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Licensing has attracted more artists in recent years due to the many changes in the art business environment

Art licensing has become a more viable and lucrative business for artists who have been met with many industry changes, specifically advances in technology. As a result, many artists now seek to license their collections, and the expanded art presence at trade shows is evidence of this growth spurt. According to License! research, the art category raked in $13.8 billion in worldwide retail sales of licensed merchandise in 2003.

Executives from ArtBeat Licensing, Greg & Co./Giordano Studios, and Looking Good Licensing gathered in License!'s New York offices for the magazine's first art roundtable (with execs from Mary Engelbreit Studios and The Thomas Kinkade Company participating via e-mailed responses) to discuss topics ranging from technology to retail challenges, niche markets, and emerging trends.

License!: How has the art licensing business changed in the last five years?

GREG GIORDANO/GREG & CO./GIORDANO STUDIOS: Everything's faster now. From art requests and submissions to turnaround times.

PAUL WHEELER/LOOKING GOOD LICENSING: Technology is a big issue, specifically the ability to deliver more product-sensitive content.

GIORDANO: With the influx of so many artists into licensing, so many of them give it away. It makes it more difficult for us to request an advance or a specific royalty. That's watered down the market. Some manufacturers will shop a better deal because in their eyes, the image isn't that different, but in the end, good art and design will rise to the top.

WHEELER: We've shifted our business from a broad-based model to a boutique agency. I would rather represent 15 properties as opposed to 250 because I can do more with them. I may not have 500 licenses for each artist, but the ones I have mean more, and I have not depreciated the value. We have what we call the "best of brand" strategy.

GREGORY HOFFMANN/MARY ENGELBREIT STUDIOS: One significant change has been our entry into children's publishing and animation. The traditional gift market has reduced dramatically in the last five years. We adapted by forging partnerships with major retailers. We currently sell licensed product through nearly every major retailer. There's been considerable consolidation of shelf space for licensed product. Subject only to the branding of licensed product done at Target, there has been a considerable move away from licensed art product. To meet margin requirements, retailers look to direct-resourced house brands. Wal-Mart has emerged as an important competitor. It has the ability to demand exclusive licensed cards and stationery.

L!: What new categories are you targeting for growth?

LINDA MARIANO (NOT PICTURED)/VICE PRESIDENT, MARKETING AND LICENSING, THE THOMAS KINKADE COMPANY: Aiming to create a lifestyle brand for Thomas Kinkade, we are launching rugs, bedding, textiles, and tabletop this year.

HOFFMANN: Children's publishing and animation are next for Mary Engelbreit Studios. We'll continue to work with major retailers on key account programs and target new consumer product relationships.

GLENN HENDRICKS/ARTBEAT LICENSING: Retailers need to address the Baby Boomer generation. These customers are seldom looking for entertainment-based properties. They prefer art, specifically wine, scenic, and floral themes or something that conveys their lifestyle.

WHEELER: The niche market has potential, specifically the second homeowner. This customer seeks nontraditional Americana imagery that depicts the Great Lakes or Northern California. It's lodge driven and not price sensitive. In many cases, interior designers are buying artwork for their clients' homes.

GIORDANO: I produce a lot of wildlife art. I have two licensees that sell at national parks. For years, they were placing generic art on product. Now I'm doing specific art with popular national parks included in the work.

HENDRICKS: There are 250 million people in the U.S., and those who are young adults and adults have cellular phones. The digital world, specifically downloadable phone content, has tremendous growth potential via imagery, gaming, photos, and more.

WHEELER: Teen and 'tween consumers constantly need new material. The ability to send a message with an image attachment is very appealing to them. In addition, more international-based trends are coming from Europe. Their design sense is influencing the mid-tier market. European licensees are taking a more active role in creating their own content. I was impressed with Fountainhead, a UK-based design studio that creates clever, innovative collections of digital art. A lot of it has moved into the U.S. market.

HENDRICKS: We're seeing innovative product without much of a price difference. A notebook now offers innovative embellishments, but that innovation emerged from someplace else. People are emigrating here and influencing our businesses. The new generation of artists is going into business with the desire to be commercial. There's no manipulation, on behalf of the agents, to make that art marketable.

GIORDANO: When I went to School of Visual Arts, there was this question of whether or not an artist was selling out. Now, creating sellable commercial art is not looked down upon. The digital age and growth of the category made it more acceptable. Now it's about becoming a star--however it happens.

