Brand Licensing Europe is now the anchor event for a growing licensing market that stretches from the UK to the far reaches of southern Europe, Russia—and beyond. Heading into this year’s event, the rise of the value retail tier and the success of IPs from humble origins are a few of the positives in a largely risk-averse landscape still defined by the concentration of retail and licensor power.

The crucial question every IP owner faces when considering European-wide distribution is whether or not to take advantage of the growing consolidation of licensees and manufacturers and sign comprehensive distribution deals, or opt for another approach. Recently, the industry has seen the emergence of mega-licensees such as Hong Kong-based Li & Fung. The multi-billion-dollar company has followed an acquisition strategy in the last few years through which it has purchased multiple manufacturers, including Hong Kong-based Loyaltex Apparel and Germany’s TVMania, and licensing agencies like The Licensing Company (TLC). The rapid European expansion of UK-based softlines licensee Character World is another example of a new breed of licensee capable of offering licensors attractive pan-European deals.

“There has been consolidation in manufacturing, in general, a trend towards mergers and acquisitions,” says Richard Goldsmith, EVP of global distribution and international consumer products at The Jim Henson Company. “The low interest rates make it a good time to borrow money and grow in that way.”

On the plus side, a more robust licensee, much like a larger licensor, has more heft in the marketplace and is able to leverage its deep and long-standing retail relationships to get products on the shelves.

“When licensees consolidate, they are able to bring their economies of scale together,” notes Simon Philips, EVP & GM of Disney Consumer Products EMEA. “They can look at distribution across multiple territories and pull all their creative resources together.”

And the appeal of a comprehensive deal for the top licensors is obvious. “Li & Fung has been very ambitious so it can offer shorter lead times now,” says James Walker, VP for EMEA and APAC brand licensing and publishing at Hasbro. He adds that pan-European licensees enable Hasbro to meet  increasingly shorter retail delivery windows. “Consumers always want more, more, more, for less, less, less and quicker, quicker, quicker,” he says, describing the retail axiom that encourages licensors to place extra value on manufacturing and distribution efficiencies.

Andrew Carley, head of global licensing at Entertainment One (eOne), agrees that the advantages of pan-Euro deals are evident. “It’s one contract and one set of approvals,” he says. “It’s much easier for a licensor to make that one deal and get distribution for a product and source it from only one company.” Carley also notes that EU treaty rules, which allow for tariff-free trade, can often make strict single-territory agreements between licensees unenforceable.

“The markets are becoming smaller and smaller,” says Annalisa Woods, commercial director of Ink Global, a Denmark-based licensing agency. “If a retailer wants to buy from a specific licensee, because of the Treaty of Rome, we can’t really stop them.”

That said, many IP owners know all too well that taking the easy route might not deliver the best results. “With every deal you have to ask that question,” explains Rob Corney, group MD of UK-based Bulldog Licensing. “Is your brand one that you want to be another player in a massive portfolio, or would you rather choose a smaller company where you are a bigger player?”

It’s an age-old quandary that Ink’s Wood faces in relation to the agency’s efforts to grow its Masha and The Bear and Subway Surfers properties across Europe in 2015. “If you sign a multi-territory deal, you take the risk that your property is not getting attention in certain markets,” she says. “That happens if you let certain territories get swept into the deal without doing your due diligence. You have to be extremely careful because it happens more and more.”

An example of this one-size-doesn’t-fit-all approach on the agency side of the equation is Italy-based Rainbow Group’s recent move to end its agreement with Nickelodeon UK, which had repped Winx Club in the territory. Instead, the company has opted for a yet-to-be-named smaller, boutique fashion-oriented firm to steer the IP.

“Nick is obviously a strong company and a great broadcast partner, but we mutually decided that Winx is something different from SpongeBob or Dora,” says Antonella Ceraso, senior country manager at Rainbow. “We decided with Nick that we needed another agent for the UK.”

With its efforts to further expand its visibility and footprint in the UK, US and Chinese markets in 2015, Rainbow is looking for licensees and agents that take a tailored approach. “If you go to your pan-European licensee and it manages 30 different properties, you are just one of them,” says Ceraso. “When it has only three of four IPs, that is more appealing. Sometimes you have to go with a smaller company.”

Another pitfall of sweeping pan-European deals is that the licensee’s distribution network might not be as robust as promised. “For us, it has to be a good case made,” says eOne’s Carley. “It is very easy for distributors and suppliers to say they have pan-European distribution, but when you drill down and ask specific questions, you can see there is a weakness there. The reality is that there really aren’t that many companies that can rightfully offer that kind of distribution.”

