Until the 1960s and 1970s, relatively little merchandising activity took place in Hollywood, except by the Walt Disney Company. Merchandising started for the Disney brothers with the tremendous success of Mickey Mouse's Steamboat Willie (1928). In 1929 the company was offered $300 to put Mickey Mouse on writing tablets. The extra income helped to finance expensive production at the Disney studio. Thus, during the 1930s, a wide range of Disney products appeared in markets around the world, everything from soap to ice cream to Cartier diamond bracelets. Mickey Mouse is often claimed to be the most popular licensed character in the world and still appears on thousands of merchandise items and publications.

Disney continued to develop merchandise connected with its films and film characters over the years. But the Disney Company was the exception, rather than the rule. Though the motion picture industry may have been relatively slow to pick up on merchandising, this type of activity accelerated dramatically during the 1990s and early twenty-first century. The current phase of film-based licensing can be traced back specifically to the merchandising successes of Star Wars (1977) and E.T. the Extra-Terrestrial (1982), but has continued with the blockbuster, action-figure based films of the 1990s (for instance, Batman [1989] and Spider-Man [2002]), as well as the successful franchise films in the early twenty-first century (such as The Lord of the Rings [2001–2003] and Harry Potter [beginning in 2001]). Further merchandising opportunities and close relationships between products and films are presented in films such as A Bug's Life (1998) and Toy Story (1995), where the film is about toys or characters particularly suitable for toys.

The distinction between tie-ins and merchandise is often blurred, as some merchandise is produced for tie-ins. Merchandise can be defined as commodities based on movie themes, characters or images that are designed, produced, and marketed for direct sale, and not connected to established products or services, as is the case with tie-ins. An example of a tie-in is represented by the promotion of Disney films at McDonald's restaurants, even though there may be some merchandise items involved in such activities. Licensing is the legal act or process of selling or buying rights to produce commodities using specific copyrighted properties. Merchandising can be thought of as the mechanical act of making or selling a product based on a copyrighted property.

There is an extremely wide variety of movie-based merchandise, including items based on a specific movie, character, or theme, or ongoing movie characters and themes. While there has been a strong emphasis on children's toys, games and other items (lunch boxes, school supplies, and so forth), and on video games, other movie-based merchandise includes home furnishings (clocks, towels, bedding, mugs, telephones), clothing, jewelry, stationery items, print material (novelizations

A Star Wars fan dressed as Darth Vader waits for a midnight sale of toys from the new Star Wars movie at Toys 'R' Us in New York City (2 April 2005).
and posters, for example), food (especially cereals and candy), and decorations (such as Christmas ornaments). There are also other, more unusual, less mass-produced items that sometimes accompany (or follow) movie releases, including "art objects" such as prints, sculptures, ceramic figures, and animation sets. For instance, in 2005 one could purchase sculptures of most of the characters from Lord of the Rings , including a bronze statue of Gandalf for around $6,500. Other merchandise is based on the celebrity status of Hollywood stars (for instance, products with images with Marilyn Monroe and James Dean are plentiful), or generic movie or studio themes. Indeed, many of the majors feature studio tours, complete with well-stocked gift shops offering a wide range of merchandise featuring their familiar corporate logos.

Movie-based merchandising can be viewed as part of the proliferation of commercialization in Hollywood, the increase in animated features, and the rerelease and remaking of films with readily identifiable, ongoing characters and themes (or franchises). However, this type of activity also is part of a larger, more general merchandising and licensing trend. For instance, entire TV programs and characters—especially those aimed at children—are an obvious and prevalent form of merchandising, while sports teams and players, rock stars, and musical groups have long histories of licensing and merchandising activities.

Licensed products represented $66.5 billion in retail sales in North America in 1990, but had grown to around $110 billion by 2003, according to the International Licensing Industry Merchandisers' Association (LIMA). While exact statistics on the film industry's merchandising revenue are nearly impossible to find, LIMA's Licensing Letter estimates that $16 billion is derived annually from sales of entertainment merchandise; another estimate cites $2.5 billion in royalties from entertainment properties in 2001 (Goldsmith, 2002, p. 7).

It is especially difficult to measure the precise revenue from movie licensing accurately due to the move toward long-term relationship agreements between licensors and licensees. Although entertainment licensing in the merchandising industry has been influenced by the emergence of merchandise based on other types of properties, there is little question, according to many experts, that film licensing continues to dominate the licensing market. Entertainment licensing is also the most concentrated type of merchandise business, with just a few large players (the major movie studios and broadcasting companies, such as Disney, Fox, and Viacom) dominating the licensing activity.

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