WHEELER: Artists who wouldn't have licensed their work 10 years ago are begging to be licensed today. The market they were involved in has changed. The business of selling limited-edition prints has shifted to selling poster and open-edition prints. Artists must move to the next market, which is licensing.

GIORDANO: More young people are entering the licensing world. When I was in school, licensing was never addressed, discussed, or considered.

WHEELER: I think technology has driven that. Years ago, there was very little image manipulation. Now they can do literally anything.

GIORDANO: Many of today's students come out of school with their own professional Websites. They already are thinking commercially.

WHEELER: They are much savvier. They see a lot more today with 250 channels of television and the ability to download images or browse the Web. Students are being taught to filter information. They distinguish that through design and innovative technology. A handful of our artists actually are designing products, including the size, shape, and configurations.

HENDRICKS: Are manufacturers open to seeing that?

WHEELER: Not in traditional venues, but in typically design-sensitive areas--such as tabletop, home furnishings, and wall décor--they are very receptive.

HENDRICKS: I credit Target for bringing cool housewares designs to the mass market and see other retailers following suit. Artists now realize they can reach Target. They see renowned designers such as Philippe Starck and Michael Graves there without a blemish on their artistic endeavors.

L!: What challenges do you face at retail?

HOFFMANN: The shrinking retail market with fewer retailers controlling shelf space is one of the biggest.

GIORDANO: Every agency sends all its snowmen designs to a big-box retailer, but that retailer may only choose one. It often will identify a theme and ask licensors to submit art, but then produce the item on its own.

HENDRICKS: We can't police everything. Retailers add a pinch of salt and can get away with it. It's unfortunate that the retailer has that kind of power.

GIORDANO: It comes down to experience and instinct. Look at what's happened with knockoffs in the drug, software, and fashion industries.

WHEELER: After the U.S., Germany, and Japan, Wal-Mart is China's fourth largest trading partner. When you have that kind of leverage, part of the challenge is accepting those conditions. The art category offers uniqueness, so we can create exclusivity. Prominent artists such as Mary Engelbreit and Thomas Kinkade produce what other artists produce, but they happened to do it first.

HENDRICKS: Those brands developed around the artists.

WHEELER: That takes years of penetration. The Mary Engelbreit brand evolved over the course of many years. Retail was different then. Manufacturers now can source in Asia and other venues, and the consumer demands more competitive pricing. Since Wal-Mart buys so much volume, it can dictate prices. For the most part, with the exception of perhaps Mary Engelbreit, Thomas Kinkade, Debbie Mumm, and other lifestyle brand artists, the general consumer doesn't care if a product features work from one artist or another. The brand is not driving the purchase. It's image- and price-driven.

HENDRICKS: When Thomas Kinkade was first introduced, consumers bought his art for the imagery. The art drove the brand rather than the brand driving the art. He had to start somewhere with that first brush stroke, that first scenic. He is a role model of continuity and excellence in the industry.

WHEELER: Many manufacturers and consumers don't have confidence and aren't sure why they buy, so they go with the most successful brand. They believe if it's a Kinkade, it has to be better.

HENDRICKS: Another challenge is making art a priority. The buyer is forced to be a bottom-line-oriented business-person, and art is an afterthought. The retailer will allot six months of shelf space for the blockbuster movie because it drives traffic, but at what cost? We're seeing more and more independents using art brands as a way to differentiate and have planned for a longer lead time for profitability.

L!: Tell us about up-and-coming art programs you believe will lend themselves well to the licensing and merchandising worlds...if not a new program, what are you doing to drive new business?

HOFFMANN: We're seeking more co-branding opportunities.

HENDRICKS: I'm seeing more in-your-face imagery similar to the Steve Madden ads. There's more manipulation of traditional images that border on surreal. The Dog did a great promotion with McDonald's. I don't know if it was driven by an innovative sales pitch from the agent or if McDonald's realized it can't put all its eggs in a studio's basket.

WHEELER: The themes remain the same, but what differs is the treatment. Generations used to be more defined, but now they've blurred. You see 6-year-olds buying merchandise that targets 13-year-olds and vice versa. They all have different reasons for buying.

L!: How has your role as licensor/agent changed in terms of retail development? How are you effectively working with licensees and retailers to launch art programs?

KINKADE: We launched a mini-gallery program at Parisian Department Stores in 2004. It was a challenge to create an effective art program in a department store.

