Toy Story marketed Buzz Lightyear dolls

One bright spark tells the gang of toys how merchandisers failed to anticipate the demand for Buzz Lightyear dolls during the first film.

The joke neatly parodies a film that spawned a mini industry in Buzz Lightyear merchandise.

It also makes a serious point about how merchandising has become an integrated part of the whole film experience, says Andy Milligan, a director at the branding consultancy Interbrand.

Harry Potter craze

Today, few could fail to notice the rush to cash in on the ubiquitous Harry Potter.

Cashing in on Harry Potter

Many months before the Harry Potter film was set to launch, retailers were selling Harry Potter book-ends, wizard coins and Quidditch card games.

And because of the universal popularity of the Harry Potter phenomenom, consumers seem only too happy to lap up the memorabilia.

As a result, global sales of Harry Potter merchandising are expected to generate the sizeable sum of £1.4bn next year, according to industry estimates.

Fortune telling

In the big league of blockbuster merchandising, similar fortunes have been made.

Famously, George Lucas, the creator of Star Wars, was said to have earned close to $1bn from merchandising and sequel rights to the Star Wars films.

George Lucas made a fortune from Star Wars

According to Hollywood legend, producers 20th Century Fox chose to sign away the merchandising rights rather than give Mr Lucas a pay rise.

"He benefited from Fox's lack of belief in the value of merchandising," says Steven Gaydos, executive editor of industry publication Variety in London.

In the beginning...

As Mr Gaydos points out, spin-offs have been around since the beginning of film.

Charlie Chaplin led to the sale of "Little Tramp" confectionary, while Walt Disney capitalised on the US nation's affection for Mickey Mouse.

Merchandising switched from useful, but not essential, to being a major contributor to the business plan

Andy Milligan Interbrand

But it was not until Star Wars that film executives began to see the true potential of spin-off products.

"Before, merchandising was seen opportunistically, as creating value," says Interbrand's Mr Milligan.

"But George Lucas showed how you could make a fortune."

"It switched from useful, but not essential, to being a major contributor to the business plan."

Merchandise multiples

A successful Hollywood film can make about $120m from the box office, explains Mr Gaydos.

On top of that, it can generate about $60m from ancillary products, such as videos, DVDs and pay-per-view.

Strong merchandising, however, can then add another $50-200m, depending on how exploitable the film is.

Blockbuster films that appeal to children tend to be the most obvious vehicles for merchandising.

"Children are fad mad and can't get enough of things," says Mr Milligan.

Adults only

However, adult films like James Bond also provide opportunities for more sophisticated merchandising, such as CDs of the film's soundtrack.

Ralph Fiennes' face launched a re-run of the novel The English Patient

In addition, there is careful placement of products in the film.

"In James Bond, there are Nokia phones and BMW cars. They choose brands that sit appropriately with the James Bond image," says Mr Milligan.

In another example, the release of The English Patient coincided with a new book run of the novel, which carried actor Ralph Fiennes on the front cover.

Backfiring

Nevertheless, there is always the danger that excess merchandising will backfire.

At the beginning of last year, publisher Dorling Kindersley saw its profits slide after over-investing in Star Wars books during the release of Phantom Menace.

The company said it sold just three million of the 13 million books it had printed.

The unsold books caused a £3m loss on operations and a £14m write-off against the unsold stock.

"With Star Wars, people just assumed it was a banker," says Mr Milligan.

"If you assume consumers will buy anything, you will fail."

Over-hyped

In the case of another children's film, Godzilla, the flood of merchandise highlighted the failure of the film, critically.

After all the hype, the film was unable to live up to expectations, says Variety's Mr Gaydos.

Godzilla merchandising influenced the film

Nevertheless, the film still managed to gross $350m - with considerable help from its merchandising.

The search for marketable toys and characters, such as a "good" opponent for Godzilla, even influenced the development of the film.

"Godzilla showed how early merchandising kicks in and how it even helped create the script," says Mr Gaydos.

"It's really unbelievable how really integrally entwined the different arms [of the film] are - the merchandising, the promotion, the production of DVDs," he adds.

What's for Xmas?

As Christmas approaches, there will be no shortage of kids clamouring for the latest Harry Potter must-have.

JK Rowling has kept a careful eye on the merchandising

Unlike Fox, Time Warner is carefully coordinating the Harry Potter spin-offs under the watchful eye of JK Rowling.

So far the film premiere seems to have lived up to expectations and there appears to be a healthy appetite for the merchandise.

Perhaps Harry's magic touch has warded off the evils of over-supply and excessive marketing.

But one thing is for certain - if Harry Potter was a real human being, he would be on the verge of becoming very rich indeed.