A boy takes photos with Happy Sheep and the Gray Wolf, well-known cartoon characters for Chinese children in Dongguan, Guangdong province. Chinese animation companies are learning from their Western counterparts to make profits from licensing. Zhao Yanrong / China Daily

More Chinese animation companies are licensing their products to reap higher profits

As China shifts from its position as the world's factory to a global consumer, Chinese manufacturers are slowly responding with a veer of their own - toward product licensing.

That is especially true for owners of original animation images as well as cartoon-related manufacturers, such as toy makers. Selling their licensed products is becoming popular for companies who want higher profit margins.

The reasons are simple but numerous. Original equipment manufacturers, which are companies whose products or components are used under the brand of another company, in China are facing difficulties in exporting their products because of a shortage of workers, hikes in costs for resources and a pinch in profit margins from the rise in the yuan rate. More Chinese toy makers are realizing that instead of continuing to funnel toys to foreign companies, acquiring licenses for popular cartoon images and designing their own toys can bring in more profits.

In 2011, the market for cartoon-created toys in China reached 9.3 billion yuan ($1.49 billion; 1.14 billion euros) in sales, an increase of 17.7 percent from the previous year. The market is expected to reach 10.9 billion yuan by the end of this year, according to the China Animation Industry Investment Research Report released by EntGroup, an entertainment industry research firm based in Beijing.

Cartoon licensing is an agreement between an animation company and a manufacturer to feature the animation company's cartoon characters on products for a designated period of time in a designated territory. In return, a fee is paid by the manufacturers to the animation companies for each product sold based on the wholesale price of the item.

"With cartoon licensing, the added value of the products is increased dramatically. For instance, a product that is originally priced at 5 yuan can be sold at 10 yuan after being licensed with a cartoon image," says Wu Chuangyu, vice-president of Guangzhou Art-land Human Being Culture Communication Co Ltd, a brand management company for animation studios.

Wu said with a licensed cartoon image, sales could double or triple. It could also open up more marketing channels with big retailers such as Wal-Mart.

With the help of licensed cartoon images, Hu Shiyang, general manager of the Great Partner Confection and Toys Co Ltd, has been able to sell his confectionery around the world. His company currently sells Angry Birds candy bars and Kung Fu Panda gumballs, among other licensed candies.

"Without being related to those cartoon characters, our products cannot stand out from other candies at all," he says.

After successfully promoting his candies for the film Kung Fu Panda in 2008, Hu's company garnered more attention when Kung Fu Panda 2 was released last year. DreamWorks Animation, the producer behind both films, wanted Hu's company to not only produce the promotional candies in China, but also in Europe and Russia.

"We became much more active, and licensing helped us win the European clients," he adds.

Cartoon licensing not only helps a manufacturer's bottom line, but also animation companies to promote their brands. Many have followed the business model established by The Walt Disney Co over the past two decades in the Chinese market.

Since 1992 when the Walt Disney Co entered China, its cartoon characters have been popularized with prints on nearly every children's product, including toys, furniture, electronics and clothes.

In the mainland, there are more than 200 Chinese companies licensed by the Walt Disney Co to develop, produce and sell products using their cartoon characters. These companies pay for the licensing rights and share a cut with the animation giant. The Walt Disney Co is very strict with its selection standards - a minimum of five years of experience in manufacturing, wholesale and retail.

With the support of Chinese manufacturers, the market in China will become the fastest growing market for Disney, says Guenther Hake, managing director of Greater China Disney Consumer Products at the Walt Disney Co. He believes the company's sales volume in China will double in about five years, the International Finance News reported.

Seeing the success that the Walt Disney Co has had in China, several Chinese companies are looking to license their products.

In October, Alpha Animation, based in Guangdong province, signed an investment cooperation agreement with Hasbro Inc, a multinational toy and board game company based in Rhode Island, US. Alpha is hoping to co-establish a joint venture to develop and design toys.

The new company will attract $15 million from each company and will distribute products and manage the use of brands globally.

The Nasdaq-listed Hasbro provides a wide-range of brands, such as the Transformers, My Little Pony and Monopoly. Alpha is the first listed animation company in China.

"This partnership is a role model within the toy industry bringing together the strength of both companies in the areas of product design, animation development and channel management," said Cai Dongqing, chairman of Alpha.

Through the strategic partnership, Hasbro will not only continue to develop Alpha's Chinese market, but will also promote Blazing Teens, one of China's most famous cartoons. The show, which is about high schools that hold yo-yo contests, is shown in 14 other countries.

In 2011, animation-related toys contributed about 60 percent of Alpha's operating revenue with more than 600 million yuan. The specially licensed yo-yo, as used in Blazing Teens, has been become one of the most popular toy products in China, with more than 3 billion yuan in sales since it was introduced by Alpha in 2005.

"More money is being invested in the industry, which shows venture capital is confident about the animation industry in China," says Zheng Kedong, secretary of the board at Alpha. "The period from investment to profit has been shortened in the past three years. Even though the cost for licensing has also gone up two and three times, the companies are all eager to be licensed by you as long as the cartoon characters are good."

zhaoyanrong@chinadaily.com.cn

(China Daily 12/07/2012 page13)