Although the recession has limited industry growth and caused businesses to reduce marketing

budgets in the past five years, consumer preferences for brand name products allowed intellectual property licensing firms to maintain slight profitability and avoid a severe downturn, according to a report by industry research firm IBISWorld.

“After revenue was hampered by low corporate profit and consumer spending, growth is expected to accelerate as disposable income levels recover, companies resume investment in licensing agreements and consumers spend more heavily on well-known brands,” the company said in a statement.

“Companies in [the intellectual property licensing] industry lease rights to intangible assets, including patents, trademarks, brand names and franchise agreements,” says IBISWorld industry analyst Andrew Krabeepetcharat. “Operators own the rights and allow others to use them for a fee.” Companies that lease real property or tangible assets are excluded from this industry. Franchise agreements that allow the use of a name contingent on the purchase of products from a franchisor are also excluded.

For licensees, the benefits of such an arrangement are many: greater exposure, customer loyalty and the capacity to charge a premium for a product with a name like Disney or Nike on it, all without having to build a brand name from the ground up.

However, the value of brands within the IP licensing industry fluctuates, which adversely affects revenue during periods of economic uncertainty, says Krabeepetcharat. “Unfortunately for industry operators, a decline in corporate profit and disposable income after the recession caused businesses to reduce marketing budgets.”

Consequently, he says, industry revenue declined in 2008 and 2009. Despite this setback, average revenue growth was maintained in the five years to 2012, increasing at an average 0.4% annually on the back of continuing consumer preference for brand names.

Major brands like those of the Walt Disney Company have long been prominent in the US consumer landscape. Over the years, the value of those brands and how much companies pay to use them has risen immensely. This factor has encouraged an increasing number of companies to license their products; however, the limited staying power of many companies has kept enterprise growth in check.

In the five years to 2012, IBISWorld’s report estimates that the number of firms operating in this industry has increased an annualized 1.0% to 3,952 companies. Competition among industry players has caused larger participants to increase their licensing activities through greater promotion and leveraging of brand names.

Such competition has caused the revival of several children’s entertainment brands in recent years, such as Transformers, which first appeared in the mid-1980s. Companies revive brands because established identities often do not require extensive developmental marketing and exposure. By capitalizing on such opportunities, large players have been able to grow as a share of industry revenue.

As the economy recovers, companies will resume investment in licensing agreements; industry revenue is expected to increase 4.5% in 2012, the report says. During the next five years, the popularity of brand licensing is forecast to rise, increasing revenue in 2017. Large operators will benefit from continued modernization of vintage franchises while small businesses look to cash in on existing brand popularity, according to the report.