Licensing has been an important product segment in bulk vending for 20 years now. Over the past two decades, not only has this content strategy propelled the gumball and sticker machine businesses into the pop culture mainstream, it has also made vending operators a good deal of money. True, there have been as many misses -- maybe more -- as hits, but nearly from its start it was clear that licensing was going to become a permanent part of bulk vending.
A&A Global Industries is among the pioneers in the licensing field, and has been offering licensed products for vending since the beginning of the trend. Starting with a vending line based on World Championship Wrestling properties, Cockeysville, MD-based A&A Global built a licensing program on some of the best-known trademarks on the planet, from sports teams to blockbuster feature films. At present, it has the rights to more than three dozen merchandising giants, including properties owned by Nickelodeon, Warner Bros. and Cartoon Network, as well as Major League Baseball, and other professional sports conglomerates like NFL, NHL and NBA.
"We've been very aggressive in pursuing these properties," said A&A's Phil Brilliant, who has been at the helm of the company's licensing efforts for a decade. "With a license, you acquire an understanding of its demographic and get help from the licensor about what kind of products to make for that group. And the consumer has a connection with the product because they're already familiar with the brand."
There is more to licensing than simply putting up the money, though that is usually the biggest part of the strategy. "It is difficult to build a successful licensing program," Brilliant cautioned. "That's especially true in a niche industry like bulk vending."
Bulk vending offers its own set of unique challenges in the licensing business. For one thing, there is the matter of fixed pricing at the retail level. While stores can absorb higher costs associated with licensing national or global brands by passing them on to the customers, vending cannot easily do so. The price is forever set by the bulk machine's coin mechanism, which in the U.S. means vend prices typically top out at 75¢ or a $1.
This fixed pricing is often a make-or-break factor when it comes to merchandising a licensed product. A typical agreement not only includes a royalty for every piece sold, but also has a guarantee against those royalties. That guarantee is in effect whether a company sells a thousand, a million or 10 million pieces. "While the royalties have stayed the same, the guarantees are fluctuating more than ever before," Brilliant told Vending Times. "And new intellectual properties appearing in the marketplace seem to be demanding higher and higher guarantees." Increasing guarantees require more up-front money for what is often an unproven brand in the vending channel.
BILLION DOLLAR BIZ
Sales of licensed products -- items bearing the names and likenesses of cartoon characters, company logos and major sports teams, etc. -- were estimated at $109.3 billion in 2011, according to the International Licensing Industry Merchandisers' Association. LIMA reported that trademark owners, primarily entertainment studios, sports leagues, fashion houses and corporate brand owners, generated $5.3 billion in royalties in 2011. Sales, which rose for the first time in five years, and royalties in 2011 were both up 5% from 2010.
The attitude among licensors toward bulk vending licensees can vary from enthusiastic to a polite "not for us." Some asset owners welcome bulk vending as a promotional category; others decline to authorize their products for vending sales, preferring to stick with the traditional retail route. For the promotionally savvy, vending is an opportunity to display a property's likeness in hundreds of thousands of bulk vending machines around the country.
It should be noted that licensing is a billion dollar business. Today's movie executives look at licensing revenue almost as closely as they do box-office earnings. Even a movie that received only a tepid box-office response, but generated impressive licensing income, typically gets the green light for a sequel. Over the years, license holders have become savvier about how to market hot properties, slicing and dicing their assets for maximum revenue. For example, the highly successful Disney Princess line combines multiple characters -- all Princesses -- from several different films. (Princesses eventually made it to vending.)
If the business aspect of licensing remains in a state of evolutionary flux, there can be little doubt that bulk vending's role in the sector is maturing. For instance, the recent phenomenon of licensing downloadable game apps, which potentially reach more consumers than many feature films or television shows, offers an entirely new dimension to licensing. "The biggest change you have in licensing today, in terms of intellectual properties, is the fast-paced world of cellphones and mobile apps," Brilliant observed. "Games like Angry Birds bring a new type of license to the table. However, by the time you get the deal done and the product ready, the consumer may have moved on to the next big thing. Today's products move at the speed of technology."
CATCH THAT TREND
Crazes, fashions and tendencies churn quickly through pop culture. Catching one at the right time means full cashboxes, but missing by just a few months can spell disaster for both supplier and operator. Still, there are evergreens, those licenses that hold their own year in and year out, Brilliant said. These long-lasting properties represent about 40% of the products in A&A Global's licensed lineup.
For today's bulk vendor accustomed to following the trend line, there is an expectation that the hottest merchandise will migrate to capsuled and flat-vend formats. This is a big change from a few years ago, when high-profile licenses were a sporadic occurrence in the industry. But it is that kind of casual expectation that offers the strongest evidence of the increasing expertise on the part of suppliers and operators when it comes to pop-culture marketing.