Licensing

NOVEMBER/DECEMBER 2010

DEVOTED TO LEADERS IN THE INTELLECTUAL PROPERTY AND ENTERTAINMENT COMMUNITY

VOLUME 30 NUMBER 10

Edited by the Law Firm of Grimes & Battersby

THE

Journal

Law & Business

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Working with Licensing Agents and Consultants Mark Hess

Mark Hess is the Vice President of Client Relationship Management at IMC Licensing,

the nation’s leading full-service licensing agency specializing in consumer product brands.

Mr. Hess has over 20 years of agency experience for a diverse portfolio of brands across various categories and channels of distribution with

clients including Thomasville Furniture’s The Hemingway Collection, Hanes and Hanes Her

Way, Skoal, and Long John Silver’s. Before joining IMC Licensing, he was Vice President, Group

Director of Client Services for Creative Alliance. Prior to Creative Alliance, he worked for other top advertising agencies including Paul Schultz, Doe Anderson, Long Haymes Carr Lintas, and D’Arcy

Masius Benton & Bowles.

Licensing agencies and consultants can play a central role in the development of an effective licens-ing program. Whether your company enjoys a long lasting and mutually beneficial business relationship with a licensing agency, or if your firm is interested in entertaining the thought of engaging a licensing professional, be prepared to hear two words over and over again: It depends.

This phrase, in many ways, is the currency of the licensing industry. But lest you think I am being flip-pant, “it depends” also may be the two most impor-tant words an agency or consultant can speak. That is due to the need and desire of the agency or profes-sional to evaluate potential clients and for that matter, existing clients, to find the key reasons why they want to incorporate licensing into their marketing reper-toire. A client’s motivations for licensing their brand will dictate the structure of their licensing philosophy. As Bruce Bridges, Vice President of Licensing at IMC Licensing preaches, “structure determines behavior” and the structure of the client will in large measure determine the behavior of the agency.

Deciding to Work with a Consultant

There is no right or wrong answer on whether you should work with a licensing agency or a licensing

consultant. For some marketers, outside resources make their licensing efforts more expansive, efficient, and effective. The right agency or professional for your company can be more objective in their analysis of your needs and generally has expertise across a wide num-ber of product categories. In our business development meetings with prospective clients, we often communi-cate that by hiring a licensing agency, they gain access to an entire team of professionals, something that may not be practical for them to build internally. According to management guru Peter Drucker, outsourcing is not the way to cut costs, but “to improve the quality of the people who work for you.” Hiring a licensing agency may actually increase costs, but also greatly increases speed, performance, and returns.

For some marketers however, an outside resource may be unnecessary. If you have a very clear view of your needs and the flexibility to add additional headcount with specialized skills across a number of areas then, perhaps, it makes sense to develop an entire internal department. Or, if you’re concentrat-ing on a limited scope of licensing opportunities and currently have staff members with enough licens-ing and related business experience that they could negotiate a strategic deal or two, the full-service agency option could be excessive. Again, “it depends” on your situation.

However, I cannot emphasize enough that licens-ing is a business, a “craft” if you will. It is not simply a peripheral undertaking that is either added on to an existing job position, or even a dedicated job position in and of itself. Licensing calls for a team-oriented approach and, as with any team, vastly different skill sets are required to achieve success on the field. Our president, Cara Bernosky, has spoken and written about this extensively. Since she co-founded IMC Licensing 13 years ago, her belief remains that there is no “one size fits all” licensing professional. The core competencies of the licensing sales person differ from that of the licensing account manager which in turn differs from that of the product development direc-tor. In addition, the roles executed by the legal and accounting personnel are unique and demanding in their own ways.

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Selling the intangible benefits of a client’s trade-mark to a potential licensee is an art form. The team at a licensing agency must be able to analyze and synthesize not only the brand owner’s business, but also become proficient in most (if not all) aspects of their client’s business. For good measure, they should understand the categories in which the client com-petes and be aware of how competitors are positioned and where they may strike next.

Yes, a licensing agency must have an almost uncanny ability to grasp the abstract and then take that vision and deliver a truly cohesive expression of brand and product. But that is just the beginning. The German-born architect Ludwig Mies van der Rohe (1886–1969) is credited with the saying “God is in the details,” expressing the idea that whatever one does should be done thoroughly. I’m not certain, but with that mindset, Mr. van der Rohe may have spent some time in product development at a licensing agency. The product development professional is attuned to and motivated by the seamless execution required to bring a licensed product to market. This not only requires oversight of the individual standards of each of a client’s brands, but also a deep knowledge and understanding of the rules and regulations in particu-lar categories, be they legislated by the FDA, the EPA, the FTC, or another rule-setting council.

Accounting is another function within a licens-ing agency for which a special nuanced approach is required. While it is a given that this person pos-sesses the same exacting level of detail orientation as required by the profession, they also must be able to interpret the intricacies and variances often contained in licensing agreements. For example, definitions of terms such as “net sales,” “tiered royalties,” and “contract period” may change from agreement-to- agreement and those changes often are accompanied by different royalty payments and schedules.

