The concept of a market “bubble” is actually hundreds of years old, but over time it has proved to be a recurring phenomenon that is now generally accepted as a part of the business cycle. Bubbles occur across a wide variety of categories - look at the dot.com companies of the last decade, the real estate investment frenzy that collapsed in 2006 (one of many), various commodities such as nickel or uranium, even exotic livestock – it’s a long and sometimes odd list. Should we add Art Licensing?
In early economic theory, bubbles were referred to as “manias”, which is probably a better term for what we have going on in this category. Bubbles are often characterized by people making decisions based on emotion and supported by limited information, and they generally occur when there are more funds available than the assets to be purchased. Let’s apply this concept to art licensing: instead of funds and assets we have excess numbers of licensors chasing a limited number of licenses.
There is something very bubble-like going on right now – social groups based on art licensing are everywhere, people with little or no experience are touting themselves as experts in order to sell the dream, and a frenzied rush of people are hoping to jump into art licensing even though 1) they don’t understand the business and 2) the economic fundamentals don’t support the career change. Manufacturers are playing it safe, retailers are buying less and royalties are shrinking - yet artist competition is increasing? Certainly there is money being made in the business – art licensors collected about 136 million in royalties in 2009 – but those numbers are not going up, they are going down. Note that the 2007 figure was 175 million and 2008 was 154 million, meaning that art revenues decreased almost 12% two years running. They could easily be down again this year since we know 2010 retail sales of licensed art products are down compared to 2009. And the payday shrinks even faster when you start peeling off the amounts collected by those few big names selling tens of millions at retail, and then you divide the remainder among thousands of licensed artists.
In the dot-com days the loudest voices were those freshly minted paper millionaires proclaiming that business has a new model, the old rules no longer apply and a new era is upon us. Then pop! went the bubble, their millions vaporized and business, albeit slightly changed, went back to basics. Right now, the loudest voices promoting art licensing are twofold: those people trying to make money by funneling new artists into the business (regardless of the fact most do not have the skills to succeed at it), and those new artists who have bought into the program and now want to promote the new “club”.
Is this bubble going to pop? And what happens then?
Jim, I'm glad I found your blog! Great post, and it brings up a lot of interesting things to think about.
ReplyDeleteAs a Licensor of art, I have seen royalty revenues shrink, alongside the sales of original pieces, alongside the sales of our products online. Basically, all of my streams of income is down from 3 years ago.
My in-laws are in the flooring business - their sales have shrunk in the last 3 years also.
Most industries have seen their sales shrink. Art licensing isn't alone. But I do believe it's a very viable stream of income - I wouldn't consider shutting down that end of my business, as it makes up most of my revenues.
You cited the numbers of the decline in art licensing - I'm curious if other licensing properties are also on the same decline.
I know retail sales are way down from 3 years ago, which trickles down to all Licensors, from the NFL to Hannah Montana.
My thinking is this: most industries are down in sales, but that doesn't count them out as viable. We are always going to need floors, and manufacturers are always going to need something to make their products look cool.
Do you think that art licensing is doing worse than the other types of properties that are licensed?
Hi Maria,
ReplyDeleteThanks for the comment and question. All categories except music dropped, although art had the largest decline in both 2009 and 2010. The good news is that the percentage of loss is less in 2010 - licensing revenues over all categories were down 8.7% in 2009 but a lesser 1.9% in 2010. The same is true for art, only down 5.8% as opposed to 11.7% in 2009. The worst performers after art were Trademarks and Brands, down 3.9%, followed by Publishing and Non-profits, both down 2.9%. The best performer after music (which showed a 4.5% gain) was the character category – which includes TV, movies and entertainment and accounts for about half of the 5 billion in revenues – only losing 1%.
The hope of course is that 2010 was a transition from a string of losing years into some gains – I think that’s everybody’s wish! But you are right, even when sales are declining there is business to be had – you just need to be smarter about getting and keeping it.
Jim