Money machine

A long long time ago George Lucas asked for nothing more than the licensing rights for Star Wars. $7bn later he has proved that merchandising is a cash-cow, but has it become bloated? asks Jo-Anne Flack

The story goes that when film director George Lucas was negotiating the financial details of the first Star Wars film (released in 1977), all he demanded was a percentage of the licensing revenue. Apart from the fact that that deal alone has ensured that Lucas and his company have been financially very well taken care of ever since, it was a decision involving remarkable foresight at a time when licensing was not such a big deal.

In fact, since 1977 the Star Wars brand has sold $7bn (£4.8bn) worth of merchandise around the world. The most recent film, Star Wars Episode 1: The Phantom Menace, has raked in net sales of $750m (£524m) of merchandising in Europe alone during the past two years.

But it hasn’t all been good news for Star Wars. With the release of The Phantom Menace in 1999 and the orgy of licensing deals that followed, a certain amount of cynicism now surrounds the industry, with potential partners wondering whether tying up with brand or entertainment properties is not being too diluted.

Not that that cynicism is making itself felt commercially. Last year, licensing in the UK was worth £6bn – an increase of 16 per cent on the previous year. The much anticipated release of the Harry Potter and The Lord of the Rings films at the end of this year will undoubtedly see that figure increase.

But like any success story, there are inherent dangers. The temptation to slap a character or brand onto a product is great, especially in view of the added revenue that the partnership is likely to bring. But in an age where brand values are seen to be as important as the product itself, the dangers of diluting or damaging the brand with an ill-conceived link-up are great.

Director of brands at The Copyright Promotions Licensing Group (CPLG), Martin Lines, says much of the value of a licensing tie-up lies in the timing. “It is important to distinguish between a brand and an entertainment property. With entertainment or character properties, you have a window of about three months from when the film is released or the character is as its most popular. With brand licensing, you are working with a property that has been around for a long time. The time frame and perspective is completely different. In this case it is much more important to understand brand strategy and long-term development.”

CPLG handles the licensing for Star Wars, and Lines says that despite the criticism of overkill, the licensing programme has been very successful. “You need to figure out what the role of licensing is. Is it to create awareness of a product or increase people’s consumption of the film? Licensing programmes have a way of involving consumers more closely with a brand. “The success of the The Phantom Menace licensing proves that, although some in the industry may have thought it was overkill, the consumer response speaks for itself.”

And it is how the consumer responds to the tie-up that really counts. Worrying about brand values and whether a link-up constitutes the right “fit” becomes less important if the money is rolling in.

Label slapping

That seems to be the attitude taken by Gullane Entertainment, which has owned the Thomas the Tank Engine brand for more than 20 years. Thomas the Tank Engine is viewed in 135 countries and there are more than 300 licensees worldwide producing more than 2,000 different products – all of which presumably have to remain true to the brand. But being true to the brand is also a matter of interpretation.

Gullane Entertainment head of marketing Anthony Evans says everyone involved in the product “is working from a core philosophy – any product which is developed must have some play value”.

Evans says Gullane is not in the business of what he calls “label slapping”, although he admits it has been guilty of it on occasion, citing Thomas the Tank Engine Cheese Triangles as an example. On the other hand, he says, for the brand to be transportable, it has to be sensitive to local needs and licensing agreements tend to be territory specific. “If you want a property to succeed, it must be flexible,” says Evans.

So, for example, in Japan you will find Thomas toilet covers and toilet roll, a concept that Evans admits would not go down very well in other markets. But, he says, it works well in the Japanese market and that’s what counts.

He adds: “Because of the economies of scale for a licensee, it wouldn’t be viable to produce something only for the UK market.”

Evans also admits that developing a territory specific policy for brands will become more difficult in what he sees as an increasingly global market. “People go online now and will find an e-tailer who can sell them anything, so maintaining country specific products will become more irrelevant.”

Global success

The surprising thing about Thomas the Tank Engine and its astonishing global success is that no one has developed a rival character – even in the US where Thomas enjoys a lot of success.

“It is an inherently British story,” says Evans, “but in any country where there are trains, it holds appeal. I am surprised that no one has tried to challenge it yet. I would have thought that one of the big studios would have done something.”

The studios would have a battle on their hands, though. The Thomas website alone gets between 12 million and 14 million hits a month; this is for a product that probably loses its appeal after the age of six.

Another inherently British character is Noddy which, despite its continued popularity in this country, is only now on the threshold of making an impact globally. Although the character was launched internationally a few years ago, the introduction of a series of 100 ten-minute computer-generated image programmes in April to broadcasters across the world is being seen as the real launchpad for Noddy.

Safe products

Jonathan Keeble is head of licensing at Chorion Intellectual Properties and says the Noddy brand will be carefully protected and centrally controlled. “At the moment we approve everything, from the products that want to link with Noddy to the way they are promoted.”

Keeble doesn’t believe that the globalisation of Noddy will make this process more difficult. “Disney and Warner Brothers have centralised the whole approval process, so there is no reason why we can’t. It will be hard work, but it can be done.”

Chorion acquired the Noddy brand from Enid Blyton’s daughters for £13m in 1996. This sounds like a lot of money, but as Keeble points out the deal included 700 books and 10,000 stories. Also, the commercial potential of the product is vast.

Much like Thomas the Tank Engine, Noddy is what licensees call an “evergreen”. It is a safe product which is recognised and accepted, particularly by parents.

Since acquiring the brand in 1996, Chorion has been involved with a number of tie-ups, particularly in the food sector. Because of Noddy’s preference for a breakfast of eggs, there have been a number of links with free range and barn egg producers. Keeble says: “Mothers are always trying to find ways to get their children to eat healthier foods. It’s easier to hook children in if the pack is linked visually with a brand such as Noddy and also elements like club membership details and games.”

Chorion has done a similar tie up with chicken nuggets which are now available in Tesco. Keeble says: “When I was approached by the food manufacturer I couldn’t immediately see the link. But when you think about the role that food plays in families, it began to make sense. We then went one step further and insisted on adding value to the final products. We insisted that the nuggets had to be made of breast meat and was fortified with minerals.”

Sex and drugs

In terms of what Noddy could not be linked to, Keeble says the rule is to “steer clear of sex, drugs and alcohol”. “We have been involved in some parodies of Noddy which have worked. We recently did a Noddy Toy Spotting parody. But we also turned down a tie-in with Lynx aftershave. They were looking for a tongue-in-cheek campaign which we thought was a bit sexy for Noddy. We turned down a five-figure sum for that.”

The trick, says Keeble, is to avoid “cannibalization” of a product. “We have been approached to link up with a nappy brand. I’m not really sure about the implications of that, to be honest.” He should have a conversation with Gullane – they’ve not had a problem with soiling their brand.

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