Often times the glue that holds the licensing team together is the account manager. First and foremost, the account manager sets the tone for the business by working with the client and the agency team to set the strategic licensing direction for the brand. From that point forward, the account manager is responsible for the day-to-day execution of the business. For most clients, the thought of giving up a measure of control over their brand and the way it is brought to market can be a very stressful thing. The account manager is responsible for rallying the client (and agency alike) around the Big Idea. By bringing the client to the Big Idea, and letting them take ownership of it the power of that idea is magnified. That is the hallmark of a great account manager. It is not just acting as a go-between for the client and the individual departments

in the agency. It is taking control of the entire process, from start to finish, and bringing both the client and agency together around the Big Idea.

Choosing a Consultant

With all that said, if you are working, or plan to work, with a licensing agency, I believe there are three key issues on which there is no room for an “it depends” answer from either the client or the agency. I define those areas as:

1. Time 2. Talent 3. Treasure

Time Today, clients find themselves increasingly busy

and few (if any) companies are expanding their headcount to take on the added responsibilities that licensing brings. With scarce resources from which to draw, clients are therefore more and more pressed for time and possibly less likely to champion licensing efforts, even when those efforts support their overall marketing goals and provide a positive return on investment.

Good agencies can be relentless with their demands for their clients’ time, because licensing is that unique instrument in the marketing toolbox that resists adherence to timelines and timetables. Make no mistake, “relentless” is exactly what you want from your licensing agency as it demonstrates passion and a dedication to your brands and a belief in building brands the right way.

Unlike advertising campaigns and promotional schedules, which are locked and loaded onto market-ing calendars months in advance to fit consumer buy-ing patterns around holidays or other seasonal trends, licensing is all about making the most of opportunities when they present themselves and often times they do not present themselves for very long before they end up in the lap of your competitor. In order to maximize the “time” aspect of the relationship with your agency ask yourself the following:

• What is the role that licensing will play in the company’s marketing strategy? What are the goals and objectives to be met? Is licensing merely an exploratory exercise—a dipping of the toe into the water—or will it be an aggressive initiative equally as important as all other elements of the market-ing mix?

• How much time will I expect my agency to com-mit to my licensing program? Or, said another

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way, what is the scope of work you will assign to your agency? There is no substitute for hard work and good agencies demonstrate this day in and day out. If you are asking your agency to be relentless in the pursuit of ideal licensing partnerships and devoted to their flawless execu-tion, then your actions and devotion must mirror theirs.

• How will “success” be defined and measured? Royalty revenues? Additional impressions against the brand? Inroads to new channels of distri-bution? Some of the above? All of the above? The clear articulation of “success” can focus agency resources to consider only those ele-ments of relevance and overall importance to the brand. Metrics that are superfluous, or worse yet, contradictory only serve to sabotage licensing programs and engender frustration and resent-ment across all parties.

• What will the internal approval process look like? How long will it take? Who needs to know what? When do they need to know it? And how long will it take from start to finish?

Cara Bernosky is renowned among her employ-ees and clients alike for espousing the essential truth that “time kills deals.” The longer it takes to consummate a licensing partnership, the less likely that partnership will come to fruition. Deal fatigue wears on clients, agencies, and potential licensees equally. What may have once started out in a heart-pounding rush of excitement to get a new licensed product on the shelf, a deal can end up dying on the vine if either too little attention or too much of the wrong attention is devoted to the process. The end result is most likely lost opportunities when retailers reset the shelves in the desired category and you and your partner are not ready to compete. If you do not have an approval process already in place, work with an agency to develop one so that it is tailored to meet your goals and the goals of potential partners.

Talent The issue of “talent” is one that cuts both ways for

the agency and the client. The level of knowledge, sophistication, and, most importantly, commitment must match on both sides of the relationship. It is imperative that each party respects one another’s views and trusts that each is working towards a mutu-ally beneficial end. A certain degree and mixture of maturity, experience, and flexibility are vital to main-taining an enjoyable and profitable working relation-ship. Consider the following:

With respect to the agency:

• Does your agency team have the marketing expertise to understand your target consumer; who those consumers are; where they live and how they see your brand? Certainly to some degree you will need to teach the agency the fundamentals of your business, but is the agency a quick study and able to demonstrate through their questions and observations the insightful-ness and perspective necessary to grasp the big-ger picture?

• Does your agency team know how to turn infor-mation into intelligence? Can they interpret your research data and from it derive strategic applica-tions for licensing?

• Can your agency team take charge of and incor-porate the execution of licensing strategies and programs seamlessly across your company’s brand and product portfolios?

• Does your agency have the contacts to go deep into any category: knowing how manufacturers are positioning themselves, and where they may need the help of a trademark to take their busi-ness to the next level?

• Does your agency have relationships with depart-ment buyers at retailers and the ability to extract data on consumer trends and the anticipated responses to those changes?

• Does your agency offer the direct and on-going involvement of their senior management people with your business? Are your day-to-day contacts highly trained and highly motivated individuals who are real contributors to your licensing efforts and not simply messengers?

