Catching 'em young

The licensing and merchandising market is coming of age as franchisees look at novel ways to monetise toons

Vishal Koul

Halt at a signal in any city across India and you will see sellers clutching a bunch of bright, helium-filled balloons of cartoons such as Angry Birds, Doraemon or Chhota Bheem, knocking on car windows in the sweltering heat. Though it is an attractive sight for most kids – the audience they aim for — it draws mixed reactions from Rajiv Chilaka, founder and managing director of Hyderabad-based Green Gold Animation, and creator of Chhota Bheem.

“These balloons are fake and are imported from China. Each one sold on the roadside is a loss to our company,” he says indignantly before wryly accepting that, “This is the situation in all cities, at most signals. But what you see is a reflection of how popular the show and the character is.”

Certainly, Chhota Bheem is arguably the most successful animated character created by an Indian company. The perennially nine-year-old boy, who with his friends, saves the city and the king of Dholakpur episode after episode, was created by Chilaka’s team in 2003 and after facing repeated rejections for five years, was aired on the then-struggling Pogo TV in 2008.

Six years since, “Chhota Bheem has remained the no. 1 or no. 2 show every year in its category,” says a proud Chilaka. In 2011, Green Gold Animation started cashing in on its blockbuster character, licensing its use across categories such as comic books, action figures, stationery, F&B, apparel and furnishings. In the past three years, Green Gold has transformed from a bunch of talented animators to a licensing and merchandising (L&M) company.

Revenue has been growing at 20% a year for the past two years with L&M contributing 40% to the top line. The Chhota Bheem merchandise is now available at 12,000 stores across the country and Green Gold has also set up 30 exclusive retail outlets for the children’s brand — something even the big daddies of children’s merchandising, Disney and Turner, have not attempted so far. But this is not to say that they’re lagging behind when it comes to the children’s L&M market. 

Estimated at ₹3,000 crore and growing at 15% every year, the domestic L&M market is slowly coming of age. More importantly, with retail taking off in a big way in India, retail chains such as Shoppers Stop, Pantaloons, Westside and Lifestyle too, have started stocking up on kids’ merchandise.

It’s not surprising that Disney was among the first international brands to step into the Indian L&M market in 2005 — it is the largest retail character licensor in the world, earning $45 billion in global character merchandised retail sales in 2013. “In a way, we have pioneered character merchandising and the market has been evolving over the years in India. These are still early days, but we have scaled up since we started and are at a reasonable position at this point,” says Abhishek Maheshwari, vice-president and head (consumer products), Disney India.

With characters such as Mickey Mouse, Donald Duck, Princess and Marvel’s Avengers, Disney currently has 3,000 SKUs across six categories under licence, from sheets and towels, to soft toys, fruit juice and bicycles. Last year, the company earned upward of ₹1,000 crore (retail value) from this vertical alone. 

Another stalwart of the children’s L&M world also indicates that things are looking up. Turner, with its Cartoon Network Entertainment (CNE) and Pogo channels, has 8,000 SKUs over 53 categories, such as back-to-school (stationery), publishing and home entertainment. “Since 2009, we have grown three times, achieving a high double-digit growth. We have done well in expanding the category and taking it to smaller towns,” says Anand Singh, director, CNE, South Asia, Turner International India.

With a presence in over 400 towns, Singh expects CNE-branded merchandise to clock revenue of over ₹1,000 crore in FY15. Jiggy George of Dream Theatre, which represents WWE, Warner Bros, Saban (Power Rangers), Angry Birds, Noddy, Discovery, Animal Planet and DreamWorks, points out that the market has gone beyond the usual suspects and today, a lot more merchandise opportunity exists because of new characters becoming popular on TV. 

It’s not just cartoon merchandise that are entering the fray. According to Chitra Johri, vice-president, Bradford License, which facilitates licensing for companies in India, “In the past two years, the industry has seen more action. We have seen sports franchises such as NBA and Ferrari licensing its products, ditto for Bollywood production houses such as Yash Raj and Red Chillies Entertainment acquiring licenses for its movie characters.”

What is also working in the industry’s favour is the increasing awareness among consumers and retailers. As media options other than television — internet, mobile phones and social media — gain popularity, media companies have several avenues to build their children-based brands. Ankur Bisen, senior vice-president, retail and consumer products, Technopak, points out, “Awareness of characters has grown and this has created more opportunity for merchandising even as household incomes have increased.”

