Film-related products are rarely manufactured by the film producers and distributors themselves, whereas they license the right to sell these products to other companies called licensees. In most cases a greater risk is taken by the licensee than the licensor (producer and distributor) because the licensee incurs all expenses relating to manufacturing and distribution of a film. Mostly producers and distributors receive royalty payment as well as an advance payment for each product. They often receive five to ten percent of gross revenues from sales to retailers. Unfortunately, if the movie does not succeed and the products are not sold, then the manufacturer will be responsible for the loss.
Usually major film studios are the owners of licensable film properties. There are special licensing divisions organized to handle the company’s own copyrighted properties and at times those owned by others as well. For example, Warner’s Licensing Corporation of America (LCA) and Disney’s Consumer Products division are such special licensing divisions. Revenues that studios’ generate from merchandising vary greatly depending on the films released in any one year.
The sale of movie-related products not only generate a substantial revenue for the major studios, but the presales of merchandising rights can also contribute to a film’s production budget. Moreover, these products (video games, toys) can be useful in promoting films and thus more than 40 percent of the movie merchandise is sold before a film is released. Movie-based merchandise is part of promotional campaigns that often starts months before a film’s release.
Products based on films are sometimes considered risky for merchandisers because they are usually less successful, although movie-related merchandise is common. However, for many films, licensing represents a potential source of income to film companies and merchandisers.