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Licensing 101: Marketplace for Licensing Part 1

15 November 2014

In the last post, I went over the overall structure of a standard licensing agreement.  I’d like to write here about the topline rationale behind licensing – why and how the licensing model is a viable business approach for both licensors and licensees – in essence, what is the basis & parameters of the ‘marketplace’ for licensing.

Even though licensing has evolved so that companies like Disney and Warner Bros have extensive in-house resources and huge teams dedicated to their licensing business, in its essence, licensing is a preferable model for licensors because it is about extracting incremental revenue from areas that are not the licensor’s core area of expertise.

To put it another way, Disney and Warner Bros are first and foremost entertainment companies creating content (TV, movies, etc.).  Manchester United is first and foremost a football club, whose core area of expertise is playing football.  Ford Motor Company is primarily engaged in producing automobiles.  Yet all of these companies have significant and healthy licensing businesses as well.

Generally, a licensor will be looking to tap all relevant ancillary revenue streams, but not necessarily to take on the risk of getting into that business, or cloud the company’s vision as to what is its core purpose for being.  For instance, if one of these licensors decided it was going to get into the consumer products brand business by way of ‘self-activating’, then you’ve got a situation where Manchester United is suddenly needing to master worldwide manufacturing & distribution of goods and retail.  Best they remain focused on playing football, and use a model which taps other company’s expertise in these areas, and whilst at it, avoiding the risk that would be inherent in trying to do it all in house.  So, the licensor will prefer to ‘rent out’ the rights to use the marks to companies whose expertise it is to design, produce and distribute product – in this or that country – and not take on any of the risk, but just extract a royalty or margin for allowing that third party company to use their marks.

Will pick up this string in my next remarks….