US OPINION: What makes for a good toy licence?

We all know toy licences are big business both in the US and abroad. In the US, about 30 per cent of all toy sales are made on the back of a licence or about $6 billion at retail.
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There are literally thousands of licences that have made it on to the shelves of retailers and there are tens of thousands that have not.

The question is – why didn’t they? What makes for a licence that navigates the long tortuous road from the first idea to the finished toy? In short, what are the criteria that separate the successful idea from the non-starter?

The first criterion is to know what the targeted toy company is looking for. Michael Araten, CEO of K'Nex, explained it from the perspective of the toy manufacturer in this manner:

"We focus on Building Worlds Kids Love. So, our most important criteria revolve around how large the audience is that the property targets and whether that audience is primarily in our age range.

"Using Mario Kart (Mario Kart building sets launched earlier this year) as an example, over 500 million Mario games and Wii sets have been sold so we know the audience is huge. In addition, the core of their gamers is six to ten year old boys, which are also our core consumers.

"Some of our specific secondary criteria are whether the property is known internationally or only in select markets; what distribution channels the property will be used in; who the other licensees have been; the licensor's retail relationships; and what the product approval process entails.

"We also carefully evaluate what the licensor will be doing to support the property. For example, when we agreed to partner with the BBC and Top Gear, it was important to us to see their television, advertising and public relations plan. The BBC made sure they surrounded a great show with compelling events like having a Top Gear Ferrari be a taxi cab in NYC, announced the launch on magazine covers and had their hosts make the rounds on the national morning shows."

The second criterion is to be clear as to what toy company you want to target. A senior executive in the toy licensing space (who did not want to be named) defined it as follows:

"From a licensor’s perspective I would look for the following: do they have relevant experience and success with similar toy/game properties? Do they have the resources to develop and sell licensed product? Will they focus on my property and make it a priority? Do they have any other licensed properties in their portfolio that would be directly competitive to my own? What do retail buyers have to say about them? Do they ship product on time? Are they financially stable?"

The third criterion is that the owner of the licence does his homework before he approaches a company. This is how the senior executive in the toy licensing space quoted further above put it:

"In our experience, toy companies respond best to completed and well thought through product concepts that fill a perceived need in their line-up. They don't tend to buy technologies or features per se, even in those cases where they are all that's new and make the product work. For that reason, we provide working prototypes, marketing briefs, mocked up packaging, competitive examples, comments on safety, supporting trend analysis, and when we can, consumer tests.

"It has been said the toy companies buy from inventors who do their job for them (and then of course they change it anyway). Currently, price/cost is a major driving factor, so we focus on that as part of what we try to work on and present."

Another senior executive, Charles Albert, CEO Creativity - Product Development Services – expressed it in this manner:

"We try to bring a completely supported and prototyped product with supporting marketing, development, costing, pricing, packaging and positioning information. Our ideal target for presenting to a toy company is to hand over a complete package that could be ready to present to a buyer, show at a Toy Fair, show to the press or submit to play testing or focus testing."

The fourth criterion is to be clear at what terms you want to license your property.

As per Lloyd Mintz, CEO Nine Oaks Group, toy brand management and licensing consultant:

"While much depends on the category that is being licensed, I would say the advance would range from $2,500-$25,000 and the guarantee from $5,000-$50,000. A lot depends on the attributes of the property. The royalty rate could range from six to 12 per cent. I would lean toward the lower number because it may be an unproven property with limited support.

"I would try for a deal of two and a half to three years in length so there was ample time to develop product and generate at least two years worth of sales. In addition, I would strive for an automatic renewal clause because if a client is going to work hard to help establish an IP as a licensable property then they should have an ability to hold on to it longer than just one term. Therefore, a renewal clause with minimum thresholds would be something important to have included."

As I understand it, these terms apply very much across the board except for major movie-driven licences where advances are in the millions and royalties from 15 per cent up.

The fifth criterion is to understand how the large retailers view licences:

This is how one buyer at a very large toy retailer (who does not want to be identified) defined it:

“It all depends on who comes to us. If it is one of the large manufacturers – Mattel, Hasbro, Lego, Spin Master, Jakks, LeapFrog – I pretty much assume that they have already done their homework and know exactly what it takes to be successful with a big box store. I will assume that they also have the right expectations as to the promotion and advertising level needed. I will look closely at their pricing, though, and will talk to them if I think it is too high.

"If it is a smaller company or one that is not based in the United States, I will go through at their plans to satisfy myself that they do indeed know what our expectations are. In particular I will want to know where they sold the product before [in the U.S.] and how it went. I will also want to make sure that I do not become the tail that wags the dog – that by taking them on I run the risk of representing more than one-third of their total sales. If any of these are not right I will tell the company to address these issues and only come back once they have done so. I will also look at the competitive factors and, most importantly, to what degree the product has that intangible but very important uniqueness attribute."

Also, Lloyd Mintz of Nine Oaks Group added the following thoughts:

"I would want answered: how long has this property been in the market? What is the consumer awareness of this property? Does the property appeal to a world-wide market or is it geographically specific? Who is the target audience and is there a market for our type of licensed product for the target audience? Is there artwork available? How is the property marketed to the consumer? What other licensees have been signed? How is the existing licensed product performing? Is the product intended for the mass market or just specialty? Are there any distribution limits? Will it help generate incremental sales? Is the license affordable compared to alternatives? What is the licensor’s track record?"

I think that the most important point was made by the big box buyer quoted in this article. She mentioned the uniqueness attribute. If the product does not have that it will likely be an uphill struggle all the way – uphill to get a toy company interested, uphill to get placement with the large retailers, and uphill to get the consumer to buy it.

If you do have this intangible but very important differentiator, it all depends on the lengths you go to to define, confirm and communicate it – in product design, in packaging, through focus groups, and hard-eyed comparisons with existing competitive products. Once you have done everything just right, you will stand a reasonable chance of making it through the door of the toy company you have identified. And at that point, the hard work begins.


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