The licensing market is in a state of decline because of an over-reliance on children’s characters and competition from retailers. Licensees should look to mobile media and the adult sector for salvation
At first glance, the character licensing market appears to be very successful. There is a seemingly endless supply of new and exciting movies, many of which are character-based, and there are a large number of television programmes generating many more licensing opportunities. With so many characters and so much industry marketing “noise”, one might think the sector is buoyant. But news of Hasbro’s revenues being held back by poor sales of Star Wars products (MW August 3) suggests that, in reality, the market might be in trouble.
The UK character merchandising market has been in long-term decline since the late 1990s. The US market is also in decline, and this poses a huge problem, because the UK and US markets combined account for about three-quarters of all quantifiable sales. The global position is not too encouraging either.
Mainland Europe represents a smaller market, although there are still opportunities for growth – for example, children in Mediterranean countries seem to age more slowly, skipping the tweenie years and so continuing to enjoy young characters for a longer period. The Australasian market is fragmented and flooded with counterfeit goods, making it difficult to assess.
Taking a closer look at the UK, the character-merchandising market is notoriously difficult to quantify, but Mintel has drawn on published data and interviews with the trade, in order to provide an overview of the market and an indication of its scale. Mintel’s estimates show that sales fell 13% between 2001 and 2005 to an estimated &£3.3bn last year. This decline has come about despite a rise in the value of the market’s two largest sectors – games/toys (up 8%) and media/publishing (up 18%), which together make up around 60% of the market. But any growth overall has been countered by the dramatic fall in sales seen in the remaining sectors of the market.
Indeed, the value of the food and drink sector has halved since 2001, as brand extensions have proved more popular and less controversial. The “health police” have suggested that character licensing contributes to pester power, and is an inherently unhealthy influence on recipe formulation. The insinuation is that the products are part of the obesity problem, although there is absolutely no evidence for this. The clothing, homeware and giftware sectors have also suffered considerable falls.
It would seem that in these declining sectors the proliferation in the number of character-licensed items available may have reached saturation, and as a result novelty value and price have been eroded. Mintel’s consumer research shows that three-quarters of parents believe that character licenses are short-lived, indicating an issue with perception of value-for-money against product use.
One of the other major problems facing the market is the rise of own-label merchandise, which has grown and taken space away from character goods, and is offered at much cheaper prices for an acceptable quality. Retailers are also undermining the established supply chain by directly obtaining character licences of their own to lock out other retailers.
Apart from denying access to licensees in similar market sectors, retailers are able to obtain merchandise from their own suppliers, at more competitive terms, and retain any profit resulting from a licence’s premium pricing. Retailers are essential to the licensee as a route to market, but they are now also a core competitor.
But things are not all bad. There is a general industry opinion that the market is too reliant on young children, and that opportunities for mobile media have not yet been truly realised. As such, the popularity of mobile media among teenagers presents a considerable opportunity. Mobile phone penetration is at 80%, estimated at 9 million handsets, almost half of which are camera-enabled. To teenagers, mobiles are more than just telephones, they are “lifestyle remote controls”.
Their mobiles are about self-expression, freedom, fashion statements; they are portals through which they receive information such as news and sports updates, listen to music, converse with friends, play games, enter competitions and express themselves through tailored ringtones, wallpaper, faceplates and personalised voicemail. The mobile phone is about entertainment as well as connectivity to the world.
Mintel’s research shows that 60% of seven- to 14-year-olds disagree that they are too old for cartoon characters. In other words, teenagers are still receptive to character licences, but the products on offer are not necessarily attracting them into the market.
Teenagers seeking to personalise their mobile phone as a form of self-expression will spend money regularly on downloaded ringtones, wallpaper, videoclips, faceplates and so on. All of these items have the potential to be offered in popular characters, evolved for the teenage market, and these products may lead to purchases of other products featuring the same character. Some of the bigger film-based licensors have these products available online.
Music, fashion and sport are all important interests among teenagers, leading to considerable personal expenditure. These values might be adopted by characters specially developed for the teenage market.
Licences for adults are also long overdue. Children under 14 years of age account for just 17% of the population. Adults have a sense of humour, read newspapers, consume media and have a strong social network too, and it is time this market was exploited. In order to turn around declining sales, the industry needs to capitalise on these new, untapped opportunities, and if this potential can be realised there is no reason why the character merchandising market should not enjoy a more promising future.â¢
Harry Foster, senior market analyst at Mintel, contributed to this week’s Trends Insight