Many IP owners focus on getting the highest royalties or the most significant money for their IP. But that may be the wrong approach for your licensing strategy.
Understanding which focus is best for licensing your IP, royalty or marketing, makes a difference in the ultimate success of your licensing program. So how do you determine the best approach for your IP?
The first step is getting a clear understanding of what makes your IP valuable and what it takes to get it into the market. A royalty-focused approach makes sense if it is ready to go, quick to produce, and has a limited revenue window. On the other hand, if it’s a complex technology, requires market validation, or opens new markets for your core business, then a marketing-focused licensing strategy is the best approach.
Entertainment IP is an excellent example of royalty-focused licensing strategies. When I was at the studios, it was all about the money. That’s because the IP, especially movies, had a limited lifespan. The “selling life” for most licensed merchandise typically was about six months. So the goal was to generate as much royalty revenue as possible before and during the movie release.
Most licenses were short-term, about 2 – 3 years, and usually require payment of the guarantees within the first year. In this case, a royalty-focused approach makes sense because the IP is simple, such as a character, can be produced on many products reasonably quickly, and only has a limited period of revenue opportunities based on the movie promotions and time in theaters.
The other approach is marketing-focused. In this case, it’s a long-term strategy that focuses on building partnerships. This approach works best for IPs that require time to develop revenue opportunities, such as evolving technologies, IP requiring regulatory approval, or brands expanding their market visibility.
In some cases, the technology is licensed for little or no money to develop the industry for the technology. Tesla and Toyota provided no upfront cost licenses to their technology patents to accelerate the market adoption of their electric and hydrogen-powered vehicles.
Another variation using a marketing-focused approach is shifting some core products to licensing partners. One example is Nokia, which uses this approach with its smartphones and its brand, and it continues to be a big part of their long-term revenues.
Well-known consumer products brands such as Coca-Cola and Harley Davidson use the marketing approach to increase their brand visibility into non-competitive categories, which helps improve the market demand for their core products.
The right approach to your licensing strategy can make or break your licensing success. If your IP has a short-selling opportunity, such as an entertainment property, then a royalty approach makes sense for your licensing strategy. On the other hand, if your IP is complex or licensed into different markets or distribution channels, a market approach is your best strategy. In this case, the right partner is the one who can nurture your IP, build your licensing program, and create long-term cash flow and profitability. Focusing on the right approach to your licensing strategy helps ensure your IP’s best chance of market success.
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses of all sizes use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He’s licensed some of the biggest Hollywood entertainment blockbusters including the Batman Movies (1 and 2), and the number one kid’s action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges, and startup events. His first book, Hidden Wealth: The Money Making Power of Licensing was released in 2019 and is available on Amazon.com. He’s also a published writer with articles appearing in several prestigious trade magazine including The Licensing Journal, Intellectual Property Magazine, and License India. Rand also mentors at the Cal State Fullerton School of Business and Economics and is a judge for their startup business plan competitions.