No European market is an island, and an insular approach to licensing in these territories no longer makes sense. As free trade among EU countries continues to move licensed product across borders with greater speed and ease, Euro licensing players are being forced to look beyond their domestic markets to offset the competition that’s increasingly coming from other parts of the continent.

Even British licensees–which have been largely unchallenged by cross-border competition, historically–are now feeling the squeeze. ‘It’s getting quite difficult to ask a licensee to commit to a certain level of investment in a property if they face competition, which you can’t prevent,’ muses Katie Foster, director of consumer products Europe at London-based HIT Entertainment. ‘Eventually, licensees will ask, ‘If I’m not protected from outside competitors in my country by taking out a license, then what is the value in securing the rights to a property for one territory only?”

While a general trend towards conducting merchandising business on a pan-European basis is developing, the current broadcast climate poses a big challenge. ‘It’s difficult because the market is, in many cases, driven by exposure on terrestrial channels, which are fragmented by definition,’ says Jean-Philippe Randisi, managing director at Fox Kids Europe licensing arm Saban Consumer Products Europe. In that universe, he observes, ‘you can still have a series starting next week in the U.K. and three years from now in Spain.’ Yet as Fox Kids and commercial rivals Cartoon Network and Nick expand their distribution reach into Eastern Europe, work towards consolidated TV launches, and increasingly look for programs that will work across multiple markets, Euro broadcast and TV merchandising landscapes could change.

On the retail side of the equation, current market developments are forcing the evolution of a European licensing model, says Nicholas Durbridge, president of U.K. agency The Copyrights Group. Retailers such as Swedish apparel chain Hennes & Mauritz (740 stores in 13 European countries) and French conglomerate Carrefour (428 hypermarkets in 11 countries) lean towards licenses for characters known Europe-wide–such as Disney classics–to facilitate a cohesive product range. Yet even with retail giants beginning to think and act on a pan-European level, many licensing execs claim that retail models are still too intrinsically different market-by-market for a blanket Euro strategy to be feasible.

‘If you look at Holland, you’ve got 60% of the toy business and a lot of the licensing business in the hands of [Dutch conglom Blokker],’ says Alistair Richards, Gullane’s VP of consumer products U.K. and international. Blokker-owned specialty toy chains Intertoy and Bart Smit carry licensed apparel, video games and computer games. Specialty toy stores and large hypermarkets such as Bilker dominate in Denmark, while Spain is hypermarket-heavy. Italy’s retail base mixes mom-and-pop stores with small toy retailers owned by Italian toyco Giochi Preziosi.

The most developed Euro market–the U.K.–is also the most varied, with High Street retailers, mixed multiples like Woolworth’s and large grocery/drug chains stocking licensed merch. In France, the retail landscape is shifting, forcing licensors to alter their retail strategies. ‘Hypermarkets used to be 70% of the business,’ says Jean-Michel Biard, president of Paris-based licensor V.I.P. ‘Now, specialty gift and boutique outlets are more important for licensing because you can create higher-quality product at a higher price point.’

Retail market realities aside, other barriers to pan-Euro licensing development are breaking down as European laws harmonize, and business opportunities break through the red tape that once confined them to certain territories. In Germany, for example, former restrictions on premium pricing severely limited pan-regional promotional opportunities, particularly in the packaged goods arena. ‘German market premiums could only be worth 3% of the value of the actual goods, which meant that companies such as Kellogg’s could do stickers–but not reflective stickers because that was too expensive,’ says Bartley Grosserichter, partner at Munich-based agency elite licence. ‘You couldn’t have any of the really fun plastic toys and car sets that you get in other countries.’ In 2001, Germany loosened several market restrictions–including premium pricing–allowing licensors and their partners more promotional freedom. ‘Until last year, there were no coupon or gift-with-purchase offers in Germany,’ notes Grosserichter. ‘Now we can do more on-pack initiatives, and we have more freedom on the retail scene.’

While the pan-European promo highway is essentially clear of roadblocks, industry pundits say other categories are still in the slow lane, encumbered by cultural nuances that divide Europe not only along its countries’ borders, but on a north-south axis as well. And when it comes to the driver category of apparel, the ‘two Europes’ have developed two very different licensing approaches. ‘In southern Europe, apparel is the number-one licensed category, but programs are generally driven by [fashion and] design,’ says V.I.P.’s Biard. ‘Northern Europe is more oriented to character-driven entertainment properties, and thus is more influenced by U.S. trends.’

According to Loonland Merchandising UK’s head of licensing and merchandising John Knox, it’s important for the industry to realize that ‘in any pan-European model, there will be a significant amount of local licensing that won’t translate to outside territories.’ Social expressions and greeting cards–categories driven by local language, customs and humor–tend to license along territorial lines. Publishing, though language-driven, can be licensed on a pan-European basis, but there are few companies that have local offices for language translation and developing relationships with local wholesalers and retailers in all key markets.

Even borderless categories such as toys and video games run into market snags within a pan-Euro deal structure. ‘Many toy companies have pan-European deals, but then find themselves sitting on the product or rights because a TV series hasn’t sold into a certain territory,’ says Jon Keeble, an independent licensing consultant currently working on Pepper’s Ghost/Sesame Workshop co-pro Tiny Planets. ‘And very few rights owners can guarantee to sell their show across Europe within a specified time frame.’

Proponents of the territory-by-territory approach peg local economies and varied property life cycles as further obstacles impeding the evolution of a truly pan-European licensing model. ‘Licensing is always directly related to the economy of each territory, and the brand-building process differs from country to country,’ says Katarina Dietrich, director of entertainment for European agency Copyright Promotions Licensing Group. ‘In Italy, for example, there is no brand-building process. You have only one chance and a one-year property cycle, so you have either a huge success or a major disaster.’ Tiny Planets consultant Keeble concurs: ‘I have yet to meet anyone who says that they have enjoyed launching a property in Italy or that they have made any money in the territory.’

In response to that market challenge, advocates of the pan-Euro approach say working with pan-European licensees provides safety-padding against hit-or-miss territories. ‘You’re working closely with one partner on managing stock transferals,’ says BBC Worldwide director of global licensing and sourcing Helen McAleer. ‘So if a brand isn’t working in one country, you have the opportunity to move stock more quickly to another country where it is working.’

That network may soon widen as many Eastern European countries are expected to join the EU as early as next year. ‘Eastern Europe is getting increasingly interested in licensing, so that’s a challenge–but it’s a good one,’ says HIT’s Foster. Yet as licensors prepare for the likelihood of an economically unified Europe, many grapple with the piracy challenge in emerging Eastern European markets.

And in countries affected by counterfeit production issues, the slow-build approach–typically favored by licensors in countries less used to brands and licensed product–makes little sense. Even so, as the economies of Eastern European countries continue to grow, HIT’s Foster predicts that ‘eventually, there will be one market, but we’re well off that at the moment.’