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Sunday, May 27, 2012

Is Playtime Over for DC Comics? -Is Licensing of DC Comics products No Longer Profitable?

For decades the comic book publishers like Time Warner’s DC Comics relied on licensing of properties to bring in revenue during slow periods in the comic book industry. The money made from sales of merchandise such as toys, clothes, video games and other products often offset the declining sales numbers for comic books and kept the industry afloat during tough economic times

Now that revenue stream seems to be drying up for Time Warner’s DC Comics. With Mattel’s comic based DC Universe Classics toy line and its TV-based Young Justice toy lines coming to a close due to poor sales at retail, it’s clear that the business problems that plagued the comic book industry for two decades are now starting to stagnate the once profitable retail licensing and merchandising part of the business.

The sales numbers are so bad that Mattel has sworn off producing toy lines based on DC Comics animated programs. While animated shows like Batman: Brave & the Bold, Young Justice which were somewhat popular on Cable TV with two to three million viewers, the merchandise based on them did poorly at retail.

With a median retail price of $19.99-$24.99 for a 6” action figure and $11.99-$14.99 for a single 4.5” action figure they were out of the reach of many younger toy buyers who found a higher entertainment value per dollar with WWE action figure three packs at $19.99-$21.99, Transformers or Beyblades at $11.99-$14.99 or Video games at $14.99-$59.99.

Since 2010, it’s become harder to sell comic-book based superhero products to children at retail. While toy lines such as DC Universe Classics and Young Justice were sold in toy stores, Wal-Marts, K-Marts and Targets, in the toy aisle children weren’t buying most of them.

It was adult collectors.

And the median age of those adult collectors is 35.

A median age that high for a licensed toy line is bad for the toy business. A median age that high means that most of the characters in the DC comics catalog have no brand recognition with children.

Having a median age that high is going to bring down the value of the DC comics catalog and DC Comics properties long-term. Especially with licensors and retailers. Without brand recognition among younger buyers it’s going to become harder to sell products such as action figures, T-Shirts, video games and other merchandise over the next ten to fifteen years.

It’s clear the two decade decline of sales of comics in the comic book industry is finally starting to encroach on the licensing of DC Comics and DC Comics properties. Since 1996, an entire generation of children has grown up without seeing a comic book or DC Comics Superheroes in places such as supermarkets, newsstands, or drugstores.

Unfortunately, many in the comic book industry and the toy industry didn’t understand that without long-term product visibility in venues children go to it’s hard to sell merchandise to them. As comic books comic book based merchandise retreated to comic shops, new licensed characters such as Harry Potter, Yu-Gi-Oh, WWE Wrestling, cable sitcoms like iCarly Victorious, Disney Princesses and Monster High filled the void that DC Superheroes left at retail with casual buyers over the past ten to fifteen years. As these new characters gained in popularity and visibility they gained brand recognition with the millions of younger buyers of the current generation.

Compounding DC Comics’ product visibility and brand recognition issue with younger viewers was Time-Warner’s cancellation of Saturday morning cartoons in the mid 2000s. Time Warner didn’t see the long-term damage it did when it ended its Kids WB! lineup then for the cheaper manga-based syndicated content . By removing that line-up of original content from broadcast TV and moving new cartoons to cable, they cut their audience for those cartoons in half. Many homes in inner-city and rural areas don’t have cable and relied on broadcast TV to get their content. And due to the economic crunch of 2007, even more were cutting cable in favor of the internet.

By moving DC animated programs to cable Time-Warner reduced the visibility of DC Comics Superhero characters with younger viewers. TV shows like Batman: Brave and the Bold and Young Justice were often broadcast on obscure cable channels. Worse, they were put on late at night when most younger viewers couldn’t see them.

This lack of visibility among younger consumers has already done considerable damage to the DC Comics Brand. While many parents from Generation X remember DC Comics Super Heroes, the young adults of Generation Y and Millenials don’t know anyone outside of Batman or Superman and some of their related characters.

When it becomes difficult to sell licensed product to small children and tweens at retail there is clearly something wrong with either the approach to business or the business model.

And both DC Comics’ approach to business and business model has been broken for close to two decades.

The average comic book sells 50,000-70,000 units. While more popular issues sell within the 100,000 range if they’re lucky.

The average production run for a commercial mass market toy line is 250,000-500,000 units a quarter of a calendar year.

When one does the math it’s clear the numbers don’t add up. There aren’t enough customers from the comic book reading audience available to buy all the product in the commercial marketplace.

Which is why merchandise piled up at retail nationwide at a 4:1 ratio and much of it remains on store shelves to this day.

Over the past two years Mattel catered to comic fan demands in its DC Comics action figure offerings. Unfortunately, they learned the hard way while a character can be popular in a comic book series and with comic fans, that popularity isn’t strong enough to sustain a characters’ product at mass-market retail where hundreds of thousands of units have to move for a profit to be made.

Moreover, the audience from the comic shop is not an area for growth potential. With the median age at of a DC Comics consumer being 35 and getting older, there are no new younger customers to be brought into the marketplace to buy DC Comics licensed product.

While efforts have been made to fix the cosmetic appearance of the product, (DCnU) the impact of those changes have not and cannot improve the sales and visibility of DC Comics products at retail. The under 35 consumer still has no regular exposure to DC Comics characters outside of a comic shop or an obscure TV show. Worse, they have no access to materials outside of a comic shop or an obscure TV show.

Which making it hard for licensors to sell merchandise or related products on store shelves.

Companies like Mattel don’t make a resolve to stop producing product based on animated programming with millions of viewers unless there is something wrong with the parent company’s approach to business. And retailers like Wal-Mart, Target and K-Mart don’t stop stocking licensed product unless there is something wrong with the business model of the source company.