 Coming of age

Internationally, L&M is a huge business. Brand licensing is estimated to be a $150 billion (₹9 trillion) retail market globally and is growing at 5% to 10% in developed markets and 10% to 15% in developing markets. Disney (including Marvel, which it acquired in 2009), Turner and Viacom are the big players in this industry. 


Not child's play

The L&M market is relatively new and dominated by character merchandise

India’s been a little late to the game but increasingly, consumer-product companies are realising that pester power works even better when brand communication happens through a character children already relate to. Licensing in India happens through both the product and promotion route.

Under product licensing, a licensee is given the licence to manufacture and sell a character-based product for three to six years. Promotional licensing is when a licensee allows a product company, such as an FMCG company, to use a licensor’s character to promote its product. While product licensing is bread-and-butter for both Disney and Turner — since a contract is active for anywhere between three and six years — promotional licensing, which runs over three to nine months, has a tactical advantage.

Currently, product licensing contributes around 80% to Disney’s L&M revenue and 70% to Turner’s. For instance Big Bazaar has been selling bedsheets, footwear, and school bags among others under the Disney franchisee for the past four years at its 170 stores. Hiru Thakurdas, CEO, home fashion and accessories, Big Bazaar says, “Disney merchandise has been helping us increase sales by 25-30% every year for the past three years. It’s easier to push a merchandise product rather than a commodity.” Says Singh, “It’s not just about sales, but the benefit of associating with established brands that promotional licensing brings in that entices licensees to pursue this route. When Turner is associated with, say, a Kraft or Kellogg, there’s a positive rub-off on the property or character. It’s a win-win for both.” 

Do’s and dont’s

Character merchandise may be taking off now, but it’s not an easy strategy to adopt, either for the brand or the licensor. “The single-biggest challenge for brand licensors is that there are very few high quality licensees who are governed by high standards of integrity, manufacturing, sales and distribution and high degree of corporate governance,” declares Saugato Bhowmik, senior vice-president (consumer products), Viacom 18 Media, which handles Nickelodeon under its fold with popular characters like Spongebob Squarepants, Motu Patlu and Dora the Explorer. The channel has close to 100 product categories in the market, over 300 SKUs ranging between ₹5 to ₹7,000 and a presence across 200 cities and towns.

Promoting popular characters may seem like a lot of effort, but companies have learnt the hard way that treating characters simply as IP and giving out licences does not guarantee revenue. “Many owners think they can license a brand without building it. Often brands, very big in other parts of the world, are launched in India without building them here first,” says George. That said, Dream Theatre has a constant dialogue with Rovio (creators of Angry Birds) as to what the product and consumer strategy in India should be. “With Angry Birds, we don’t do deals with pre-schools. Once we sign contracts, we have a creative team that works with them to ensure the integrity of brand is maintained,” says George.

That’s actually the key, normally. As the clamour for a character rises, so does the number of enquiries and requests for licences. “You have to ensure the franchise is not over-exposed and also that you don’t enter the wrong categories,” says Turner’s Singh. “We want to scale up the business but at the same time we don’t want to be seen as an IP owner who is willing to sign up any business just for the sake of money.” For example, Ben 10, an action adventure property, will never make its way to soft toys. “That’s because he is not a huggable toy,” Singh explains. 

At Disney, the focus is on creating long-term relationships with licensees — some of its licensees such as HM International and Funskool have been associated with the company since it set up shop in India. “We look at long-term because that’s how our characters are — they are timeless; they are not just a flavour of the season. Globally, what works for Disney is the fact that licensees know that Mickey Mouse is here today and will stay five years from now. They can invest in these characters,” says Maheshwari.

Improving visibility

Disney’s strategy has proved effective because the American animation giant has been consistently putting its money where its mouth is — over the decades, the company has invested billions in building its characters and ensuring their marketability. “Content is our biggest tool to build awareness. In India, we have the platform to reach our audience, whether it is through our eight TV channels, movies, studios or digital reach. We also do events and activations. We don’t think of marketing in isolation but as one of the drivers of affinity for our characters,” says Maheshwari

The company has also been working with local production houses and taking the co-production and IP ownership approach in local characters such as Arjun and Veer. “We are working on a number of shows and local characters for our channels. As they mature, we will take them downstream through consumer-products business,” Maheshwari adds.

