Brand licensing

• 1. Introduction

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  Brand licensing had its first commercial test with a soft toy sold in Britain in 1903. Beatrix Potter patented a stuffed rabbit based on Peter, the character at the heart of her newly published book. That patent made Peter Rabbit the world's first licensed character. Potter owned the creation, and a manufacturer could produce and sell the toy under a formal agreement. A song like "Over the Rainbow" or a character like Donald Duck can be leased in the same way. So can a celebrity name like David Beckham, or a corporate brand like Rolls-Royce. What persuades a company to pay to borrow someone else's identity? And how did an idea born in early twentieth-century Britain grow into a global industry worth hundreds of billions of dollars each year?

• 2. How a License Works

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  Armor All auto vacuums, Breyers yogurt, and TGI Friday's frozen appetizers share an unusual distinction. None of them are produced by the companies whose names appear on the packaging. Each is a licensed product, manufactured by one party under a formal arrangement with another. At the center of every such arrangement sit two parties. The licensor is the brand owner who operates a licensing program. The licensee is the company that markets a product carrying the leased brand. The licensing agreement between them specifies the permitted territory, the duration of the deal, and the exact product categories the licensee may enter. The licensee gains the right to use the brand. Ownership stays with the licensor. In exchange, the licensee pays royalties, a sum calculated by multiplying a royalty rate by net sales. The contract also sets mandatory sales targets, meaning the licensee has a financial incentive to perform.

  Once both parties have signed a licensing agreement, the process follows a standard sequence. The licensor opens specific product categories and selects its licensees. The licensee then submits concepts, prototypes, and final production samples for approval. Only after the licensor signs off do finished goods reach authorized retailers. Lucite nail polish is another product in this category. Its familiar name is applied by a manufacturer entirely separate from the company that owns the brand. Within a generation of those first British arrangements, the same logic would expand on a scale that required a completely different kind of explanation.

• 3. The Character Trade

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  Harrods department store in London has stocked Peter Rabbit merchandise since at least 1910. That year, the character first appeared in the store's catalogues. For the rest of her career, Potter oversaw every merchandising and licensing opportunity tied to her creations. Peter appeared on porcelain figurines, in painting books, and on dishes, a range of spinoff products that established the early template for character merchandising.

  That template found far broader application in the United States. There, the rise of movies, comics, and later television created demand on an entirely different scale. Mickey Mouse's popularity in the 1930s and 1940s produced an explosion of toys, books, and consumer goods carrying the character's image. None of those products were manufactured by the Walt Disney Company. McDonald's play food, Burger King T-shirts, and Good Humor Halloween costumes all became commonplace licensed items. Within a generation of Mickey Mouse's commercial breakthrough, licensing had become a recognized commercial tool. Companies were using it even if they had never produced a cartoon in their lives.

• 4. A Deal Worth Making

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  Building a new brand from scratch can cost millions of dollars. A licensor sidesteps that burden by allowing others to use an established name, earning royalties calculated against net sales. The licensee gains access to a major national or global brand along with its logos and trademarks. Building that kind of recognition independently would take years and substantial investment. The main benefit the brand brings to the licensee is marketing power, the kind that opens doors with retailers and helps meet business objectives.

  Licensees enter a licensing deal with an explicit expectation of sales growth, either within their existing business or in an entirely new market segment. The licensed brand must carry genuine consumer preference for that growth to materialize. The royalty structure enforces a kind of mutual commitment: licensees who miss their contractual sales targets have failed on the deal's own terms. The Licensing Industry Merchandiser's Association is the international professional body for brand licensing. It tracks global activity and sponsors an annual trade expo dedicated to the industry.

• 5. The Global Scale

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  License! Global magazine's annual ranking of "The Top 150 Global Licensors" reveals how concentrated the industry has become at the top. For 2017, Disney Consumer Products led the list with $53 billion in retail sales of licensed merchandise. Meredith Corp. placed second with $23.2 billion, and PVH ranked third with $18 billion. The overall picture is larger still. According to the International Licensing Industry Merchandisers' Association, worldwide licensed merchandise sales reached $272.2 billion in 2016, up from $262.2 billion in 2015.

  The fashion industry accounts for a substantial share of that activity. Branded perfumes and cosmetics are regularly produced under license. L'Oreal Group holds the fragrance and beauty licenses for Yves Saint Laurent, Giorgio Armani, Valentino, Prada, and Ralph Lauren, among others. In fashion, the licensor's name is often the primary selling point of the product itself. The market tracked by those global totals extends across every product category and every populated continent. It includes national character licensing industries that built themselves independently from the established international players.

• 6. Korea's Character Pioneer

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  Han Chang-Wan, a professor at Sejong University, published the history of animation character design in Korea at the Character Licensing Fair 2016. His study was the first to identify rabbit and turtle illustrations as Korean animated characters, a finding reported in The Independent newspaper. Until the 1970s, American and Japanese characters had dominated the Korean animation industry. The turning point came in 1983, when Dooly the Little Dinosaur appeared in Bomulsum, a monthly magazine for children. The series, known in Korean as 아기 공룡 둘리, offered Korean children their first domestically created character of comparable stature.

  In 1987, Dooly first aired as a six-part television show, followed by seven more parts in 1988. By 1995, Kim Soo-jung, the character's creator, had established a company named Dooly World and entered the character design industry formally. The following year, the animated movie Dooly the Little Dinosaur was released. In the three decades following the character's launch, its related market generated between 2 and 3 billion won per year. That translates to roughly 1.7 to 2.7 million dollars, measured as of July 2018. The Independent's coverage of Han Chang-Wan's 2016 research gave the Korean character market's origin story an audience beyond Korea itself.