Movie Licenses on iPhone a Failure?

I have been dealing with movie and TV licenses for longer than I care to remember, and the pattern (with few exceptions) always was the same: the licensor comes to you saying that, because they are offering you (the publisher) a well-known movie/TV/entertainment property that everyone and their dog are fans of, you should pay them a healthy amount of money (either up-front or as a minimum guarantee against revenues) for them to grant you that license. This means that the publisher starts at a point of significant loss: a six-figure guarantee (and I’ve seen larger ones, too), six-figure production costs and little mitigating the risk that the title might totally tank.

However, in the “old” world (scil. pre-app stores “as made famous by the iPhone”), people considered themselves to be lucky to get their hands on a well-known property as it would at least guarantee one thing, and that was “deck placement”, namely a good coverage across those coveted feature slots on carrier decks around the world. If you had the distribution network and delivered the package, you had a decent chance of making your money back (this even worked with a rotten game that was based on a movie license for a hilariously successful movie).

All new in the App Store World

Enter the “new” world of OS-driven app stores. The formidable Jeremy Laws published estimates of how movie & TV-license-based games were faring on the Apple App Store, and the results are – though not horrendous – humbling indeed. Only a good half dozen titles broke into the top 20 (by sales) in all of 2010. Not a single one ranked in the top 150 (!) of the top-grossing category. The average revenue was estimated by him to hit $1.3m. Now, don’t let yourself be blinded by this 7-figure amount: top-tier movie titles don’t often come cheap and the games behind them need to be reasonably faithful to the blueprint the movie gives you. Otherwise, the IP owner will not approve the game and the revenues will be, well, non-existent. Add to that a revenue share that the IP owner will earn even if the aforementioned guarantees are being settled, it slims down the margins fairly dangerously.

IP Doesn’t Pull as It Used to, or Does It?

The big news is however that the old formula big license + some sort of game = exposure does obviously no longer work (at least not in the same semi-automated way as was the case). With decent relationships into Apple, a good game for a good movie might still get a feature slot somewhere. However, the fact that none of the titles sampled in the above blog post were anywhere close to the top-grossing list shows that the pulling power has greatly diminished. How’s that?

Movie studios and TV production houses (and not only them: sports clubs are good at that, too) traditionally view a license as secondary exploitation of their intellectual property. The rule of thumb for a movie was that the box office should recoup the production costs and the secondary exploitation (DVD, TV rights, merchandise and, well, licenses) would provide for the profits. It is very much an analogue approach in which a scarce good is and will remain scarce unless its producer will (can?) change that scarcity. It does not translate well to the fluidity of a digital environment (with, normally, many more alternatives to access and consume media). It worked in old-world mobile because that ecosystem functioned very similar to a vertical supply chain. No more.

Game publishers suffer (or at least some of them) suffer from a similar perception issue: we have always done it that way… Well then…

A License is a Brand Extension

However, the huge differentiator is the ability to use (and exploit) the interactivity digital media offer and use it as a marketing and promotional channel. Now, a simple adaptation of the movie’s theme into a (traditional) game will not cut this. But more innovative approaches that utilise the ability to communicate with fans opens so many more doors to a) maximise the core proposition (selling cinema tickets, DVDs, digital downloads and such like) and bind people to the brand for longer (which is a potentially huge win for the cyclical movie business).

So, Jeremy’s charts “only” show us that only a few (if any) of the IP owners (and, arguably, publishers) “got” that so far. The opportunities for such an approach are huge.

What anyone who speaks to rights owners over licensing movie and TV properties should do though is take a copy of that chart for your negotiations. And then tell them how they should really treat it: it is a brand extension that leverages the core IP rather than a meagre spin-off license! Seen this way, there is significant opportunity for studios to secure their primary revenue streams and build a new rapport to their audiences. In particular the latter surely is of a value that exceeds six-figure guarantees anyhow.

So I guess we have to thank the iPhone again for breaking open yet another paradigm. And it was time for that, too!