Licensors make money only when licensees make money

Although the licensing industry has been accepted as an integral part of mainstream retail, yet there are many bottlenecks to be removed.
Jaineel Aga, Chief Executive Office,

Although the licensing industry has been accepted as an integral part of mainstream retail, yet there are many bottlenecks to be removed. The situation rising out of lack of stringent IP protection laws is further worsening due to missing support from licensors. The high eligibility criteria, margins in dollars and contracts not being customised as per place of operation are some of the major issues the licensors need to take note of, says Jaineel Aga, Chief Executive Office,, during a one-on-one with the Retailer magazine. Here are excerpts from the interview.

How do you analyse the growing visibility of Superhero merchandise? Is it because of movies or the penchant for superheroes, that it is gaining popularity?
A lot of companies were earlier selling superhero merchandise, but it actually picked up during the last 2 years. Merchandise has become the strongest monetisation tactic, with the increasing frequency of superhero movies which have come up over the last 5 years; whether they are Batman franchises, Ironman, Avengers, or that of individual characters like Hulk, Thor etc.

Superhero as a genre has always been appealing, but it has gone mainstream only recently. When it started it was restricted to only the super-fans.

In India, people saw a slew of movies being released before they actually started following the trend prevalent in the West.

Even the Bollywood themes have been pushing on these superhero merchandise; for instance, Salman Khan wearing Superman tee in ‘Wanted’ and Ranbir donning the same in ‘Wake Up Sid’, which leads to acceptance from the celebrity followers. Some non-hardcore fans actually pick up these things just because they are funky and cool, but that is an unstated trend. Events like comic con, which started off in the late 2012, are also very popular in the world which looks to monetise on the buzz around these characters.

What are the innovative categories in licensing these days?
Most popular category is the standard apparel category, but even this category is witnessing a lot of things in terms of what characters fit best in which kind of apparel. For instance, audiences have a huge appetite for pyjamas with either superhero prints or logos. Even the hoodies which were not much in demand are gaining popularity with superhero characters imposed on them.

One segment that has kicked up fast is the ‘electronic accessories’ segment around superheroes; from mobile cases to pen drives, you name it and you have these characters printed on them. There have been campaigns running around like, “Even a superhero needs a shield,” around the fact that every phone needs a cover. Next are laptop skins, power banks, coat bags etc. They will become popular too.

What is the biggest challenge from the market perspective?
The biggest challenge is to cater to a huge demand. Even today there are a number of demands going unserviced because of supply constraints, failure of retailer to fetch every category etc. Obviously, the categories are growing but there are many categories yet to enter the Indian market.

From a licensee per say, what are the common challenges in the licensing industry here?
The main problems arrive in buying that official license to produce merchandise. The margins expected are sometimes so steep that even a niche product which has to be experimented will die a death before it is launched.

For example, someone comes up with a very entrepreneurial idea of making tote bags with superhero prints, and he approaches the honchos to obtain a license. Now, the product is so niche that single-handedly the manufacturer won’t be able to bid for a minimum guarantee which could excite the licensor. The licensors are not interested to look at an idea with minimum guaranty which is too low to be commercially viable or the product has modest sales figures. Rather, the licensors go for the entire portfolio of products, which is what bid for.

What is your way of working with the licensors?
We offer them a pretty big cheque and then we figure out and curate the best vendors and let the products out in the market.

From the licensors’ end, are there any issues you’d want to highlight?
First, the minimum guarantees are quite steep. The second issue is that most of these brands and content are international and hence the expectation of the minimum guarantee and revenue is dollar based. Many a times, the brands or IP owners are unable to see the fact that this is eventually a country which is evolving and here it is the ‘rupee’ which dominates. So, when all the guarantees are in some thousand dollars, the brands need to understand that these are very steep guarantees for a country where the average comfort zone and average basket size ranges from Rs 800 to Rs 1,000.

One of the key issues is managing these expectations with the licensors and expecting them to support it to build a brand together. Ultimately, the licensors make money only when licensees make money. It’s not the margin game but it is about royalty.

Do the licensors take stand on fake products in the market?
Licensors are not as active as licensees in pulling out fakes and un-licensed merchandise. If I am paying you for your designs, I am doing all the hard work and paying royalty for your content, it needs to be adopted by you as well. Today, blatant unlicensed categories are being sold very freely on major online portals. They need people to monitor that daily and bring down the fake content. This is a big issue because if I am paying royalty to the licensor, he has to show equal responsibility in making sure that the unlicensed products are not floating in the market.

How about the contracts? Are they modified as per country of operation?
The contracts are sometimes too universal in India and are not customised to suit this side of the world. Recently, we did a contract which came with product liability insurance, something that happens in the US. It has no relevance in India because there is no law for it. The licensors say that these contracts come from headquarters in some XYZ country and to make any modification, they would require permission which will take another two months. It is a very bad principle because when you have representatives locally, you should modify the contract as per local regulations.

Also, these licensors are all exclusive in principle but sometimes are not able to put that on contract. That is an issue when we have our own investors and about the IP of product being exclusive. While licensors assure us of the IP being exclusive and promise to not give it to any other licensee for the next couple of years, they don’t put it on the contract.

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