How Does Movie Franchise Merchandising Work?

by Kevin Gardner

Movies, particularly well-known franchises, often start making money before the film hits the big screen through the sale of merchandise. These sales can help raise anticipation for the movie's release, act as advertising that the production company does not pay for and much more. However, the process of getting movie merchandise to local retail shops is more complicated than you might initially think.

Basics

The basic process involved in merchandising begins when the movie franchise licenses manufacturers to make music soundtracks, toys and other collectibles with the logo, characters and story elements included in the film. For instance, a superhero movie can license textile companies to create patterned fabrics and whole costumes based on the cast. Once the manufacturer has a license and begins producing stock, it can use wholesale distribution marketplaces and business partnerships to find retailers for the products. While the franchise can lose money at the box office if the movie is a flop, it is unlikely to lose money on merchandising because that fee is paid upfront. The profits or losses are the manufacturer's responsibility.

Logistics

The merchandising logistics falls on the manufacturer and the distribution deals made with retailers and third-party shipping companies. These businesses will need to ensure that their supply chain can handle the influx of materials and products, from the sources of the materials to the retail shelves, without creating a backlog of other goods. More prominent manufacturers will lean on existing relationships and sign license contracts that will not require a significant deviation from what they already produce. For example, plastic toy manufacturers are unlikely to sign a contract to make cloth dolls. Likewise, these companies will partner with retailers selling similar items and even divide product lines for the same movie among various stores. Some logistics may be limited by the license contract, such as which markets each manufacturer can sell products in and what type of products the license covers.

Contracts

Many movie merchandising contracts will involve robust negotiating because of the risks involved for all sides, and there are lawyers and firms focused on making these types of deals. The manufacturer is ultimately liable for the success of the merchandise, even if the movie does poorly at the box office. At the same time, the product quality may sour the reputation of the movie franchise if there is a manufacturing or design defect. Movie franchises will receive royalties and a percentage of wholesale profits in exchange for manufacturers' right to use the intellectual property. These contracts are generally limited in scope, with few franchises giving any manufacturer a license to produce multiple types of items or distribute them to every market. Other limitations may include an expiration date on the contract or which movie elements can be used. For instance, an action figure manufacturer who wants to make a musical film's singing figure may need separate licenses to use the character's likeness and the song.

Benefits

There are many benefits to making and selling merchandise connected to a film for movie franchises and manufacturers. These items generally go on sale before the movie is released, giving collectors time to complete their set while building hype for the film. The more popular the franchise is, the more potential profits are expected for all involved. However, not every movie lends itself to robust marketing in this manner, with childrens' movies representing the most merchandising potential. Franchises with the biggest fanbases can see merchandising potential far beyond a film's initial release and may even see annual sales at conventions, amusement parks, or party supply retailers.

Movie franchise merchandising can be one of many revenue streams for a film, but it does not always work how you would expect. The franchise sells licenses for various elements such as characters, logos and soundtracks to manufacturers. The manufacturers are then responsible for making and distributing these items to retailers, who, in turn, market products to fans anticipating the movie's release.