IP licensing in mobile is quickly becoming a go-to growth strategy for game studios and IP holders alike. Of the top 100 downloaded mobile games on iOS (excluding hypercasual) released in 2021, only one (Soccer Super Star) was not based on an existing franchise–an unequivocal signal that IP licensing isn’t going anywhere. Without question, it is an incredible strategy for reaching new players and boosting revenue.
And yet, many studios are hesitant to take the plunge simply because…it’s expensive! In this article, let’s shed some light on the nuances of IP licensing from an ROI standpoint. We’ll explore the overall business models, cover key metrics for understanding the impact of a potential collaboration, delve into the upside (perhaps what you’re here for), and then touch on risk mitigation. If your studio has $500,000 or more in monthly revenue and you’re still undecided, this article is for you. Here we go.
Game studios have several business models to choose from when embarking on an IP collaboration, each with its advantages and challenges. The three most popular business models for IP collaborations are royalties only, royalties with a Minimum Guarantee (MG), and flat fee (licensing fee). Let’s go through these quickly, for context.
1. Royalties only (with no Minimum Guarantee)
In this model, the licensee pays the licensor a negotiated percentage of revenue for every product sold that uses the licensor’s assets (including IPs or brands). No upfront payment is made for this model.
2. Royalties with a Minimum Guarantee (MG)
This model is like the first, but with an added upfront payment (Minimum Guarantee) that the licensee must pay to the licensor. This amount is negotiable and is based on the value of the intellectual property. The Minimum Guarantee is recoupable (offset) against royalties earned. If sales are high, the licensee recoups the Minimum Guarantee, and the licensor earns additional royalties.
3. Flat fee (licensing fee)
Here, the licensee pays a one-time, negotiable fee for the rights to use the licensor’s assets for a specified period. The licensor does not receive any royalties from sales and the fee is non-recoupable for the licensee. In this case, the outcome of the event is less relevant for the licensor as they are not receiving royalties for any sales related to the IP.
Now that we understand the basic business model, and before we consider some of the risks and how those can be navigated, let’s explore how we can measure the impact of an IP collaboration–understanding key metrics is critical to success.
Post-collaboration analysis comes after the launch goes live; don’t make the mistake of resting on your laurels and thinking the hard work is over; monitoring changes in key metrics will provide valuable insights into the collaboration’s impact. Metrics such as user acquisition rates, average session length, retention rates, and monetization data can help quantify the collaboration’s effects on the game. By comparing these post-collaboration metrics with pre-collaboration data (which you’ve already done, right?), you can determine whether the collaboration achieved its objectives and use the analysis to inform future strategies.
So, what is the bottom line when it comes to carefully measuring and analyzing your first IP collaboration? Simply this: game studios on the fence about an IP collaboration tend to see it as fundamentally different from regular UA investing. And while there are more complexities and challenges to navigate, it is simply another, potentially much more powerful way to introduce your game to new players…in this case, by leveraging a popular IP. Just as you would go about a major UA campaign and keep track of the data to understand both the long and short-term impact of the campaign–from retention to organic uplift, and everything in between–an IP collaboration should be approached with a similar mindset.
Nothing is ever guaranteed, of course, but time after time statistics show that IP collaborations are, in most cases, a major boost to a game studio’s bottom line, attracting not just any players but high-spend ones, who are nearly three times as likely to download a game based on an IP they love.
And while you should always be aware of potential risks in any growth strategy, to adopt effective mitigation strategies and come out on top: be aware, but don’t let them scare you off!
Know your audience and keep what makes your game beloved front and center when you’re planning. A poorly received collaboration can damage the game’s brand or alienate existing players, particularly if they believe it deviates too much from the game’s original concept or ethos. In our experience, a well-conceived IP collaboration can easily mitigate this risk.
Financial planning is key: Make realistic revenue forecasts and carefully control the costs associated with the collaboration. What this means is that you should carefully consider the opportunity cost of an IP collaboration. Dedicating significant resources and time to development, design, testing, research, contract negotiation, and navigating all the unexpected hiccups over 6 months (at least) to bring the collaboration successfully across the finish line is hardly a walk in the park. Whether that is worth doing when compared to other things you could be doing to reach new players and grow your game is perhaps the most important question to answer before embarking on this journey.
For context, Yodo1’s IP licensing team works with top global IP holders like Legendary, Paramount, and Hasbro. We work with huge games like Puzzles Survival, Top War, and Mobile Legends, to name a few. What that means is, we have a lot of first-hand experience.
With that context, let’s assume everything goes according to plan with a given IP collaboration, and that your game has both average retention for its size and a well-balanced game economy. In such a case, with the caveat that these are averages, here is what you might project:
During the collaboration:
Six months following the collaboration:
Major brands and IP holders are now seeing the light when it comes to the incredible reach a well-executed game collaboration can have. Big games like Fortnite have paved the way for a much broader field of opportunities. These are still the early days of a trend likely to become standard practice for any game of sufficient size (revenue around USD 500,000 per month), that like UA, periodic IP collaborations are a core pillar of growth, and a solid investment when executed correctly.
Maybe you, like us, are very bullish about the amazing growth opportunities that IP licensing provides to reach players on a whole new scale, and, like the games we work with, look at these collaborations as a key pillar for growth, and an exciting landscape of possibilities.
But you may also be concerned about the opportunity cost, the complexities of dealing with brands, concerns about choosing the right IP, or whether it will pay off in the end. The Yodo1 IP licensing team is all about helping game studios achieve the incredible benefits of IP collaborations, without having to stress about the headaches along the way. We eat those headaches for breakfast. With a proven track record, such as our successful collaborations with Top War—just one among many—we’ll be in your corner for each step of the process.
Our team of experts specializes in guiding studios through the intricacies of IP licensing for mobile games. With a comprehensive understanding of the business models, audience dynamics, and key metrics involved, we can help you factor in the risks, make informed decisions, and optimize collaborations for maximum impact.
Don’t let the complexities hold you back. Reach out to us today and let’s explore the incredible growth opportunities together!