasible. (As a side-note, at least one major toy retailer is of the opinion that ‘the largest’ licensor has damaged the mainstream action figure market, as its massive royalty rates have contributed towards prices being too high to realistically drive collectability).
Over in the girls’ licensing aisle, all eyes are inevitably on Frozen 2. It is coming into a very different girls’ market this time round – we all live in an LOL world now, and Frozen will have to fight far harder for shelf space than last time round, with LOL looking like it will have another huge year. The late release of the movie will give retailers a dilemma: although on-shelf date is several months before the movie launch, recent experience suggests that it’s not until kids see the movie when sales really step up a notch. That means secondary lines won’t kick in until Q1 2020, although core lines should still sell well in Q4 2019. Disney’s secrecy means very little is known or can be shared, but word is filtering through on the grapevine: yes, the sisters do leave the frozen wastelands of Arendelle, which some might see as a risky strategy. But I gather that people who have seen the movie (or parts of it) say it is every bit as emotional as the first – there is talk of people being moved to tears on several occasions. There is also some uncertainty as to whether the movie has anything to rival ‘Let it Go’ (perhaps ‘Let it Thaw’ this time around?) – obviously it will help enormously if there is, as I remain of the opinion that the song was absolutely pivotal to the success of the first movie.
There is also excitement building around Toy Story 4, with Thinkway reporting huge interest in its movie line. Harry Potter will have another stellar year – the most breath-taking new product development I saw in Hong Kong was a Harry Potter line. Embargoed, naturally, but I’m looking forward to ‘revealing’ all in due course (slight hint there).
The other thing to look out for is the rise of licences from ‘alternative’ sources: whether modern gaming brands like Baldi’s Basics and Bendy and the Ink Machine or YouTube brands such as Ryan’s World – none of them emanate from mainstream licensors, but all are poised to carve out a healthy niche for themselves in the toy market. Licensing remains a powerful ally for the toy community, but it’s arguably not as straightforward a field to navigate as it was a few years ago.