This prior agreement is where brand licensing comes in, where deals can be struck between a brand owner and manufacturer of a product that uses the brand.

While licensing has been around for a long time, it has become more visible in the last decade or so because of the kind of money it is now making - $191.7bn globally at the last count (License Global, 2007). But what is it and how does it work? Read on and find out...

How it works

A brand owner, or licensor, will have a brand it wishes to extend through merchandising. It will sell the right to print T shirts with that brand on, for example, to a licensee who pays for the right to do so. "Manufacturers pay a royalty to the licensor in order to use their brand on their consumer goods," explains Jessica Blue, the director of Brand Licensing Europe, the annual trade show dedicated to the licensing industry. "These royalties will vary wildly depending on what the license is and what they want to use it on."

If all goes well and the licensee is able to sell lots of T shirts, it creates a win-win situation for both parties. The image or brand can turn into a huge source of revenue for the brand owners (licensors) and manufacturers (licensees) alike. "The license helps to increase revenues (for manufacturers)," says Blue. "For example, a SpongeBob kids' T shirt will sell better and at a higher price than a plain white T shirt due to the character recognition and desirability of that character, offsetting the royalty payments."

The benefit to the licensor is twofold: not only does it receive royalties from the licensee's sales, the venture will have generated further awareness of their brand.

The potential sales for licensed merchandise, especially that aimed at children, is huge.

"Licensing for children (to age 14) in Great Britain was worth £2.2bn in 2007," says Blue. "Nearly £1 in every £5 spent on kids is licensed. That's the equivalent of £188 spent on every child aged 0-14 per year or £4 per week."

So far, so potentially lucrative. However, there are many considerations to take into account if you're a manufacturer looking at getting into licensing. Licenses entail contracts, and determining the value of a license can be tricky. Also, contracts will place limitations and restrictions on the way a licensee can use licensed material.

As licensees are dealing with someone else's copyright, it's only to be expected that the owner will want to have a say in the way its image is used, such as colours, size, context etc. There is likely to be a style guide to follow, as well as limitations set on the territory to which the manufacturer can supply.

Manufacturers may also be limited on the type of merchandise they can produce. For example, a company licensed to produce headwear will not necessarily be able to produce T shirts unless previously specified.

You might say that these are all things that a manufacturer would be used to dealing with on a day to day level when working with a client. However, there are many other factors to consider. For example, a licensee will need to have a good idea of how much they reckon they'll be able to sell of a licensed product as, according to the LIMA website, most deals include a "guarantee" or "minimum" - a sum that the licensee is required to pay to the licensor even if little or no product is sold.

This, of course, means there is an element of risk involved. Links with retail are usually essential in this respect; it's all very well having a license to print say, Peppa Pig, on to thousands of bags, but without a means of taking the goods to the consumer it's potentially a mountain of unsold stock.

Picking the right brand

A successful license agreement for a manufacturer is also dependent on picking the right brand.

Licensees do well by keeping their ear firmly to the ground and making a successful judgement on what will be popular. Of course, there are some evergreen brands that will always have a following and whose merchandise will always sell. Some, such as those connected with film releases, are likely to be centred around a particularly date or event, such as the release date of the film.

It's showtime

So how do you find out what licensing opportunities are out there? This is where an event such as Brand Licensing Europe comes into play.

BLE is an annual exhibition where around 200 licensors and agents, representing over 2,000 characters, brands, sports clubs, films, TV shows, art and image libraries, are on hand to discuss the potential of their  brand. In the 2008 Brand Licensing Europe event, prime time kids tv show brands such as 3rd and Bird, Big and Small and Olivia were launched. Retro properties Morph, Pinky & Perky, Dennis & Gnasher and Moomin were revisited. But it's not just kids' characters that are on offer.

The National Maritime Museum and the Natural History Museum are both exhibiting this year, offering some unique licensing opportunities relating to their brands. Additionally, the exhibition's Art, Design and Image Licensing Zone is an area dedicated to fine art and graphic design-inspired concepts and photographic images, and features both established and emerging exhibitors.

Major exhibitors this year include licensing giants Warner Bros Consumer Products, Sony Pictures Consumer Products, BBC Worldwide, Classic Media, ITV Global Entertainment, Twentieth Century Fox and Chorion, all showing off their latest hot properties in licensing.

Help and advice

As well as showing what properties are currently on offer, Brand Licensing Europe includes seminars and classes on the ins and outs of licensing and how it works. There are workshops titled Royalties, Pricing and Financial Know-how, as well as a report on trends in children's television. The show's organisers actively encourage those new to licensing to come along. "Visitors can attend the show free of charge to find out what the hot brands and characters are and how licensing can increase their profits," says Blue.

While licensees are often agents who contract manufacturers to create the goods once a deal has been struck, a great many manufacturers are interested in becoming licensees - in 2008 the percentage of visitors to Brand Licensing Europe was 34 per cent - just over a third.

It's not just the big players that are involved, either.

"Of course there are great opportunities for SMEs," insists Blue. She is also enthusiastic about the potential for licensed clothing. "Apparel is a huge area for licensing with many examples from kids clothing to adult nightwear ranges and designer lines."

Licensed apparel does not seem to have been badly affected by the current economic downturn either - recent figures from the US show that the apparel licensing industry grew 1.9 per cent to $39.8 billion in 2008.

Further information

Although licensing is a potentially lucrative business to get into, it's not one which you can go into blind.

Brand Licensing Europe is one means of educating yourself about the opportunities available.

Other resources are LIMA (www.licensing.org), the worldwide trade association for the licensing industry, who have a directory, as do Max Publishing, who produce the Licensing Source Book Europe. Additionally, the website for the US show, www.licensingexpo.com, has lots more information and a magazine to subscribe to.

Brand Licensing London will be held London's Olympia, September 20 to October 1, 2009. Licensing International Expo is held annually in the US; the next will be held Las Vegas, June 8-10, 2010.

The stats:

• Estimated retail sales of licensed products worldwide was $191.7bn in 2007 (up every year since 2003) (License Global)
• Licensing for children (to age 14) in Great Britain was worth £2.2bn in 2007.
• Nearly £1 in every £5 spend on kids is licensed. (NPD License Tracker). That's the equivalent of £188 spent on every child aged 0-14 per year or £4 per week (NPD License Tracker).

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