Investing in local animation brands to expand merchandise and consumer product market in tier II-III towns: Viacom18

TV is replacing movies when it comes to creating cool merchandise brands for kids, feel Dan Frugtniet, Vice-President, Licensing and Business Development, Viacom International Media Networks (VIMN) London, and Saugato Bhowmik, Business Head, Voot Kids, INS and Consumer Products, Viacom18, two of media conglomerate Viacom’s top honchos.

"TV is becoming cooler and stronger in driving kids’ merchandising than movies. The TV window is getting longer. So, as a network we are getting faster in identifying the next big hit," said Frugtniet in an interview with BestMediaInfo.com.

The network is currently expanding its consumer product business in India.

The network’s broadcast service is active in 180 countries while consumer products sales happen in 100 countries. In India, the segment is expected to grow faster than the previous years.

“In last four years, our CAGR has been over 50%. We are expecting the growth to increase from here. The tier II and III markets haven’t even come into the picture yet. That’s why we are investing in local animation brands –Rudra, Shiva Motu Patlu and others,” said Bhowmik.

Explaining how counterfeit products are a global challenge and a loss to sales, Frugtniet said, “It is a challenge in every country. To my mind, this needs a two-pronged attack – one is through better pricing and the other is educating the consumer.”

"An old saying in the business goes like, ‘Whenever there is no counterfeit of your products out there, that’s the day you have to worry about.’ That’s the day when there is no demand. The counterfeit is a very quick reaction to the trends and demands of brands," he added.

Excerpts:

Whatare the current trends in consumer products (CP) and licensing business globally?

DF: We have properties that resonate in different markets in different ways. Globally, I see that the superhero trend is running for a number of years now. Movies do well and we too have done Ninja Turtles movies and there’re Spongebob and Paw Patrol movies in the pipeline.

Now, we see that TV is becoming cooler and stronger in driving kids merchandising than movies. The TV window is getting longer so, as a network, we are getting faster in identifying the next big hit. When we had launched Blaze and the Monster Machines and Shimmer and Shine, we had already commissioned season 2, before season 1 had ended. Season 3 is on air now but the products haven’t yet hit the market. Earlier, the gap between seasons would be longer, but now we are able to have continuous telecast, which brings more a sustained fan following.

We are working smarter as a company which means there is more seamless exposure for the IP in the brands and licencees.

How is the India market different from the global market?

DF: It is very different and unique in all regards.Nowhere have I seen it as fast as it is in India. Withthe smartphone uptake, the adoption of e-commerce and the speed at which it has changed consumer retail.That’s a game changer here. This is a great opportunity for licensors, licencees and consumers.

India is a price-sensitive market, which has given a boost to the unorganised and counterfeit products industry. How can it be tackled? Is there any other global market where this problem is as big?

DF: It is a challenge in every country. Even in the UK, there are counterfeit products available of our brands, making it an ongoing challenge. An old saying in the business goes like, ‘Whenever there is no counterfeit of your products out there, that’s the day you have to worry about.’ That’s the day when there is no demand.

The counterfeit is a very quick reaction to the trends and demands of brands. Globally, as Viacom, we register all our brands as the customs network around the world. We use sightings reports from our agencies and licencees, and we take those to retailers. We are not afraid of taking action. We take help of anti-counterfeit agencies and operations around the world.

In India, we did some big seizures last year.

SB: If we have the right portfolio with right pricing and if I have multiple lines of products occupying the various price ranges, then a lot of the power of counterfeiting will be taken away. We can have the premium line, mass line. We should bring the people to buy original merchandise who are buying counterfeit for a slight cost benefit.

It is our job to make the pricing right, which needs more producers to manufacture in India, instead of importing them. We are also trying to bring more distribution through e-commerce and offline retail partnerships and better licencees. We do a lot of slicing and dicing to get better licencees for price or/and region. The more you slice and dice, the more coverage you will get.

What kind of revenues do CP and licensing bring to Viacom International Media Networks globally?

DF: We (Nickelodeon and Viacom Consumer Products) are globally at 5% of the total entertainment consumer products and licensing industry.

Which is the most matured market for CP?

DF: US, followed by the UK. US accounts for the same revenue as the rest of the world put together. The size of that market is about $5 billion in retail sales for all licensing, as per Leiman numbers. One-third of this is character licensing.