HOFFMANN: Our role at retail has changed significantly. Three years ago, we launched a baby program at Mervyn's. We significantly increased the use of our Website for gathering information on design, products, and distribution.

HENDRICKS: Mostly manufacturers and some retailers direct me in what they need based on what they've learned from the entertainment industry or brands, while others trust my judgment knowing I come from the creative side and now am successful on the business side. I can tell them I've found something they should see and then I'm influencing them.

WHEELER: That comes from success. Generally, if a manufacturer recognizes that what you've brought was successful, it will turn to you first. Trying to leverage a brand requires the retailer to embrace the notion that we're trying to move across multiple categories. If we can get meetings with retailers and request a meeting with buyers in other categories, then we can create more synergy.

HENDRICKS: That can be a very long process. It's necessary for us to show them where we aim to go. They may only buy one piece, but it all depends on sell-through. When they see that item moving, they'll branch it out.

GIORDANO: Finding a manufacturer that will remain loyal is another challenge. Many times we hit the target, and our products sell, but they still don't come back for another program.

WHEELER: It helps to show how art translates on multiple products. If we show them other product applications, they will realize the brand has potential. A style guide is a good tool.

HENDRICKS: We tend to believe the retailer and manufacturer can visualize other product, but they're running a business and don't have the time. It's our role to illustrate the bigger picture because they need to see what they're becoming a part of. On the other hand, artists need to visualize their art beyond the wall. If the artist can't draw a teapot, then he or she should find an image to represent the art.

WHEELER: I think more artists have a better sense of product development. Our group was trained to help the manufacturer visualize. In all fairness, many of our manufacturers are European, and they are more design- and product-sensitive. If we tell them it's a great core design and ask them to run it over 20 products, they'll do it. Those are the artists we look for.

GIORDANO: Licensees like when we lay out product, but many times they don't take the image as we present it. And artists don't understand that the design work they do is just a sales tool.

WHEELER: Product development and design are the best platforms for showcasing art. Artists need to break out of the mold of believing they shouldn't have to translate their art unless they are being paid to do so.

GIORDANO: Then there are artists who spent years designing dinnerware, and that's all they know. They do need an archive of images to make any impact or create a long-term program.

WHEELER: The old model of in-house design has changed, spawning the licensing world. Manufacturers no longer need exclusive contracts with artists. Companies don't have the same number of artists on staff. They're unleashed in the marketplace, and they do one thing incredibly well. They need to learn to go the other way.

L!: What are some of the challenges the art and consumer products industries face in the next two years?

GIORDANO: There's a ton of content in the market.

HENDRICKS: Retailers are struggling, so they take the easy route. They need to keep traffic flowing, and there's nothing bombarding consumers from an art perspective. That's where entertainment, brands, and music come into play. The struggle is making art important. Artists don't have a $15 million advertising/promotion budget behind them like entertainment properties do. I think niche retailers will be the success of art licensing. The manufacturer needs to realize it can offer a promotionally based product for six months, but can still keep its line of consistent sellers. Art licensing is a day-to-day (unless seasonally minded) business, and there is no promotional time. That success can continue, which differs from music or entertainment brands that often are time sensitive.

WHEELER: Keeping the shelf life sustainable for more than a season is a challenge. Manufacturers aren't design-conscious enough to build a program that can sustain itself. They should look for long-term growth rather than seasonal programs. There is a general sameness in the industry. We are a nation of imitators, and when something hits, we follow it. That spawns copycat artists and creates congestion. How do we distinguish that this art is better than that art? It's hard to delineate.

GIORDANO: Ultimately, we're vulnerable to the manufacturer. Within the last few years, manufacturers consistently tell me how difficult business is. There's real uncertainty in the market.

HENDRICKS: Confidence breeds innovation.

WHEELER: We're all fragmented in our own little universes, and we're not communicating enough.

HENDRICKS: I'm all for friendly competition and sending another artist to another agent.

WHEELER: We realize we have a fairly finite universal customer base. Generally, we're not going to pursue a new market just to suit a property. We're currently working on shared licensing expertise with several agents. In the old days, there was a willingness to share. The protection mentality is hurting the industry and doesn't foster growth.

HENDRICKS: If I'm in need of product in the tabletop market but have not cultivated any relationships there, it would be wise for me to make use of another agent's expertise or that category will be closed to that artist. However, I don't see that happening a lot because the business is so proprietary.

