Making Money from Licensing

Licensing is one of the many opportunities that investors can look into when they decide to fund a movie project. Even before a movie is released, its producers are already in agreement with manufacturers wanting to secure the license to produce related merchandise. This merchandise can be anything from dolls to game boards, shirts and baseball caps, mugs and keychains, and so much more.

Sales of movie merchandise are quite considerable. According to the trade publication Licensing Letter, about $73 billion dollars of licensed products are sold every year—and $16 billion of these come from movies.

Disney, Warner Bros., Hanna-Barbera make millions every year from classic characters that have built a solid following over the years, like Mickey Mouse, Disney Princesses, Aladdin, Lion King, The Little Mermaid, and the Flintstones.

Even bigger bucks can be reaped from blockbusters like Star Wars, Star Trek, or ET, which can bring in sales of more than $1 billion from movie merchandise. Star Wars, which has made more than $2.5 billion from licensed merchandise, will make more in the coming years from reissues and new merchandise from its installments.

Movie or TV character toys also make up a big percentage of movie merchandise sales, according to the Licensing Newsletter. Mattel, the toy company that makes Barbie dolls, is licensed by Disney to produce Beauty and the Beast, Aladdin, Lion King, and Pocahontas dolls. Its Beauty line continues to grow, even years after the film was shown on theaters.

Licensing offers film investors a chance to redeem their investments quickly, because licensees pay advance up-front before they get the ball rolling and start getting movie merchandise manufactured. According to industry sources, movie merchandise worth a billion dollars can bring in $50 million or more to film investors, who take a 7% to 10% cut in royalties, as well as a 50% distribution fee.

More than the money that it brings in, movie merchandise also offers free advertising for the film, which saves the studios and investors some of the marketing work and cost of promoting the movie. About 40% of movie merchandise is released even before a film goes to the theaters.

Not all licensing deals are successful ones, especially for investors banking on a movie that later flops in the box office. One of the biggest flops in the last decade was Last Action Hero, which Burger King had committed to even before it was released.

It’s no surprise then that many of the movies produced today are based in part on how they can bring in more money, not just with their theatrical release, but with their licensing and promotional tie-in possibilities. With movies like Spider Man and Avengers bringing in extra earnings from licensed merchandise and tie-ups, we will surely be seeing a lot of these types of movies in the coming years.

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