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By Carol Rehtmeyer
Let's create the perfect licensing opportunity. How do you think the toy industry would react to paying a per toy sold royalty that was in excess of the cost of the toy itself? And, what if that substantial royalty had to be paid on an ongoing basis and on a completely non-exclusive basis? Now, what if everyone-- companies, independents and competitors alike all paid a large royalty to the patent holder for temporary use of that same non-exclusive license? What if we made this patent concept such that numerous products would be created just to utilize it? Now, what if the toy company paid for the development of that technology as well as the non-exclusive royalty payments? If this sounds unrealistic, consider the technology sector. Non exclusive licensing opportunities have been perfected by the software industry. You are likely aware that nearly the entire cost of computer software is based on royalty fees (it's not difficult to figure out that the CD and instruction booklet don't really cost $400.). Now, how can we apply this level of licensing opportunity to the toy industry?
It's all a matter of perception (plus education and some strong marketing). When corporate software licensing first made its debut a few decades ago, corporations hesitated to pay large royalty fees for operating software that they didn't really "own". Further, they had issue in paying huge development dollars for software that they had to license on a non-exclusive basis. That was "way back then". Interestingly, though, this sounds like the toy industry today. Licensing requires education and marketing to enable new methodology and thinking to be adapted. Equated to buying a car, but not owning the patents that allow the car (or any other consumer good product, for that matter) to function, non-exclusive technology licensing has made a major impact in our society. The software industry has made the greatest strides in moving licensing to new heights. Could other industries, such as the toy industry learn from and benefit from that momentum?
Back to the toy world. You are probably aware that computer software games and games for hand-helds are also heavily cost weighted by their expensive royalty based software. But did you know that other products (beyond the boxed computer software), can be heavily royalty based in the same manner as computer games? Why not? Products such as "Palm", "Palm" based accessories and other software intensive consumer good products operate on software platforms that are royalty based and where as much as $45 dollars per unit goes toward royalty fees for their operating platform. As technology plays a stronger role in the toy industry, we are likely to see greater emphasis on software platforms and other technologies that offer broad application and that lend themselves to nonexclusive, cross platform marketing and licensing opportunities. This creative technology licensing methodology may be directly applicable to the toy sector. Shouldn't greater thought be placed on other forms of licensing such as character licensing as well?
Let's change the perception. Perhaps we need to take a lesson from the technology sector who is perhaps the most aggressive and creative in finding new licensing opportunities and schemes. According to "Information Week", last fall, Microsoft said it planned to introduce a version of Office XP that would give home users the option to pay a discounted fee for use of that software that was limited to usage of a single year. According to the licensing plan, upon expiration of that annual agreement, customers would either be left with a read-only version, or an opportunity to renew their subscription, gaining upgrades released in the interim. Microsoft has been seeking alternative licensing schemes for its desktop products because customers have been more reluctant to upgrade as frequently as in the past. The technology sector is a fast changing environment that demands constant reinvention. Come to think of it-- couldn't most business models benefit from some inter reflection and reinvention?
Back to toys again. Think about this; toy licensing is basically "borrowing". We borrow the rights to a given patent, copyright or trademark for a given measure of time. When that time expires, we give back that patent, copyright or trademark. The current thinking within the toy industry is that we either "borrow" those rights, or we out right buy them. From a Licensee's perspective, you can actually "borrow" in many different ways. You might borrow over time, for example. From a Licensor's perspective you may further define "time" as Microsoft did. And from a Licensor's perspective, you can also "lend" in various ways. This leaves us to question how we might apply the kind of creative licensing rethinking common to the technology sector within the licensing structure of the toy and entertainment industries. For over fifty years, the toy industry has adopted a rather standard formula for licensing. In our current, fast paced and technology driven environment, isn't it time to rethink that formula?
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