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Licensing 101: Licensed Products Part 1

23 Jul 2015

Hi kids – back again with next instalment of Licensing 101

In this section I am going to address Licensed Products – how that section of an agreement is negotiated and reflected in a contract, and some pointers on how best to approach.

Of course, the licensed product lies at the heart of any licensing agreement and is the reason for the two parties to come together.  The licensee produces and/or distributes products in a certain territory and wants to use IP owned by the licensor to encourage sales.

If you’ll recall, I have previously explained that licensing is built around where the product is sold, not where it’s made, so in terms of licensees, it is relatively more important to focus on licensees’ distribution capabilities rather than their production capabilities.  (This is not to say that the quality of product and compliance with manufacturing guidelines is not also crucially important.)  For instance, quite often factories seeking to boost or have more control over the seasonality of their sales will look to licensing as a quick means to “acquire” a brand which they then hope to use to distribute directly.  However, as a licensor, do you want a company which already has the retailer relationships to maximize sales distributing your product, or one that doesn’t have those relationships and is planning to leverage your IP to build its business?  Obviously, the former is the better situation for the licensor (unless the licensor makes a eyes wide open decision to take the factory’s money because the financials make sense, but it should be understood that in all likelihood said particular licensee is not going to help build the brand by having lots of presence at retail and also the relationship is bound to be rocky as the license inevitably founders).

Also, for the most part, good licensees will specialise in the distribution of one or two key product categories – said specialisation lending itself to expertise and relationships within the business, particularly, of course, with retail buyers across relevant distribution channels.

In our business, products are generally divided into four categories:

  1. Hardlines – as the name implies this refers to hard goods or goods requiring moulds for manufacture.  Categories which fall into Hardlines are Toys & Games TG (do note that plush, which is soft, is a toy, so falls w/in hardlines), Stationery ST (also, within stationery you will sometimes see a split between ‘hard’ items such as pens, rulers, etc. and paper goods), Gifts & Novelties GN, Housewares HW, Sporting Goods SP, Automotive AU, Pet Products PP and Video/Computer Products VC (hardware, not software).
  2. Softlines – also as the name implies, these are generally soft or fabric- based products.  Categories which fall into Softlines is first and foremost, Apparel AP, then Accessories AC (jewellery, which is ‘hard’ is an accessory, so it falls under softlines), Home Furnishings HF (also sometimes called Domestics & Linens DL), Footwear FW and Infant Products IP (which includes ‘soft’ items such as bedding but also hard such as rattles)
  3. Branded Food (BF) & Personal Care (PC) or “FMCG” – as the name implies, this covers all consumables.  For the purpose of clarity, products in this category may also be a licensed promotion.  The difference between the two is a promotion will use the IP to promote THEIR brand.  So, for instance, a Superman-branded toothbrush in-pack with a tube of Colgate toothpaste.  A branded food or personal care PRODUCT deal will brand the product itself with your IP – ie, Superman toothpaste.
  4. Publishing (PU) – and in licensing, we usually do ‘merchandise’ publishing, rather than ‘editorial’ or ‘narrative’ publishing, meaning, activity books, branded magazines, colouring books – but both types are possible.

There are a couple of other types of licensing agreements, such as licensing retail rights (ie, to brand the store itself with the IP), LBE or “Location-Based Entertainment” which is concepts like theme parks, playgrounds, café/restaurant, entertainment centres and there is also licensing of software or content, so that might be digital games or apps or video games, and as mentioned above there is promotional licensing but we will not be dealing with these categories in this posting.

More later.