If DC Comics doesn’t change its business model and its approach to business it could severely damage the DC Comics brand over the next ten to fifteen years. Right now it’s hard for younger customers to recognize DC Comics Characters as a brand. Outside of theatrical films like The Dark Knight and live-action shows like Smallville, most younger customers under the age of 15 haven’t seen a superhero in their original hand-drawn comic book style. Even fewer have seen a comic book.

Compound this with a lack of visibility of characters and products in outside venues such as drugstores and supermarkets along with higher prices for product it’s a recipe for consumer confusion and frustration at retail.

And the constant reboots, retcons, and revamps in DC Comics comic books aren’t helping to improve the brand recognition issues. Each new version of a character makes it that much harder for customers to recognize them and establish a relationship with them. That prevents DC Comics from establishing itself as a brand with new younger consumers.

It’s easier for a younger consumer to get into Harry Potter, WWE or Monster High than it is for them to understand the confusing hard-to-follow stories of DC comics and the enormity of the DC Universe. There are multiple versions of characters and multiple sub-universes within the DC Universe currently. Even a 38-year-old like myself who knew all the characters since he was four years old can find it aggravating and frustrating to understand these days.

And that’s why the DC Comics brand is struggling at retail.

For twenty years the comic book industry has catered to the needs of the hard-core comic fan. Unfortunately, the purchasing power of that demographic is not strong enough to sustain the DC Comics brand in an international commercial marketplace. With the median age of the hard-core comic fan at 35 there’s no place for the industry to expand in terms of licensing and merchandising.

A commercial manufacturer like Mattel can’t make a profitable brand out of a shrinking demographic of White males over the age of 35. Nor can it sustain its business catering to said customers. This was proven over the past two years with the poor sales of collector lines such as DC Universe Classics, Justice League Unlimited Batman: Brave and the Bold and Young justice at retail.

All those lines catered to the comic fan producing action figures of obscure and long-forgotten characters along with the Superman and Batman variants. And all of them failed to sell the hundreds of thousands of units needed to sustain a commercial brand on the national retail level. Worse, they couldn’t even sell out as online exclusives in some cases.

At the 2011 San Diego Comic Con 2011 where collector oriented DC Comics exclusive product was outsold by the Monster High Ghoulia Yelps doll. Worse, on the Day of sale on, after the con August 1st ,2011 The Ghoulia Yelps doll sold out before all the other exclusive products which languished online for two to three weeks.

When licensed comic-book related products can’t move at a comic-con something is WRONG. And when it’s outsold by a non-comic product there’s a clear sign that the marketplace is changing.

Observing the problems Mattel is having moving DC Comics related products at retail, I see a paradigm shift in the market regarding superheroes. A shift moving the market back towards the young tween, and teen consumer and the casual buyer. With films like the Avengers making over $1 billion dollars at the box office and its movie merchandise flying off store shelves I believe the market is moving from the diehard comic fan towards a larger more general audiences.

DC Comics and its licensors must adapt to this new paradigm.

In the wake of this paradigm shift, DC Comics must realize that it can’t continue to run its corporate business like a comic shop and catering to diehard comic fans. This approach to business is not going to allow a division of Time-Warner to compete in a changing entertainment marketplace. If it’s going to reach an audience of younger customers it’s going to have to move past the aging audience of over 35 customers at comic book stores and reach the tweens, teens and other casual buyers who shop at drugstores, supermarkets and other big-box retailers. Doing the math on the diehard comic fan who a median age of 35 now, in 15 years most of these customers are going to be 50 years old and some of them are going to be 65 and 70. With an audience that old there is no further room for growth.

And no new younger customers available to recognize DC Comics characters or buy DC Comics related products. Most of them will remember other products like video games, WWE, Beyblades, Disney Princesses and Monster high from their childhood.

Which is why DC Comics must make efforts to reduce the median age for its comic books and comic related products to 13 and its minimum age to 7. Young customers in this age bracket are consumers who can grow with the product over the next ten to fifteen years. They have more disposable income. And they are more open to recognize characters when exposed to them.

In rebuilding the DC Comics Brand Time Warner must make efforts to increase its exposure to a larger audience. Time Warner must make efforts to make DC Comics Characters visible outside of the comic shop. Saturday morning Cartoons on a Broadcast network like CW4KidsTV could increase visibility with younger viewers.

Or the Broadcast networks could just bring back Saturday Morning cartoons or Weekday afternoon cartoons. Yes, they are glorified 30-minute commercials. But that’s their job to move merchandise and establish brand recognition with customers. Let’s face it many a childhood memory has revolved around these kinds of shows.

Besides, it’s better when they’re on broadcast TV. It beats watching pirated episodes on YouTube or Vimeo. With so many people cutting the cable, it’s time Warner brought back Kids WB! to its CW affiliates to supplement the Cartoon Network broadcasts in the hopes of getting more new viewers in urban and rural areas.

In addition to reducing the median age and making efforts to increase exposure, DC Comics must also make efforts to reduce prices of its licensed products and make them more affordable to younger buyers. One of the big reasons many casual consumers passed on action figures over the past two years was the collector-oriented price point. Most parents balked at paying $11-$25 for a single action figure when they have other options in front of them with a higher entertainment value per dollar. If products were priced in the $5-$12 price range they’d move a lot faster at retail with consumers strapped for cash.
The paradigm for business in the comic book industry is clearly shifting. Management at DC Comics must understand that their approach to business has to change from catering to the small aging audience of diehard comic fans to the larger audiences of casual consumers. DC doesn’t need new number one issues or new costumes to get new customers. However it needs to change its business model so customers can access and recognize their products in the 21st Century.

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