Woods also posits that there are no shortcuts to be taken when it comes to retail distribution and that every deal, no matter its size, has to be carefully vetted. “When we sign a multi-territory deal we go through a forecast process for every territory that is involved,” she says. “If we find a territory that is not performing for a distributor, then we have to pull it out.”

For example, in May, Ink signed a master toy deal with German-based conglomerate Simba Dickie Group for Masha and The Bear to produce a range of plush, construction, wooden toys, summer toys, wheeled toys and arts and crafts. The deal covers Eastern Europe, GAS, Iberia, the Nordics, Benelux, France, Italy and the UK. “There are many European territories on that deal,” says Wood. “But we went through a very strict process to make sure that they have good local distribution in place for all the territories.”

Another trend on the horizon for BLE attendees is the rise of discount and grocery chains in multiple European territories, and the resulting boost for licensed categories that feed this value tier of retail. “I’ve noticed it across Europe,” says Woods, “Southern Europe is becoming a value chain stronghold.”

Disney’s Philips, representing the largest entertainment licensor in the world, has taken note of the trend. “The value sector has impacted everybody,” he says. “These retailers offer incredible value to their consumers and we’re very excited to see how we can continue to grow our business in the channel.”

The most striking examples of the value tier’s growing prowess can be found in the UK. Leading names in the category include Willenhall, England-based Poundland.Founded in 1990, the chain currently boasts more than 450 locations across the UK and yearly gross revenues exceeding US$1.4 billion. About two million customers visit Poundland’s locations on a daily basis. Meanwhile, the chain’s closest competitor—and rival in this past summer’s well-publicized price war—is 99P Stores. The Northamptonshire-based chain has also experienced rapid growth since rolling out in 2001. The retailer reportedly pulls in more than two million customers a week throughout its 220 UK locations.

There is a pretty self-evident line that can be drawn between the prolonged economic downturn and the rise of value retailers. In the wake of the economic downturn that started in 2008, consumers have embraced the retail tier, throwing off their previous ideas about product quality and variety. Growth has followed, resulting in the opening up of more shelf space for licensed goods throughout the tier.

“Five years ago, you might have heard someone talk about how much they have paid for their watch or t-shirt, but today you are just as likely to hear the same person taking pride in how much they saved by shopping cheap,” surmises Corney.

Tim Collins, head of commercial at UK-based entertainment publishing company DC Thomson & Co., agrees that there has been paradigm shift in consumer attitudes. “There was a perception that the value tier was for those on income support,” he says. “But now you can drive a hard bargain while driving your Mercedes, and no one thinks that it is an odd proposition. Paying less is not considered a bad thing.”

Not surprisingly, many expect that sales for the product categories suited to the value tier will grow. “We are looking at the value sector more aggressively than in the past,” says Collins. “There are some licensors who might think because of the high volumes and smaller margins that it’s not a sector we can compete in, but I believe it is here to stay.”

Steve Manners, EVP at pan-Euro agency CPLG, adds that although the slim margins and lower price-points might shrink royalty rates for the sector, its double-digit growth can’t be ignored. “It has become an important distribution channel,” he states bluntly.

The categories that have benefited from this trend are Fast Moving Consumer Goods (FMCG) including toiletries, publishing and confectionery. In fact, many licensors and agents report they are heading to BLE in October with this in mind. And you can expect to see more partnerships in the future like Nickelodeon’s recently announced deal for a new line of SpongeBob SquarePants and Teenage Mutant Ninja Turtle drink boxes with London-based Appy Drinks. The new SKUs are earmarked for distribution in Poundland stores across the UK starting in 2015.

Further driving the growth in this tier is the outstanding performance of Europe-based grocery retailers Lidl and Aldi, which have made their presence known in the UK market.

According to the Financial Times, the UK arms of Essen, Germany-based Aldi and Neckarsulm, Germany-based Lidl are on track to generate combined sales of more than US$16 billion in 2014. Aldi is expected to generate US$8.29 billion, representing fairly remarkable sales growth of roughly 28% over the last year.

“They do amazing promotions in the grocery sector,” says Mark Kingston, GM & SVP of Nickelodeon & Viacom Consumer Products. “They are nimble retailers experiencing phenomenal growth, and they are starting to open up to stocking more and more licensed goods.”

