Global brand licensing is thriving in an increasingly digital environment, but intellectual property infringements are threatening the success of these collaborations.
A growing need for digitization has driven agreements between licensors and licensees who are searching to extend their brand reach through collaborations and product range expansion. It´s a growing trend which has seen an increasing number of character or trademark inspired products listed across digital store shelves.
But despite the feelgood factor, intellectual property infringements are rife and must be controlled through brand monitoring and intellectual property protection.
Global market: The global brand licensing market was reportedly worth 275.93 billion US dollars in 2021, and forecasts suggest it will reach 384.5 billion USD by 2028. This translates into a compound annual growth rate (CAGR) of 4.3% between 2022 and 2028.
The market is made up of various categories including, apparel (the largest segment with 17.4% of market share), toys and board games, accessories, home decoration, software and video games, and food and beverages.
Country split: North America leads the way due to ever-increasing demand for world-renowned brands including The Walt Disney Co., and Warner Media.
The United States and Canada are also the biggest shoppers when it comes to purchasing licensed products, perhaps this is no coincidence when we consider the size of the market, the disposable income, and perhaps most importantly the aforementioned brands. Whilst Europe and Asia are also significant markets.
Top five global brand licensing companies: The top global licensors annual report ranked the performance of brands´ licensed consumer retail products. In 2021 we see that the total reported revenue reached 260.8 billion US dollars. The Walt Disney company (56.2 billion retail sales) is the number one in this ranking, followed by Dotdash Meredith, Authentic Brands Group , Warner Media / Warner Bros. Consumer Products , and The Pokemon Company Ltd.
Before we go into the dangers which threaten brand licensing agreements, let's take a moment to review how brand licensing actually works…
The licensing agreements: These contracts allow a manufacturer (the licensee) to effectively “rent” the intellectual property of an official brand (the licensor). This can include the use of logos and other trademarks which may be featured on a specified product range(s).
Contract: Such agreements typically last for three to five years, (but sometimes more). They may include requirements to produce a minimum production of the licensed product, or perhaps the right to audit licensees at certain stages throughout the contract.
Clauses: It’s worth highlighting the clauses which are often found within licensee contracts which may stipulate that products must be launched within a specified period of time, or that certain channels may or may not be used.
Limitations may also be added to the countries in which licensee’s retain the rights to advertise and sell branded products, or the price or discounts which may be applied at various stages.
Payment: Royalties are usually paid in relation to product sales and often based on a percentage of the retail price. They may also (although it´s less common) be based on a set free per item.
Licensors may even request an advance of the royalty payments as a sign of goodwill and to display commitment from the licensee. The amount will likely be determined based on the projected annual forecast. A minimum guarantee could also be included within the contract.
Quarterly statements are commonly required, this allows licensors to analyse product sales and review forecasts for the coming periods to measure the value of royalty payments.
Overstock: what happens to any stock which remains once the contract expires? Well, typically contracts allow for an additional three months after the licensing agreement expires which permits producers (licensees) to lower the price of these items to clear the goods.
Afterall, Licensing is about working with someone else’s brand, but believe it or not, the contract is often the easiest hurdle to jump, we´ll take a look at some of the dangers which threaten licensor, licensee agreements later in this article.
In September we attended the Brand Licensing Europe 2022 event in London where more than 260 brand owners and over 8,000 people were in attendance. The industry is booming and the benefits are there for all to see. Here we take a look at three key takeaways:
1. Official brands (licensors) are benefiting, not simply financially, but also through brand exposure, extending their reach into new categories through the skills and competencies of those operating in alternative sectors to their own, and by doing so are creating awareness and increasing their fan base.
2. Manufacturers (licensees), explained how they were attaching additional value to their products by tapping into the strengths of popular brands, enabling them to stand out against competitors and increase sales with a variety of exciting product ranges.
“Brand Licensing has become a business imperative for any brand owner or product maker looking to take their company to the next level. It is one of the best ways to create an experiential shopping opportunity and engage with beloved brands in novel ways.” Steven Ekstract – Brand Director, Global Licensing Group
3. Master licensors are being contracted by some of the biggest brand owners to clinch the best licensing deals on their behalf. Brands are leveraging third-party expertise to manage commercial contracts allowing them to focus on their primary business functions.
Some hot news was also shared:
“Now, more than ever, are we committed to investing in our partners to create breakthrough moments during key pop culture entertainment and product periods across our diverse brand portfolio.” Marianne James, VP Hasbro
During the same event we discussed the main issues relating to intellectual property infringements and the other threats that licensors and licensees are facing in today's digital environment.
For licensors the main issues are:
This counterfeit merchandise is often found in the same markets which should in theory be exclusive to one licensee and are therefore creating direct competition. This damages sales and in turn detracts from the royalties which the brand owner should receive. This makes brand monitoring and trademark protection a must to protect the value of commercial deals.
The responsibility of protecting brand licensing agreements may seem like the responsibility of the brand owner. However there are clear benefits for both licensors and licensees:
Licensors can create added value to their brand licensing agreements by gaining visibility of the various digital distribution chains and introducing intellectual property protection. This includes brand monitoring and taking action against; counterfeiters, unapproved sellers, and non-compliant licensees. Knowing who is selling your products, where, and for how much is essential in today's borderless digital economy and in the interest of maintaining the value of your brand licensing agreements.
There are a variety of intellectual property protection solutions which safeguard the terms of brand licensing agreements, and whilst a return on investment is often seen by brands who opt to protect their online strategy it is not necessarily down to the brand owner (licensor) to pay for this service.
At the Brand Licensing Europe event, we heard how (in some circumstances), licensors and licensees were sharing these costs in the interest of protecting both brands, increasing sales and royalties, and safeguarding online shoppers through a joint approach.
We are a market leader in brand monitoring and intellectual property protection, and we work with some of the biggest global brands. Our solutions are designed to help both licensors and licensees exploit the opportunities which this market has to offer as the digital world expands.
Our solutions protect against intellectual property infringements and the various forms of brand abuse, and provide brand monitoring and visibility of online sales chains through key channels (marketplaces, social networks, Google search results), and markets for your peace of mind.
With Smart Protection you can protect and grow your brand, increase your sales, and safeguard consumer confidence and brand reputation. Gain insights and data to make smarter business decisions, and manage the threats through our secure, user-friendly platform.
It's clear to see why brands are keen to licence their intellectual property. The monetary gains through royalties are clearly an incentive, but also the benefits of reaching new pools of consumers who would otherwise be out of reach, whilst boosting brand awareness are core incentives.
America, Europe, and Asia lead the way in terms of consumer sales, however emerging markets will appeal to those entering the branded licensing world for the first time, a strategy to avoid crowded markets and where consumers may be more open to new collaborations and product ranges.
Finding partnerships which work for both parties (licensors and licensees) is paramount to success. But also, the importance of brand monitoring, seller monitoring, and intellectual property protection, and online sales control (who is selling your products where, and under what conditions), should not be understated.
Counterfeits are also a huge problem for the industry. When we consider the revenue in which they generate, and the ease and low cost in which products such as branded t-shirts, caps, and cups can be copied makes it an easy target for those wishing to gain illicitly from this huge global market.
A joined up approach from licensors and licensees which utilises automated brand monitoring and intellectual property protection must be implemented to achieve optimal results.