• Is your agency built for speed? Does its human resources and structure permit it to move at the lightening pace required to jump on and leverage the opportunities that present themselves?

With respect to the client:

• Is your company’s commitment to licensing built from the top down? Are all appropriate C-Level parties within your organization fully engaged, fully supportive, and fully accessible? At IMC Licensing, all C-level clients (CEOs, CMOs, CFOs, and Chief Legal Officers) welcome and encourage all of our senior level manage-ment personnel to reach out and discuss the critical licensing issues of the day with them whenever and wherever they may be. We have their cell phone numbers and are not afraid to use them and likewise, they have ours.

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• Have you and your team invested the time and training to understand and appreciate the intri-cacies and nuances of brand licensing? Do you fully realize differences in the challenges and possibilities that will present themselves on an on-going basis?

• With whom and at what levels do licensing decisions rest? Will your agency have to navi-gate a labyrinth of administrative assistants and entry-level brand management personnel just to find time on the appropriate calendars in order to entertain discussions of critical importance?

• Are you built for speed ( i.e. , processes and infra-structure) across all levels of your organization? Including, but not limited to:

(a) Marketing (b) Legal (c) Finance (d) Quality Control

Treasure As the mantra goes, every situation is different, but

there generally are three accepted compensation mod-els to choose from in the licensing industry:

1. Fee Only—A client prepared to pay a qualified licensing agency a fee only should be prepared to pay rates similar to those for good consultants, as in, hundreds of dollars per hour (or thousands of dollars per day) for all work that anyone employed by the agency performs.

2. Commission Only—A client unwilling to pay any guaranteed compensation, and willing to limit the licensing agency’s work appropriately, should be prepared to pay the agency a very high commis-sion, typically in the realm of 50 percent, on the royalty revenue the agency can earn. Exactly how high depends on the specifics of the opportunities to be pursued, the agency’s experience with simi-lar opportunities, and the scope of work assigned to the agency.

3. Fee and Commission—Clients who are able to pay a highly qualified and fully staffed licensing agency (such as IMC) an early-stage retainer of $5,000–$20,000 per month should be prepared to pay the agency an ongoing commission between 30–45 percent. To some extent, the retainer reduces the agency’s risk, and so as the retainer goes up, the commission percentage might come down and vice versa.

As with almost every other business sector, the landscape of the licensing industry has been greatly altered over the past few years. The impact of

the economic downturn has only exacerbated those changes.

To that point, compensation to licensing agents and agencies, or more accurately reduction in com-pensation, is now one of the key determinants in the selection and retention of professional licensing services. Clients always can find resources for less money, but often times there is a high price tag associ-ated with buying on the cheap. For example:

• Once the pitch is over and the agency selected, will you have the first string team on your business, or will they have been replaced with junior level employees?

• Will the licensing strategy align with your overall marketing strategy, or will it follow the path of least resistance—looking for easy conversions versus a rigorous examination of opportunities that rein-force the core tenants of your base business? We often refer to this as the “shiny penny” model. The licensing agency that takes on a client’s business for zero retainer and a commission only generally looks to strike fast with some deals against the low hanging fruit. Should those opportunities not come to completion, then they will most likely be off to find the next shiny penny in hopes of executing an agreement with another new client. In the meantime, the first client may experience difficulty in finding any forward momentum on their business after the initial stage.

• Will the emphasis be placed on doing a deal rather than finding the right partner with whom you can align and work together to reach mutually benefi-cial goals?

• Do the opportunities that are brought to your table reflect solutions that meet the needs of the brand or do they represent the licensing agency’s agenda and/or need to meet operating costs?

You may be asking yourself: If my company addresses the preceding complexities of the licensing industry and the unusual nature and charm of licens-ing agencies, will I be assured of a successful relation-ship? It depends.

Sometimes things just don’t work out for any num-ber of reasons:

• A poor response to the trademark in the mar-ketplace due to lack of awareness, distribution, equity fit, etc. Here, a good licensing agency will demonstrate that stone was left unturned on behalf of the brand;

• Personnel changes within the client or agency organization;

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© 2011 Aspen Publishers. All Rights Reserved. Reprinted from The Licensing Journal, November/December 2010, Volume 30, Number 10, pages 4–8,

with permission from Aspen Publishers, Wolters Kluwer Law & Business, New York, NY, 1-800-638-8437, www.aspenpublishers.com

Law & Business

• Shifting priorities for either the client or agency, for example, is the client introducing a new advertising campaign or perhaps the agency has landed a new client;

• Expectations are poorly managed; or • Communication breakdowns become more fre-

quent.

The list can go on and on. The important thing is to recognize the changes and address the prob-lems in an honest and straight-forward fashion.

Sometimes all that is needed is a simple reset of the dial. However, sometimes it is best to part ways, thank one another for the opportunities shared and wish each other the best of luck in the future.

In the end, as in most aspects of life, a success-ful partnership between a client and their licensing agency depends on communication.

The more the better. The simpler the better. Your licensing program is depending on it.