What do you see as Viacom's major strengths and weaknesses, compared to its arch-rival Disney in the CP business?

DF: Without comparing the two companies, I can say that Viacom is more like a bamboo tree, versus an oak tree. Viacom is more flexible, we adapt different mindsetsin different markets. We respect the nuances and global sensitivities, cultural difference across the different regions. We are more nimble, as a business, with an ability to react faster.

We are always looking to grow our business in new market and territories.

What can be the future scope of CP and licensing in India?

SB: Viacom remains extremely invested in India and Dan is a fabulous partner. The global team sees India as a huge opportunity area. We also recognise the challenges in being in India about fragmentation, about retail trade and discoverability. There is also narrow depth of the audience that is actually buying licensing merchandise. While it’s a large number, it looks like it is restricted to the top 5 million in the top six metros. We have to grow the market. We know the economics of this country and are moving in the right direction. The country’s age is right. All building blocks are set. It is about how we attack the problems.

DF: It is important to understand that we are in a long-term business with long-term partnerships. Spongebob is turning 20 years old next year, Dora is already 20, Ninja Turtle and MTV are over 30 years old. It’s not an in-and-out business. Viacom has long-term investment plans and we have the job to ensure that these jobs get done.

What kind of growth have you been registering in India and how much do you expect?

SB: In the mid-term future, the business is going to grow tremendously. We don’t see India being a mature market for some more time now. We have aggressive growth plans, bringing more brands to India, making the existing ones stronger, getting into more experiential categories. There is no borderline for us.

In last four years, our CAGR has been over 50%.

We are expecting the growth to increase from here. The tier II and III markets haven’t even come into the picture yet. That’s why we are investing in local animation brands –Rudra, Shiva MotuPatlu and others.

Do you think the kids’ segment is more lucrative or is it the youth?

SB: Yes. It’s interesting because licensing by very nature is about capturing the fan sentiment and children make the best fans. We, at our age, are fickle with shifting attention spans. We too are fans, but not as passionate as kids are.

Children really zone in and live in that world of Dora, MotuPatlu, Shiva and such others. They transform into that world and when they see the same character on their bag or shirt, that’s a moment of delight for them. That’s why the business model is very direct with the kids. The licensing for youth and the older age group is a very different game of looking at trends, to be on top of lifestyle trends, to have the right design sensibilities, right experiences. It’s no classical licensing. It is more brand extension. We are trying new categories like MTV Flyp, which cannot be really called licensing though.

DF: Kids between 2-12, in any market around the world, can be captured well. 2-5 for preschool, 6-9 for school, and once kids enter 10-11-12, we lose them from the character world to sports, pop stars and fashion brands. It’s difficult to retain and we then become multi-faceted. You, as adults, love multiple brands and follow multiple trends, unlike kids who become passionate about their characters.

How much would be the revenue divide between kids and youth CP?

SB: Youth is more about long-term partnerships on newer categories through which the revenues are huge, whenever we strike these deals. Whereas kids is a stable continuous stream with lots of partners and categories. We have more than 100 licencees, each kids brand has about 30 categories. It’s the classic form of licensing.

How much has the online commerce helped the business?

SB: Only about 10-15% is coming from e-commerce. The challenges of discovery on e-commerce are huge. It’s like prime real estate, which is actually like making huge dollars in selling the ads. For a smaller jewellery or toys or footwear licensor, to be seen on the top row is a difficult and expensive proposition. All our products are present on e-commerce and that basic hygiene is maintained. We guide them to improve their rankings on the sidelines of putting in money in ads.

Would you be looking at having direct partnerships with e-commerce and offline retailers?

SB: We are interested in direct partnerships, with both. We have a partnership with Future retail and we are looking at some of the e-commerce partners too. It has to be a strategic relationship, as we give them on air promotion support and they give us the prime discoverability.

How big is the unorganised market in India?

SB: For every dollar we sell as branded merchandise, about 5-10 dollar is sold in the unorganised market. We are not bothered about these numbers though.

As a business, it’s not important. You look at overtaking the counterfeit market when it is say, 20% and you have to grab it to make sense of your 80% share. If organised sector is 5%, your job is to actually grow the market. In real terms, the counterfeit products are actually feeding and seeding the market, only for you to come and take it back.

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