WHEELER: Our customers are looking for innovative, designer concepts, as well as classical themes. We can provide them with only so much, but we can't provide everything. We're not about to undertake the cost, which is fairly significant, to go out and find it. I'd rather have a friend in the industry benefit from it. I'm going to take a percentage of that business because I helped broker the deal. That supports the idea of establishing manufacturer relationships. I believe that type of strategic partnering will continue to grow.

HENDRICKS: That said, it's important for artists to have a home base and let one agent represent them for all categories. And most important, the artist must trust the agent and let him or her do the job.

WHEELER: Artists think they can coordinate their own licensing, but that often creates confusion and competition.

L!: If one store is doing well with a product, do you ask it to take more product or create a display?

WHEELER: You hope to facilitate that and convince the store to promote with an end cap and coordinating kiosk. What really drives the opportunity is the license's success. The timing and schedule dilemma is another challenge. If there's one licensee on board for next year, other potential licensees will want to determine how well it does before signing on. By the time it becomes successful, we're on to something else.

HENDRICKS: We have to find companies that are willing to take risks and are on the edge of something aesthetic because we can't offer, promotionally, what a corporate brand can.

WHEELER: That's why artists need a core agent and shared intelligence. If we create a more unified network, then we can fill the niche. We can enjoy a percentage of the business that we may not have enjoyed otherwise.

L!: How do you manage product in multiple tiers of distribution?

WHEELER: We try to manage at all levels of distribution, so we don't dilute the property. You don't want the same art on stationery at a dollar store and at Papyrus. Our lifestyle licensees differentiate product by channel of distribution. They alter the overall look, fabrication, and feel, as well as the depth of the assortment. This philosophy extends to some of our licensees with more diverse product placement. It's vital that we maintain product integrity.

HENDRICKS: Some art concepts only work at one level. Another significant point is that the dollar store business is no longer just closeouts. Manufacturers are receiving purchase orders for three-fourths of a million units on one design, and thus their margins are increasing.

WHEELER: They've become more like Target. They get good pricing and can afford to clean up the stores.

HENDRICKS: Within the top three dollar stores, there are 16,000 outlets. The customer is getting incredible value. We can have the same license with different product moving volume at a dollar store. I've yet to see it hurt, but it's also a case-by-case basis. An affluent person shops the bookstore and the dollar store. There's big growth there for art licensing.

WHEELER: It's a great way to establish brand presence.

HENDRICKS: However, you can't launch at a dollar store and believe you're going to another tier.

HOFFMANN: We manage multiple tiers by offering an array of products in a variety of categories, price points, and designs. We differentiate large programs by art theme. Larger accounts are able to meet the minimum order quantities to support exclusive lines. Our product managers work to differentiate styles by licensee and tailor the designs to different venues.

L!: Who is your target consumer?

HOFFMANN: Our consumer base is 99.5 percent female. She is generally a well-educated homeowner with a higher household income. However, with our entry into children's publishing and animation, we're gaining interest from children, parents, and grandparents.

MARIANO: She's a married mother between ages 35 and 55. Our demographic is expanding in that 25 percent of our biggest collectors is between ages 25 and 34.

GIORDANO: It depends on the art, but it's predominantly female, ages 30 to 55. I do create more art that targets men, but women are buying it. The golf theme is a gift buy from a woman, but men also buy it. More men are shopping stores such as Home Goods and Target.

WHEELER: Kids are becoming more important consumers because they have discretionary taste, are earning money, and want independence.

L!: How important is your international business?

MARIANO: We have five galleries in the UK and one in Asia, and growing interest in Europe and Australia. We have relationships in Asia, Europe, and Australia and are looking to expand.

HOFFMANN: International markets are ripe areas for expansion. Our art is internationally recognized, but has been relatively limited in offering. We aim to expand our presence internationally, particularly with publishing and animation.

L!: Tell us about your advertising, marketing, and promotional campaigns.

WHEELER: It's tough to demand that licensees support the brand if we can't allocate some part of our budget to initiate exposure. We're trying to get eight manufacturers who work with our major artists to do more consumer-based advertising.

MARIANO: We're investigating the possibility of running a consumer advertising campaign.

HOFFMANN: We use our Website to survey fans on specific product or design items. Our Mary Engelbreit's Home Companion magazine and Internet initiatives also are utilized.

HENDRICKS: I require all of my new clients to run a launch ad. License!, for example, reaches 25,000 people in one shot. I can't possibly accomplish that in one year with mailings and meetings. We also attend trade shows--one or two deals justify the cost.