While it’s premature to say that Europe’s licensing industry has fully bounced back from the crash it experienced in 2000 and 2001, there are encouraging signs that a recovery may be on the horizon.

According to a recent study from the International Licensing Industry Merchandisers’ Association (LIMA), 2002 royalties tied to character-based entertainment properties rose 4.12% (US$101 million) in the U.K. and 4.49% (US$93 million) in Germany. Surveying 100 licensors and agents, the report has found that entertainment licensing was the third fastest-growing property category in the U.K. behind sports (+5.26%) and trademarks/brands (+7.41%); in Germany, entertainment also came in third to trademarks/brands (+6.25%) and sports (+8.33%).

Though these increases are encouraging, licensors in both territories are digesting them with tempered optimism. ‘To me, 4.4% is not a huge rise,’ says John Morris, head of merchandising at German net Super RTL. Morris says that SRTL’s royalty revenues track closely with those of LIMA’s, noting that the merchandising hits the company enjoyed in the last 18 months with properties such as HIT’s Bob the Builder, have been mitigated by misses such as Nick’s Jimmy Neutron.

However, with merch programs for nine or 10 new properties including Rubbadubbers (HIT) and SpongeBob SquarePants (Nick) rolling out in the next 12 months, Morris is already looking ahead to 2004, when he predicts that royalties for Super RTL will spike by 15% to 20%.

In terms of last year’s growth, besides Bob the Builder, Morris credits anime franchises like Digimon and Dragon Ball Z, as well as reality TV properties such as Pop Idol, for helping to brighten licensors’ balance sheets.

On the feature film side of the German business, programs that performed well in 2002 included Lord of the Rings: The Two Towers, the success of which was chiefly responsible for bumping Munich-based MR Merchandising’s royalty revenues up by 20%, according to the company’s managing director Marlies Rasl. In addition to the industry’s improved performance overall, Rasl cites greater cooperation from retailers in devising effective programs and promotions as one of the main reasons why the second LOTR wave was so successful.

Stephen Gould, regional director of northern Europe for Fox Kids Europe’s licensing division Active Licensing, echoes those sentiments. ‘In the U.K. and elsewhere in Europe, retailers have become much more professional about product presentation. It used to be if you got a retail promotion, it was a perk; now it’s expected,’ says Gould.

FKE properties that continue to do well in the U.K. include evergreens like Power Rangers, which enjoyed 15% year-on-year revenue growth last year and is up 20% so far in 2003. Products with a role-play element, such as action figures, costumes and confections-with-toys, have excelled, says Gould.

Other properties that are finding a measure of success are those that offer a lifestyle element. For instance, Gould says merchandise such as apparel and handbags tied to Korean fashion brand Pucca, which Active launched in Europe this summer, have been blowing out at upper-tier specialty retailers in the U.K.

Consumers don’t just want the standard licensed products (i.e. toys, T-shirts, etc.) anymore; they want to experience the property as a lifestyle, says Gould, who notes that apparel is currently the biggest licensed category for FKE properties, not including Power Rangers. Active will be repositioning many of its current properties, including Marathon’s Totally Spies!, with product ranges that are reflective of an aspirational lifestyle approach.

Besides Power Rangers and Pucca, Gould says that the performance of many FKE properties has been hit or miss. Active’s growth is on pace for 4% to 5% this year, and Gould predicts it will likely hit 7% in 2004. That could be a tough threshold to reach, though, considering that as of this month, FKE’s parent company Disney will assume licensing duties for Power Rangers. Nonetheless, Gould feels that losing the boys action brand will give his team more time to build out other properties in the FKE portfolio.

Despite his optimism about his own company’s 2004 prospects, Super RTL’s Morris does not foresee double-digit increases for the German licensing industry this year or next. With economists predicting German GDP growth of just 0.1% for this year, combined with German consumers’ tendency to put their wallets away when times are tough, there’s little to be hopeful about.

Morris paraphrases an aphorism on the psychology of the German consumer: ‘When Anglo Saxons get depressed about the economy or job prospects, they go out and spend; when Germans get depressed, they save. There’s a much more cautious attitude here.’