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Warner Got Mattel Warrants For Potter License.

Warner Bros. Consumer Products' George Jones tells TLL that accepting warrants for shares of licensees sets up straightforward win-win scenarios in which "the only way it becomes valuable to us is if the value of the [licensee] company goes up."

Jones, President of Worldwide Licensing & Warner Bros. Studio Stores, spoke to us following Mattel's disclosure in an SEC filing that Warner had been granted warrants for three million shares of Mattel stock as part of Mattel gaining the bulk of toy rights for the Harry Potter licensing program. And, though he won't discuss any specifics, he adds that Mattel isn't the only Harry Potter licensee to have given Warner warrants as part of the package to gain the rights.

Jones "likes the idea" of taking warrants, since it aligns the fate of Warner and the manufacturer. He won't say whether an offer of stock warrants more often affects the size of the guarantee or the royalty rate, but rather refers to it as part of a total financial package "where appropriate." He's quick to add that Warner is trying to avoid damaging the Potter franchise by demanding guarantees that force manufacturers into overshipping or by forcing price points so high (or margins so low) via outrageous royalties that goods become uncompetitive.

"We've done it before, and it's been successful for us," he says of taking stock warrants from licensees, but notes that it only comes into play in situations where a manufacturer's business can be greatly affected by gaining the single license.

While Jones won't specify how much Warner is paying for the Mattel (or any other) warrants. He acknowledges that if the price is significantly below market value, then the warrants "would be another form of cash compensation," that would be valuable to Warner even if the share price held steady or, at least, stays above the exercise price.

The Mattel deal is only the most recent example of compensation packages stretching beyond the traditional advance, guarantee and royalty rate. The most notable came in 1997, when Lucas Licensing got warrants for nearly 5% of Hasbro and just under 20% of Galoob (which Hasbro later bought) as part of the package that gained the toy makers the licenses for the current Star Wars trilogy (TLL, November 1, 1997, p.1). Disney also has taken shares of Golden Books and Mattel as part of licensing deals within the past four years.

At the time of the Lucas deals with Hasbro and Galoob, Jones told us that Lucas had merely used the law of supply and demand in a beneficial way. "What they [Lucas] had was a highly desirable property; this was an element used to sweeten the deal."

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Comment:Warner Got Mattel Warrants For Potter License.
Publication:Licensing Letter
Geographic Code:1USA
Date:Mar 20, 2000
Words:448
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