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December 2008

An Observation From The Tradeshow Floor

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The Licensing Journal
December, 2008
Danny Simon, Editor
FROM THE ENTERTAINMENT DESK

For the uninitiated, the G2E Gaming Trade Show held in Las Vegas is a real gaming show. No gore, not a whole lot of complex technology to master, and the monsters you are likely to encounter here are often more goofy than spooky. This is the showcase of the gambling industry; the newest in slot machine technology, table games and of all sorts of support industry companies and products – my personal favorite, the latest in poker chip design.

Why bring up this particular tradeshow here in legal journal about IP issues? Well, strolling the aisles of the recent November 2008 G2E Show, I was struck by the very noticeable decrease in use of trademarks, particularly in the slot machine product category.

As an attendee of this show for many years, I can remember back to the days when there was virtually no use of intellectual properties at all. Skip the table game arena altogether, even the slot guys would hardly give you the opportunity to make a pitch about your up-coming block buster movie, hit television show, or world renowned classic property. The reaction was always the same, “We know what sells. It’s games like Red, White and Blue, Super Three Cherries, or Fast Bucks.” They would go on to tell you that they know these games work, and further more there is no royalties to pay for using the materials: end of discussion, and end of your meeting.

What changed the market was the success of one game, Wheel Of Fortune, a game created based on the successful half-hour game show of the same name. Even today, which must be ten years after its introduction, you still cannot walk into a Las Vegas casino without hearing an electronic voice shouting out “Wheel Of Fortune” as some player once again dumps money into what has become the most successful line of licensed slot machines ever.

All it took was proof of the concept: that a licensed property could be used as the basis for generating a line of successful slot machines, and the major slot companies dove into licensing. Had a title of any value and suddenly there was interest. What ensued was a major buying frenzy by the slot companies to scoop up any and all titles that sounded remotely promising. Advances and guarantees soared, and royalties escalated.

Smart licensors quickly understood that the slot industry sold their products under two types of sales agreements. Direct purchase programs, whereby the casino would purchase and own the unit, and lease agreements; a program under which the casino would pay a per-day rental fee to have the game on the casino floor. The best deal? The lease arrangement, as the licensor would be paid a percentage of the daily leasing fee. If the game was successful, the longer it would stay on the casino floor, and the more money the licensor would earn. Least we for get the table game group, companies even attempted to transform various licensed properties into card games, but this met with far less success.

So often associated with meteoric growth is unsustainable longevity. After a brief few years of its love affair with licensing it seems that the gaming industry has turned a cold shoulder to IP properties. As I past aisle after aisle of slot machines it was difficult to find even one licensed game among a resurgence of the RED WHITE AND BLUE, SUPER THREE CHERRIES, and FAST BUCKS titles. I did see games that were a bit more unique than in the past, but clearly these products were the creation of internal development departments rather than the use of noteworthy licensed imagery; quite frankly that fact was very apparent.

By now, having now used a bit of your time reading this article, you may be wondering what this all has to do with intellectual property rights other that illustrating a curious use of such; a good deal in my opinion.

The question is did what I witnessed at the gaming show, a clear retreat from the use of intellectual property rights in favor of homemade created materials, a portent of things to come – something like that of Scrooge’s nightmare message of Christmas Future – for the licensing industry as we sink further into a recession and companies find ways to cut costs? Or, is it (again) the repeated message which our industry simply cannot digest – that products can only support so much cost for intellectual property rights.

The reason for this column is to bring, to the attention of those who very often serve as the voice of reason, the very real issue of how monetary gluttony impacts the licensing industry.

Licensing is an unimpeachable marketing theory. The only exception to the theory is when the cost of the property right exceeds the value of the property purchased. The problem is we have no idea what the value of any property right is, as no rate card exists listing such values. Therefore, in true barter fashion it is left to buyer and seller to determine the property’s market value.

Unlike so many industries that have some form of oversight or regulatory governance, none exists for the licensing industry, and none should. But it does leave begging the question as to how we keep from killing off product categories that become caught in a financial feeding frenzy, which is what happened with the slot machine business, and also the Pachislot industry in Japan; excessive prices for properties that ultimately failed to earn profits.

The point is simple: value for value. A lopsided deal is more than likely not a good deal. Perhaps in the short term you may financial benefit, but good licensees are become an endangered species, and should be treated as such. Don’t let thinking green become thinking greed.