Is Good Food Good Business for the Entertainment Industry?

After long being accused of pushing nutritionally empty products on children, entertainment companies have developed standards to limit sugar and fat in products promoted through licensing.

In October, Walt Disney Co. introduced guidelines for food manufacturers that use Disney characters to promote their products. Food manufacturers will have to follow the guidelines, developed in concert with nutritionists, in order to license Disney intellectual property.

While such changes can initially result in higher costs and lower sales, industry observers say that the entertainment companies’ rules may induce consumers to buy more. The licensing restrictions aren’t likely to lead to product reformulation, but create healthier versions of existing brands, observers say.

Consumer products and food companies rely heavily on “character” licensing to promote products. Entertainment-characters are the dominant category in the licensing industry; in 2005, corporations paid $2.6 billion in fees and royalties, or 44 percent of total licensing revenue of $6 billion, to license entertainment industry characters, according to the International Licensing Industry Merchandisers’ Association (LIMA).

For the entertainment industry, such moves can help shore up their public images; for years, critics have blasted entertainment companies that tie their intellectual property to unhealthy foods that contribute to childhood obesity.

“Obesity is a huge issue, and no company wants to be seen as promoting bad health for children,” says Marion Nestle, professor of Nutrition of Food Studies and Public Health at New York University.

More than 15 percent of children from ages 6 to 19 are obese, according to the American Obesity Association, a research and public advocacy group. The rate of obesity has skyrocketed in the past two decades.

Food companies will benefit from tighter licensing agreements, Nestle says, as it will help enforce the perception that food companies are trying harder to meet children’s nutritional needs.

The licensing business has a long history in products aimed at children. By using entertainment companies’ movie and television characters, food companies gain instant recognition, says Charles Riotto, LIMA president.

In return, manufacturers pay a fee to entertainment companies, regardless of how many products are sold. In addition, entertainment companies collect 10 to 13 percent of a licensed good’s wholesale price. “Licensing entertainment characters can add cache to a product and give manufacturers instant awareness,” Riotto says.

Riotto doesn’t think that new requirements will send food companies back to the lab to reformulate current products. Instead, food companies are likely to create healthier versions of current brands. “Companies are being proactive to avoid criticism that the products they’re creating aren’t healthy,” Riotto says.

Disney’s rules state that “main dishes” can’t derive more than 30 percent of their calories from fat. With snacks, fat content can’t exceed 35 percent, and with all foods, added sugar can’t amount to more than 10 percent of total calories. Disney is also giving guidelines to fast-food restaurants located in its parks and resorts; it wants to remove the trans fats from food served at its parks by next year.

Well before the new guidelines, food makers have been trying to create healthy new products, and improve current brands. General Mills, for instance, switched from processed flower to whole grain in its cereals. Kellogg Co. is rolling out a line of diet protein waters and bars.

NYU’s Nestle expects other entertainment companies will follow Disney. “There’s no doubt we’ll see more [guidelines],” she says. “It’s a huge issue, and no company wants to be seen as promoting bad health for children.”

The Nickelodeon television network, which is owned by Viacom, is working with Produce for Kids, an organization that educates children and parents about the importance of healthy food and exercise. The campaign puts popular Nickelodeon cartoon characters Dora the Explorer and SpongeBob SquarePants on packages of peaches, cherries and other produce.

A licensing deal between an entertainment and food company can last up to three years. Food companies with time left on a Disney licensing deal won’t have to adhere to the new nutrition rules until the contract is up for renewal, says Disney spokesman Jonathan Friedland. “We were hearing from our customers at our parks and resorts that they wanted better nutritional options,” he says.

Consumers are open to buying healthier products, says Sean McBride, vice president of communications at the Grocery Manufacturers of America. As industries address the obesity issue, this willingness to try newer, healthier products helps in product research and development.

“[The licensing requirements] are not only good for business, but for consumers as well,” McBride says. “Food companies and entertainment companies trying to give consumers what they want will benefit the bottom line.”

Clearly, licensors are paying more attention to what consumers are saying, says LIMA’s Riotto. “Licensors have always had tight control over their intellectual property, but what’s new is that they are more attentive to what consumers are saying,” he says. “Anything to do with kids and health and finding ways to fight obesity is a major trend.”

By Kathleen Kiley, Managing Editor, Consumer Markets Insider
Courtesy of http://www.kmpg.com