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When should games companies think about licensing?

I’m getting asked a *lot* about this topic lately. With the merchandising success of Rovio (Angry Birds), Mind Candy (Moshi Monsters) and Activision (Skylanders) it’s become clear that games can become genuine entertainment brands. Rovio and Mind Candy are each generating $100M+ through combined digital/physical sales and Activision recently announced they’d passed the $500M mark with Skylanders merchandising.

The retail and licensing world has struggled to catch up with this trend. Historically, they’ve lacked the experience to make judgement calls on game metrics as a measure of popularity. Unsurprisingly this is now changing. Talking to licensing companies at the Toy Fair in London last week, there seems to be a growing consensus about benchmarks;

  • 400k MAU to start thinking seriously about a licensing program
  • 1M MAU to roll out a master toy license (i.e. putting toys on shelves)

These are obviously very approximate and very context-dependent. Also, there’s a very big difference between signing a licensing deal and actually making that license work. In many cases, success has been a function of tightly integrating the merchandise opportunities into the game. One of the secrets behind the success of the Moshi Monsters magazine (top-selling kids magazine in UK) is that it’s produced in-house, essentially side-by-side with their game team.

I often get into arguments with game developer friends of mine. Their companies are generating tens (or hundreds) of millions from digital revenue and really don’t see the point of investing in a category which will give them 8-18% net margins. But with game life cycles shortening (particularly on mobile), surely the opportunity (with the right properties) to turn them into genuine brands is something that can’t be ignored?

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  • I think 400K or 1M are great targets I’d suggest amending it too per territory. For instance 1M in the UK in Moshi’s case is a huge 1/60th of the market and demonstrates great brand saturation where 400K in domestic US is a drop in that ocean. Maybe 1% of target country/territory for serious thinking 2+% to start rolling out a master toy licence in that territory. I’d also argue given the longitudinal mature of producing, stocktaking and distribution of retail products that you have some sort of time advice i.e. if the brand has sustained 400K or 1M MAU for longer than a year or ideally two+ which was also something Moshi managed to do extremely well. Some brands are just longer lasting and warrant licencing.

    • dylancollins

      Agreed but I think this needs to be demographic specific. Given their audience, Moshi probably has closer to 25% of the UK market (7-11 girls).

  • Other than the revenue, I think that licensing can boost brand perception and help getting the original game to new highs. Once you have physical presence in a store, the perception is different, it’s “not just an Internet meme” and “a phenomenon”. That’s not necessarily true, but it can help broad the audience and last longer.

    • dylancollins

      Right. And don’t forget (at least in the kids demographic) that Moms still find it easier to justify buying a physical tee-shirt than any kind of digital item.