Licensed merchandise is big business, with The Walt Disney Co., among the world’s biggest licensors, reporting $54 billion in retail sales of licensed and direct-to-consumer (D2C) products in 2020.
However, something that is often missed, according to Brian Rainey, CEO of on-demand manufacturer Gooten, is that behind the scenes, licensing and creative merchandising deals “can be an unbelievably complicated set of transactions” in which payments change hands multiple times with “out-of-whack” payment fees.
What’s coming though, Rainey said, is a streamlined, digital way to collect payments and make remittances through different payment ecosystems, which will start to impact the ways in which merchandise, rights and fees are distributed.
“This is going to be the industry catching up,” Rainey said. “It’s a very legacy industry, whether it’s royalties, whether it’s direct profits, whether it’s revenue shares, even down to things like the specific time windows that you’re allowed to sell certain things. … I think, interestingly, you’re going to start seeing much more complex licensing deals because it opens up an enormous amount of additional channels,” including direct sales through social channels such as Instagram and TikTok.
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To get there, though, intellectual property (IP) holders and retail channels need to move away from in-house, proprietary payment systems, Rainey said, and outsource those capabilities to companies that specialize in payments.
“There’s no reason, there’s no sort of optimization that someone who owns and controls licensing rights needs to also be an expert in production,” he said. “Historically, they have done that because it’s something of necessity,” but a centralized platform that tracks underlying costs and payments is much more efficient.
“You’ve got probably 50 major rights holders that all sort of have both an incentive to keep it in-house, but also a real benefit to be able to say the more open they can make it, the more they can distribute.”
A New Financing Model
Centralized payment solutions, combined with on-demand manufacturing capabilities, “is effectively almost vendor financing by the end customer,” Rainey said, enabling the remittance of funds to happen much more quickly. He added that retailers may also be able to cut down on their net working capital lead time from the typical net 90-day terms to net 15 “or even Net Zero, where ultimately the cash flow and payment remittances is based on the profit only rather than the gross revenue amount.”
“That’s going to take a much longer period of time for people to get comfortable, but it’s also going to unlock significantly more volume, inventory, capacity capability because you’re stripping out this idea of the licensor or the production part also being an inventory financing source,” Rainey said. Instead, IP rights holders can negotiate directly with merchandising retail sales channels instead of going through major licensing companies.
See also: On-Demand Manufacturing Could Dramatically Cut Restock Times
He noted that this transformation is not dissimilar from how direct-to-consumer (D2C) brands were able to use eCommerce to break away from the traditional distribution channels that forced products to be sold through retail stores.
“What’s happening is that ability to reach the consumer upends the value proposition that was accreting to the distribution channel,” he said. “And that’s the same thing that’s happening here.”
Digital Auditing Powers
Within Gooten itself, Rainey said the financial back office is “still nothing revolutionary or world-changing.” The company reconciles invoices through a standard, though “very beefed up” enterprise resource management (ERP) system based on specific payment terms, he said, “so there’s not a huge advantage there.”
He noted that compared to five or 10 years ago, though, the number of ways Gooten collects and remits funds is “significantly larger.”
“You’ve got a whole bunch of automated payment platforms, but you’re not getting away from a very low-cost direct ACH or direct deposit or that sort of ability,” Rainey said.
What digital B2B payments solutions have done, though, is make it much easier to reconcile tens of thousands of lines within a single invoice from a two-week period and find a $7 mistake. With the traditional distribution of funds, Rainey said, that audit ability “has really not been there,” contributing to an average bill rate error of about 1.5% to 2.5%.
“On a value basis, that’s an enormous amount of either lost revenue or gained revenue … and when you start distributing payments to multiple parties, knowing that you’re right is incredibly important,” he said.
Something Rainey often tells his team, he said, is that finding the $7 mistake in a $150,000 invoice isn’t about the $7. “It’s to know the other $149,999 of that invoice is right,” Rainey said. “That’s what becomes incredibly important, that underlying trust factor.”
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