Financial Times

Play the game, buy the licensed consumer goods

By Kamau High in New York

Published: December 9 2004 02:00 | Last updated: December 9 2004 02:00

Al Kahn knows how tricky it can be to find just the right way to sell merchandise based on video games. As chairman and chief executive of 4Kids Entertainment, the exclusive agent for Nintendo outside Japan, his company is responsible for licensing the manufacture of any merchandise bearing the gaming giant's brand.

This ranges from T-shirts, lunch boxes and candy to eyewear, furniture and even Nintendo-branded paint. His team's job is to dream up new homes for Nintendo characters such as Mario, the mustachioed plumber.

More than 150 companies make licensed Nintendo products and are monitored for any that Nintendo feels might damage its brand.

"We had a major deal to do a chicken finger shaped like Mario, and Nintendo was concerned about salmonella," says Mr Kahn.

Merchandising offers Nintendo another way of connecting with its customers. "This is an integral part of maintaining the image and brand of a company. We pay as much attention to our licensed goods as goes into making games," says George Harrison, senior vice-president, marketing and corporate communications, Nintendo of America.

In general, game companies vary in how much they use characters from their games. Some, such as Nintendo and Square Enix, developer and publisher of the popular series Final Fantasy, encourage a wide range of products with elements of their characters. Square Enix, for example, offers replicas of the accessories worn by one of its characters, Tidus, a blonde boy who wields an enormous sword and wears leather shorts.

Square Enix's merchandise is planned while the game is still in development. "Producers have specific ideas about a game and accessories are part of the game. The main characters usually wear accessories as part of the story," says Ichiro Otobe, president and chief executive of Square Enix.

Others, such as Electronic Arts, which puts out titles including Burnout 3: Takedown and Def Jam Fight for NY, do not view merchandise as so important and offer relatively little.

This disparity has prompted the organisation that represents game developers to urge its members to explore the issues as a way of generating more revenue. The Game Developers Conference being held in San Francisco in March will include a session designed for newcomers to licensing called "The Bottom Line on Licensing".

"Budgets for next generation titles are going up while the cost per unit is going down. There is a narrower and narrower margin publishing houses have to work with," says Jamil Moledina, conference director.

Licensed merchandise is worth an estimated $104bn (£54bn) a year, claims Charles Riotto, president of the International Licensing Industry Merchandisers' Association.

"It is a fairly substantial market," says Lee Linithicum, an analyst with research firm Euromonitor. "In the global context, some of the most popular franchises do have links to broader appeals, such as film." Video games and film have not so far had a particularly fruitful relationship, since films related to games have tended to lack the thrill of actually playing the game.

Halo 2, the new first-person shooter from Microsoft for its Xbox reportedly took $125m in first day sales, which would put it on track to overtake the best selling game to date, Super Mario 64, which was released in 1996.

Such numbers have the game's fans talking about seeing its protagonist, Master Chief, on theatre screens. At this stage, it remains only talk but Ed Ventura of Xbox's worldwide content and marketing says "the desirability of a Halo movie is there".

Until then, fans will have to content themselves with the action figures, soundtrack and recently released coffee table book of art from the game. Not to mention three novels, posters and clothing.

"We want to be in the hearts and minds of our fans as much as we can," says Mr Ventura. "In a 24 hour day, our fans are not going be playing games all day long. This is a way to stay in their consciousness."

Licensing is not just action figures and board games. Infusio has licensed six titles from Microsoft to put on mobile phones, a market that Gilles Raymond, co-chief executive, estimates to be worth €300m to €400m (£207m-£277m). Japan and Korea represent 60 per cent of the market, with the remainder split evenly between the US and Europe.

Game companies license companies such as Infusio to make versions of their games that will run on mobile phones. The games companies receive a portion of the revenue that Infusio charges users to download the game as well as an up-front fee.

"Video game publishers understand the importance in terms of marketing and revenue of mobile games," says Mr Raymond.

Some companies, seeing the opportunity to expand their brands and bring in extra revenue, have recently started or expanded their licensing efforts. NCsoft, maker of titles such as City of Heroes and Guild Wars, is just beginning to explore merchandise opportunities. It is planning a store, which will sell everything from busts of characters to comic books, board games and apparel.

Kevin Sullivan, product marketing manager for City of Heroes, says: "80 per cent of this stuff is in the exploratory phase. We are looking into all the venues [to which] we can expand the IP [intellectual property] of our products."

Ubisoft, publisher of games such as Tom Clancy's Rainbow Six, is investing in expanding its merchandising efforts. "We are teenagers [in the licensing business]," says Monika Madrid, senior manager, strategic sales and partnerships, of the company's efforts.

The company plans to increase its range of merchandise. "Our gauge of success will be when I see Sam Fisher [the main character in one of Ubisoft's games] on a Band Aid."


* Look to the East: "In Japan you see a lot more co-branding and licensing of video games, action figures and board games" - Lee Linithicum, Euromonitor.

* Clothes make the gamer: "Fashion is something that changes regularly, and it is up to us to keep those items fresh" - George Harrison, Nintendo.

* Just because you can, doesn't mean you should: "Not all video games make good licences. You can't take something too violent and make a toy out of it for younger audiences" - Al Kahn, 4Kids Entertainment.

* Less is often more: "Don't do easy licensing to all the companies. It can destroy the value of the game" - Ichiro Otobe, Square Enix.

* Leave them wanting more: "Get one wave of merchandise out, pull that back, and then come out with new products" - Charles Riotto, International Licensing Industry Merchandisers' Association.

* Know your own brand: "When you are planning a licensing programme, you want to get partners that really share your vision and understand your brand" - Charles Riotto.

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