With many Middle Eastern countries signing free trade agreements with the European Union and North America, the economic lines separating East and West are blurring. The increasing influence of Western corporate culture is evident in each new Burger King and Starbucks franchise that opens in the Middle East. And despite the new political lines the events of September 11 have drawn, many Western entertainment companies remain active in the territory.

Licensing in the Middle East/North Africa (MENA) can be likened to a chess match–the game can be won, but it takes a mix of foresight, strategy and well-executed plays. Half of the Middle East’s 98.2-million population is under the age of 16, and this subset has a 4% annual growth rate (according to 2001 research conducted by local agent Arabian Licensing Company and Disney), making the kids market a fair-sized playing board.

Having graduated from infancy, the MENA market is now toddling along on slightly steadier feet. With licensing income in the region growing at an annual rate of 25%, Arabian Licensing Company (ALC) estimates place market potential at as much as US$800 million.

Saudi Arabia offers licensors the most opportunity with its large population (22.8 million) and high per capita income (US$7,009), but there are also solid opportunities in the United Arab Emirates and Egypt. The UAE enjoys a high per capita income (US$14,978), is home to a large number of Europeans and Americans (who demand licensed merchandise and influence the domestic population), and acts as the Middle East’s trading hub with most pan-Arab and international companies active or maintaining head offices there. Egypt’s per capita income doesn’t rival the UAE or Saudi Arabia, but its large population (69.5 million) does present opportunities for low-cost product. Prospects are also decent in Middle Eastern countries such as Bahrain, Kuwait, Oman, Qatar, Lebanon and Jordan, though on a much smaller scale due to lower populations.

While opportunities for new players abound, several firmly embedded cultural roadblocks prevent unimpeded market entry, so a discussion of the benefits and bottlenecks to developing MENA licensing programs is in order.

The Benefits

Product distribution–Licensors can achieve product distribution throughout much of the Middle East, thanks to a free trade system amongst countries belonging to the Gulf Corporation Council (GCC)–Arabia, the UAE, Kuwait, Bahrain, Oman and Qatar–which jointly introduced copyright laws in the mid-’90s to address the territory’s piracy issues.

Opportunities exist for international distribution deals since there are few pan-regional manufacturing players and many countries (with the exception of Lebanon and Jordan) enjoy low import duties around the 4% mark. ‘Most of our revenue two or three years ago came from distribution deals because existing product was available, so distributors didn’t have to go through the treadmill of licensing procedures and approvals,’ says ALC sales and marketing manager Shaun Ollier. That is slowly changing, however, as countries such as Egypt attempt to develop local manufacturing bases by imposing 25%-plus duties on imports.

Media–According to Disney research provided by ALC, more than half of the Middle Eastern population owns a TV and VCR, while more than 30% own two TVs and a VCR. Satellite penetration is increasing, with roughly 30 channels currently operating in the region. One of ALC’s main selling points for international licensors is that it owns and operates satellite channel Space Toon, a same-name spin-off mag with a circ base of 110,000, and a chain of Space Toon retail outlets due to launch in summer 2003.

Travel–Made possible by the high level of disposable income enjoyed by a good portion of the population, international travel breeds desire ‘for those same products, services, brands and children’s characters experienced and enjoyed abroad,’ says Ollier. That said, according to a July 2002 article in The Christian Science Monitor, the number of Arab visitors to the U.S. has fallen by 50% and to Europe by 35%, which could affect future trend importation.

The Bottlenecks

Return on investment–‘Realistically, [Middle Eastern] revenue potential is not equal to many European territories,’ says Clare Edwards, BBC publishing manager for Africa and the Middle East. Charlie Clementson, MGM Consumer Products director of European licensing, concurs: ‘Licensing for apparel and toys alone might not bring a healthy return on one’s investment.’ Currently, licensing income is so limited that MGM has attempted to circumnavigate the problem by tacking merchandising onto larger deals for TV distribution and/or QSR promotions. Ollier warns against too-high expectations: ‘Don’t count on a 12% royalty rate and be rigid on it when we can only get 10%. Keep an open mind.’

Piracy–Despite GCC copyright laws, piracy remains an issue, particularly in non-GCC Middle Eastern countries. ‘Disney is strong here because they take action on pirated product,’ says Ollier. ‘But many rights owners don’t see the benefit since it’s costly and they don’t believe that they will recoup that investment with licensing and promotional opportunities. And if rights owners are not willing to invest in the region, then we [as an independent agent] struggle to develop licensing.’

ALC client BBC Worldwide developed a range of lower-priced anti-counterfeit plush to deal with the issue when it launched Teletubbies into the market a couple of years ago. But the most pirated product category is apparel since it can be produced locally at a low cost, and character images can be downloaded from the Internet and easily transferred onto product. Conversely, interactive toys are the most difficult to pirate since that involves sourcing voice chips and other parts, which can be expensive.

What’s more, in some cases, legislation intended to protect intellectual property rights can pose a new set of challenges for licensors. For example, Egypt’s new IPR law, ratified in May, includes a restriction on licensing agreements that could dissuade many rights owners from conducting business in the country. Quoted in a recent Middle East Times article, legal consultant Muhammad Hussam Loutfi claims that under the law, a rights owner has no right to terminate a licensing agreement or choose not to renew it unless they submit a lawful reason for doing so to an Egyptian court. Compounding this is Article 148, which specifies that copyrighted material presented in a foreign language (such as licensed books) becomes public domain if not translated into Arabic within a specified time period.

Cultural and religious restrictions–Most international properties can translate easily to the Middle Eastern market provided that cultural barriers are understood, says Ollier. ‘Consideration needs to be given to things such as partial nudity, trading aspects and wizardry elements.’

In 2001, a budding Pokémon craze was nixed when Saudi religious sect Fatwa decided the property–with its trading and collectibility hooks–promoted gambling amongst kids. Territories with a more liberal view such as Dubai, Bahrain, Oman and Qatar were pressured by the Saudi government to ban the property, and ‘in terms of manufacturer/distributor losses, it was phenomenal,’ says Ollier.

ALC attempted to avoid a repeat of this disaster when it set out to license Digimon. ‘We changed the name to Digital because it meant more in its translation to Arabic (powerful)’ and because the original name was too close to Pokémon, explains Ollier. ALC also downplayed the property’s trading element and was rewarded with an as-yet-unimpeded program boasting 12 licensees.

Mattel’s Barbie is a no-go in Saudi Arabia given the country’s views on partial nudity, as is The Muppets (for porcine character Miss Piggy). Recent examples of internationally hot properties that suffered meltdowns at Saudi borders include Lord of the Rings for its wizardry elements and Star Wars: Episode I for its devil-like Darth Maul character.

Despite all of the challenges, licensors active in MENA remain optimistic. Says BBC’s Edwards: ‘Given the number of countries involved, the piracy problem and the fact that retail is not as developed, it is harder to sustain the life cycle of associated product. But we have a fantastic Teletubbies TV platform guaranteed for the next few years and great product coming out, so it is definitely a market we want to be active in.’