Bruno Schwobthaler, SVP at Warner Bros. Consumer Products, says the rise of these chains across Europe has bolstered his company’s already strong position in the food category. “Food and promotions have become very significant for us,” he says, pointing to WBCP-owned Looney Tunes’ long history in the sector. “We expect that more industries and companies [in the food and promotions category] will turn to licensing in the next three years.”

What it all adds up to is value-based grocery retailers having a larger presence at London’s Olympia exhibition center in October. Their buyers are expected to walk the aisles of BLE hunting for licenses to fill their shelves and appeal to their growing customer base.

Retail growth is all well and good, but many licensors are well aware of the fact that they still have to convince retail buyers that their smaller IPs can compete with the big boys. “It’s not like the elephant in the room anymore,” explains DC Thompson’s Collins. “It is the whole zoo.”

Of course, he is referring to Disney Consumer Products and its ever-increasing market share. The company will hit BLE with a comprehensive portfolio augmented through a spate of acquisitions made over the last five years. With the addition of blue-chip IPs Star Wars and Marvel, Disney has expanded its dominance from the girls aisle to boy-centric brands—and the hits just keep on coming, too.

“Guardians of the Galaxy is on fire,” says Philips, referring to the most recent blockbuster from Disney-owned Marvel Studios that raked in US$250 million in its first three weeks of release in August. And with a new Star Wars movie—and its expected licensing bonanza—on the horizon at the end of 2015, Disney is arguably more powerful than ever when it comes to commanding retail distribution.

Hasbro, another heavyweight, has also continued winning its big property bets with the international success of Transformers 4. By the end of August, the CGI spectacle had broken the US$1-billion mark at international box office and was continuing to sell tickets. “It’s a phenomenal result for us,” says Walker. “You’ll see us give it a little more European focus in the future and continue to produce content, including a new series called Transformers: Robots in Disguise (scheduled to bow in spring 2015) and a new Transformers 5 movie down the line.”

Hasbro has also leveraged its market share to broker a new deal with Finnish digital entertainment company Rovio for the release of Angry Birds Transformers, expected in Q4. It’s a slick combination of resonant IPs that Walker believes will pay major dividends. “We are creating a new game, rather than skinning an old one,” he reveals. “It’s being executed phenomenally.”

For Viacom-owned Nickelodeon, the upcoming year also looks promising with a SpongeBob SquarePants movie rolling out internationally throughout Q1 2015. Other bright spots for the powerful licensor include the renewed strength of Teenage Mutant Ninja Turtles across Asia, and the expansion of the Dora franchise with Dora and Friends.

There is, however, a striking example of an IP with more modest origins finding mass success in Europe—the result of a carefully thought-out strategy marked by territory sensitivities, shrewd category choices and innovative licensees. eOne’s preschool property Peppa Pig marks her 10th anniversary this year, and the affable piglet is now breathing the rarified air of true licensing success.

“Peppa Pig is number one in Italy,” says NPD European analyst Frédérique Tutt. “It is also ranking very high in Spain and it’s almost considered an evergreen now in the UK. In fact, if you take the top five countries in Europe, Peppa [product sales] have experienced a 49% increase over the first six months in 2014.”

The secret to the property’s success, says Carley, is a commodity that is all too often in short supply in the licensing world. “Patience,” he contends. “We understand the IP and trust it. We let it breathe and let consumers find it and understand it before we ramp up the heavy marketing.”

Additionally, Carley credits the expertise of local agents—who know the ins and outs of their specific territories—for creating the robust Peppa program. “It’s a lot of work,” he says. “But our philosophy is to understand the market.”

For example, Carley says it has taken almost a full decade for the UK market to mature enough to introduce Peppa FMCG products. The category, aided by the aforementioned growth in the value tier, is just starting to be an area of focus for eOne. “But we found that the enthusiasm for FMCG in southern Europe started almost right away,” he notes. “It’s just a consumer culture there that was faster to accept it.”

eOne also can’t over-emphasize the importance of tailoring the program to the territory. As just one example, while the SKUs in the UK market primarily target preschool girls with Peppa-focused products, in Southern Europe the boy-skewing program that puts Peppa’s little brother George in the spotlight is finding slightly more traction.

Despite the rash of licensee, licensor and retail consolidation, Carley still believes that along with a measured, patient and territory-specific approach, unique content can still propel an IP towards success. “The content has to be the number-one priority,” he says. “If the content is right, kids will find it and stick with it.”

This article originally appeared in the September 2014 issue of Kidscreen.