License To Profit Make your play for a piece of the $100 billion licensing market.

To many, it seems to be the key to a gold mine. Putting a NotreDame logo, a Lion King character or a Jurassic Park graphic on yourproduct means guaranteed success, right?

For a sure thing, prepare for a frustrating search. But ifyou're willing to put some time and effort into making yourproduct work, buying the licensing rights to a well-known productor name can substantially increase your chances for success.

Licensing is a $100 billion retail market worldwide, with $70billion in business in North America alone, says Murray Altchuler,executive director of the International Licensing IndustryMerchandisers' Association (LIMA). But "a license is not a[prescription] for instant success," he cautions. "Itgives you the borrowed interest of a name that is either unique orhas some consumer acceptance, but it still takes good selling andmarketing to succeed. A license is, in essence, a tool, and whenused well, it's an extremely cost-effective marketingtool."

Licensing offers three major advantages. "First ofall," Altchuler explains, "it may mean you have somethingunique your competitors don't. Second, it may mean getting alittle better margin because it is unique. And third, it may meanthat 10 percent of the retailers you call on that you have neverbeen able to sell to will finally take a look because you havesomething different. And when that happens, you can sell the restof your line." Another benefit, Altchuler adds, is thatlicensing positions you as a leader.

Showing Your Strengths

Who can obtain a licensing agreement? The list runs the gamutfrom a multinational conglomerate to a mom and pop company. But ingeneral, a licensor looks for the strongest company in terms offinances, manufacturing and marketing. The good news for smallbusiness is that strength is not necessarily measured in dollars orlongevity.

Consider New York City-based Apparel Dynamics Inc., a year-oldfirm that has snagged some fairly major licenses, including cartooncharacters Rocky and Bullwinkle, The Big Comfy Couch and C-Bear andJamal.

"Most people in apparel go by reputation, and we'vebeen doing this for years," explains Robert Reda, vicepresident of merchandising and The collective experience of thecompany's key people, combined with the industry savvy of theirlicensing consultant, Cheryl Stoebenau, has helped open doors forApparel Dynamics. When going after licenses, Reda says the companyalso flaunts its creativity. Furthermore, it stresses the advantageof working with a small firm--fewer licensed products means theycan spend more time and energy on the ones they have.

BIZ Experiencess who have less experience must rely on the qualityof their product line and the strength of their proposal to attracta prospective licensor.

A unique product helped San Diego-based Fotoball U.S.A. get itsfoot in the door of sports licensing, says Carl Francis, thecompany's vice president of retail development. "CEOMichael Favish started the company on his living room floor [in1986] by patching together a soccer ball [with photos of differentsoccer players on it] and presenting it to the licensing entity forWorld Cup Soccer," says Francis. "No one else in themarket had anything like it. They loved the idea, and he got thelicense."

From there, Fotoball expanded into similar products for theNational Football League, the National Hockey League, Major LeagueBaseball and various colleges and universities.

Francis, who gave Fotoball its first baseball licensing contractwhile he was working in licensing for Major League Baseball, saysthere is still room for an BIZ Experiences to get a license with amajor league sport. The key is finding a market niche and fillingit with a unique product that has wide consumer appeal and willcarve out new avenues of revenue for the licensor.

Choose Your Target

Before you tackle the licensing industry, you need to have yourown house in order. Make sure you have or can get financing, ensurethat your manufacturing capacity is up to snuff, and establishdistribution channels. It's also a good idea to try toestablish a sales history for your products, suggests Francis. Oncethis is accomplished, then decide what licensing products you wantto target.

Finding potential licensors is not difficult. LIMA sponsors anannual show in New York City, with the next one, Licensing '97,slated for June 10-12. It will feature more than 2,000 availableproperties.

TheLicensing Resource Directory, publishedannually by Expocon Management Associates, is an excellentresource. It lists properties alphabetically, then cross-referencesthem by owner and category. The directory contains more than 3,000listings and various how-to tips, as well as information on supportorganizations, consultants, attorneys, designers and other peoplespecializing in licensing.

"I recommend going down the list of properties with apencil and putting marks beside all those names that ring abell," Altchuler says. "If you haven't heard of them,chances are they won't have much value to you."

Next, Altchuler advises doing a little market research bytalking to your target customers to see if the property issomething that might interest them. Check out consumer and tradepublications to get an idea of what licensed properties mightappeal to your intended customers.

For information on what's happening in the licensingindustry on a monthly basis, look at the newsletter TheLicensing Letter from EPM Communications. EPM also producesThe Licensing Letter Resource Sourcebook, which lists thetop 4,000 executives involved in the licensing industry. AndAdventure Publishing puts out a weekly newsletter, The LicensingReport, as well as a monthly magazine called The LicensingBook.

A licensing consultant can be a valuable asset to a company thatdoesn't have the internal resources to dedicate one person tostudying the licensing industry, says Stoebenau. "A consultanthelps a company identify and acquire a licensed brand or characterfor their product line," she explains. A qualified consultantcan help a manufacturer determine if a licensed property couldenhance its product line and how to use it most effectively, addsGary Caplan, a Studio City, California, marketing and licensingconsultant.

When looking for a consultant, be aware that terminology iscritical, stress Stoebenau and Caplan. A licensing agent representsthe property being licensed, a licensing con sultant represents themanufacturer seeking the license, and a marketing company is notnecessarily a licensing expert, although many include licensing aspart of their services.