For its part, Nickelodeon has been deploying a mix of marketing strategies to reach potential partners and fans, including city tours and toon meets. “We got Dora the Explorer, who pre-schoolers love, to do an eight-city tour for the launch of a back-to-school range in 2013. Similarly, we roped in Mandira Bedi to travel with us to launch a Spongebob Squarepants line of t-shirts,” Bhowmik lists. 

Similarly, Dream Theatre takes responsibility for media content as well. “In the case of Pokemon, we have the rights for TV as well as marketing. So, we syndicated the content on Disney, while the show is aired on Hungama channel. Once we have built a character on TV, we look at licensing it from the next year. Brands are built over a long period of time – it’s not an in and out strategy,” George says.  

Chilaka understands that well. Chhota Bheem is already six years old and it remains to be seen how long his mom’s magic laddoos can keep him — and his young viewers — charged up. “We have been trying innovative things,” says Chilaka, pointing to the feature films based on the character that was released in 2011 and 2012. 

Banking on retail

A huge challenge common to both licensors and licensees is the retail ecosystem, or rather the lack of it. While the latent demand for character merchandise is huge, what is lacking is a robust organised retail and a general retail network. “Look at Australia for instance — licensing is much easier to handle because there are only four national-level chains, unlike India, where distribution is vast,” says Singh. It’s perhaps too vast a problem, which is why IP-owning companies restrict themselves to licensing – the licensee gets the products manufactured from certified factories and passes them on to distributors and retailers.  

The exception here is Green Gold. Even when it was purely an animation player, the company knew it had to get into merchandising quickly but reaching out to partners wasn’t easy. Green Gold formed and set up its own L&M company and distribution platform. The strategy was to focus on both organised and unorganised retail. After interacting directly with customers and understanding just what children thought of Chhota Bheem, in 2011, the company started its own retail outlet.

“When you distribute, it takes longer for the money to come back. From a super stockist to a distributor and then a retailer, it takes three to six months for your money to come back to you. So we decided to do our own retail; our money comes back to us by the end of the month,” explains Chilaka. Currently, there are 30 stores that hawk 3,000 SKUs between ₹10 and ₹2000. With an average size of around 250 square feet, the stores, besides metros, are also present in smaller cities such as Chandigarh, Agartala, Jaipur, Patna, Indore and Kakinada.

Other L&M players are yet to dip their toes in the retail business. While Turner’s Singh calls Chhota Bheem ‘a case study for us’, Disney’s Maheshwari reasons, “We continue to evaluate the exclusive store model. Given where our scale of business is at this point, it will make sense for us to continue to partner with modern trade and e-commerce stores.” But IP owners don’t just license their characters and forget about them till renewal time. Disney, for instance, works actively with retailers such as Hamley’s and Big Bazaar to ensure its products are displayed properly. 

Unlike developed countries, theme parks such as Disneyland are absent in India. In the absence of such multiple channels of distribution, the L&M industry has to largely feed off the retail market in India, primarily through big retail chains which are far and few. “If you have a Disney theme park, which is a great way of engaging, people will buy when they visit,” points out Pinaki Ranjan Mishra, partner and national leader (retail and consumer products), Ernst & Young. Also the licensor’s partners are small and medium enterprises, whose ability to expand and invest capital may be limited. 

Piracy kills

Like many other IP-driven industries in emerging markets, children’s merchandising is also hit by piracy. Industry estimates that the grey market is six times the size of the legitimate, branded merchandising market. “At times, counterfeits are available in some places even before our licensees launch a character’s merchandise,” says Maheshwari.

Green Gold has come up with an ingenious solution to the problem of fakes. “We have a team that works on raids. In the past, we have converted the people whom we raided into partners. We don’t want to send them to jail,” says Chilaka. But the shortcoming with fakes is that while it may come at half the price of original products, they lag behind in terms of quality and variety. 

But piracy won’t go away unless the pricing challenge in India is conquered. “India is a price conscious market. Let’s say Disney wants to sell Barbie – to have huge penetration, it must price it at ₹25-30. But that’s not viable. They need to find a price point where they can sustain even at low margins with scale,” points out Pinaki Ranjan Mishra of Ernst & Young.

Dream Theatre’s George believes that the situation is a reflection of the industry’s failing. “It is a function of demand and supply. If you don’t supply enough, people will buy fake ones. So first, ensure that you are servicing the market. Second, build a strategy that is not elitist. Go mass and try to address all price points,” he sums up.