Most licensing consultants work by contract and on retainer,says Caplan, although arrangements can also include a retainer pluspercentage of sales agreements or per-project arrangements. To finda licensing consultant, contact LIMA, check licensing resourcedirectories or attend licensing shows.

Lets Make A Deal

Once you know who you want to target, the next step is talkingto the company or its representative and convincing them of yourproduct's potential.

At Film Roman Inc. in North Hollywood, California, producers ofthe animated versions of C-Bear and Jamal, Bobby's World, Felixthe Cat, The Mask, Mortal Kombat: Defenders of the Realm, RichieRich, The Simpsons and Garfield, people interested in becominglicensees go directly to Jacqueline Blum, senior vice president ofworldwide licensing and marketing.

"We're looking for someone who is going to partner withus on a project with the same creative integrity and passion forthe property as we have; someone who can help get the products onretail shelves," explains Blum. "We try to decide whatthe product is best suited to."

Describing Film Roman as a new and smaller player in thelicensing arena, Blum says her staff welcomes people calling withideas.

While Film Roman handles its own licensing, many largerentities, such as Minor League Baseball, have turned thosefunctions over to a licensing agent.

"We're always looking to diversify our productline--that's probably number one on our list," says MisannEllmaker, director of licensing for the National Association ofProfessional Baseball Leagues. Its licensing agent is Major LeagueBaseball Properties, which represents about 155 of the minor leagueteams in the United States and Canada and earned sales of $45million last year.

"If you want to be a licensee with us, you don'tnecessarily need sophisticated retail distribution avenues becauseyou could distribute only to the [ball] clubs, for instance,"explains Ellmaker, who says all the clubs have gift shops andsouvenir stands a licensee could sell to. Many also have mail orderoperations or even off-site stores; BIZ Experiencess could sell to asingle club or an entire region.

Those looking for national retail sales, on the other hand, musthave the capital to get the product out into the market and ontostore shelves.

Deciding which licensor to approach means evaluating yourstrengths. The bigger and more popular the property is, the moreit's going to cost to secure the licensing rights. That'swhy Altchuler suggests beginners start out small to learn theropes.

Once you begin approaching companies, many will ask you to fillout a licensing application, and all will ask for a business plandetailing how you propose to market the product, who your targetaudience is and what you estimate sales could be. Most licensorswill also request product samples.

The marketing plan is another critical component of yourproposal that could tip the scales in your favor. Francis suggestsgetting booths at licensing or gift trade shows to test-market yourproduct. He also says creative marketing arrangements such asworking out low- or no-risk test programs with retailers may beanother avenue to take.

Another good marketing approach is establishing a relationshipwith a distributor who has major retail clients. This might make iteasier to target a broader base of potential sales outlets.

Sign On The Dotted Line

What happens after the licensor says yes? Most, if not all,companies will ask for a minimum guarantee of sales covering thelife of the contract paid in advance or in installments, and willcharge royalties as well. Royalties are a percentage of sales paidby the licensee to the owner of a property or a designated agent,usually based on the net wholesale selling price. Some licensorsare willing to negotiate these fees; others are not.

The contracts' length and the process for renewing themvaries among companies. "We usually renew automatically,"says Blum. "There is a renewal clause [in our contracts] thatsays if you meet certain financial and quality obligations, you getan automatic renewal. This is negotiable and varies from license tolicense."

Major League Baseball, on the other hand, does not automaticallyrenew. Instead, it requires licensees to prove they earned themoney paid to the league and asks companies to submit marketingplans for the next contract period, says Francis.

While sports teams, TV shows and movies are among the best-knownlicensed properties, they aren't the only avenues. HarveyChristie, a Pickaway, West Virginia, manufacturer, took a lesstraditional route.

When the founder of Diversified Nature Associates Inc. beganselling his herbal vinegars at local specialty shops and statefairs, he had no idea it would lead to private-label agreementsand, ultimately, licensing for world-renowned five-star resort TheGreenbrier in White Sulpher Springs, West Virginia. The Greenbriervice president of food and beverage, Rodney G. Sterner, came acrossthe vinegars at a state fair in 1990 and was so impressed, he askedChristie to make all the resort's specialty foods under aprivate label arrangement.

In 1993, the agreement expanded into licensing--and salesincreased 125 percent that year. "We help develop productswith their chefs, and once we get their approval, we get to use theGreenbrier label on the jar," explains Christie, 32. As partof the licensing agreement, Christie sells Greenbrier products onlyat upscale specialty food companies.

Although he hadn't been considering licensing when TheGreenbrier approached him, Christie immediately saw thepossibilities. "The name Greenbrier is like gold in theculinary world," he explains. "We had tried to dowholesale marketing [to a larger food-store chain], and it was like`Diversified who? Why would we want to buy from you?' "Today, just as Christie hoped, the Greenbrier arrangement hasopened the door not only to wholesale marketing but also to otherlicensing agreements with clients such as The Red Fox Inns.

That's the advantage of licensing, agrees Altchuler: Itoffers a wedge to help open doors. But he also warns that you musttread cautiously, "particularly in the entertainment field.You may think `Gee, I'll have guaranteed sales,' but whatif the movie bombs at the box office?"

Blum agrees there is no pat formula for success. Herrecommendation: "Create an engaging, fun and exciting product,and find a way to promote it to consumers so they like it andconnect with it."

In other words, the recipe for licensing success is the same asfor success in any business venture.