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A Tale of Two Toymakers Influences Their Content Goals

Hasbro Restructuring Eone, Mattel Creating More Content

By Gary Symons

TLL Editor in Chief

The toy industry enjoyed a surprisingly strong year in 2020, despite and partly because of the COVID-19 pandemic, but that doesn’t mean toymakers haven’t faced serious challenges in their operations.

Despite the strong year for toy sales overall, Hasbro has seen a drop in their share price this week after the company forecast a decline in its operating cash flow this year. As well, Hasbro has announced cuts to its newly acquired Entertainment One film and TV division. Entertainment One is known for highly successful children’s programming like the Peppa Pig and PJ Masks children’s shows, which it sells to media outlets. Hasbro bought out Entertainment One a little over a year ago for $4 billion, but is now laying off 10 per cent of its staff, which in 2019 was estimated to have roughly 1,200 employees.

The reason cited is a response to the ongoing COVID-19 pandemic and changing viewer habits. In a memo to staff the studio said it’s been forced to restructure partly because tech companies are shifting money to their own services and original programming. “The effects of the pandemic have certainly accelerated these seismic changes taking hold across our industry,” the company said.

Hasbro has seen a lot of success in turning some of its toy properties like the Transformers into entertainment, but prior to the acquisition of Eone, the toy company had to license characters to independent studios to make films or TV series. The addition of Entertainment One allowed for film and TV production and development capabilities, which in turn gave Hasbro the opportunity to earn a greater share of revenue from its various toy franchises. However, the last two years has seen major changes in the way content is produced and distributed. Many of the big outlets for kids’ programming, like Disney, produce much of their own content, and due to the pandemic there is little demand for theatrical releases, and certainly not big budget blockbusters like the Transformers franchise.

At the same time, however, Mattel is reporting a very strong year for sales and revenues, and is investing heavily in content production. Mattel has just reported an impressive $4.58 million in net sales for 2020, which is a two per cent increase over 2019, which was not impacted by the pandemic.

As reported last week in The Licensing Letter, Mattel’s dolls category and particularly its venerable Barbie lines have performed very strongly, with a 9 per cent increase in gross billings for the year, up to $1.89 billion. Gross billings represents the total amount invoiced to customers, while net sales—which Mattel historically used to report—represent total sales after subtracting the cost of returned/damaged goods and discounts. Out of that total, the Barbie brand dominated, with gross billings increasing by 16 per cent to $1.35 billion.

Other categories didn’t fare as well while others—like Mattel’s Hot Wheels vehicle lines, saw large increases. Overall, net sales increased by 7 per cent in North America in 2020, although this was partly offset by a 4 per cent decrease in international sales. Fortunately for Mattel, those international markets appear to be bouncing back, with the fourth quarter of fiscal 2020 showing net international sales growing by 7 per cent over Q3.

Both Hasbro and Mattel faced difficult years in terms of operations and logistics, due to widespread disruptions to global manufacturing and particularly in international shipping. Most manufacturers, including toy companies, saw a drop in revenue in the spring as shipments from manufacturing centers were held up, but a strong shift in buying habits returned toymakers to profitability. As the pandemic began affecting major toy markets like North America, the UK and the EU, consumers found that they were not spending as much on entertainment, travel, fuel and dining out, and some of that money was shifted to buying things, like toys, that could keep the family entertained during pandemic lockdowns.

However, Hasbro was harder hit than Mattel, reporting an 8 per cent drop in revenue for the fiscal year.

Bolstered by strong sales and revenue growth, Mattel is looking more aggressively at expansion into content production in 2021 and beyond, having announced a broad slate of film and TV co-productions with a variety of partners. Just over the past few months alone Mattel has announced game shows based on the UNO card game and the What-A-Mole game, and films based on toy lines like Hot Wheels and View-Master.

That doesn’t mean, however, that Mattel doesn’t see challenges in the coming fiscal year. While consumers spent heavily on toys for kids and adults alike in 2020, that spending could decline once lockdowns finally end, and many consumers face up to the decline in their own income due to pandemic-related layoffs over the past year. For that reason, Mattel has announced a new  ‘Optimizing for Growth’ program in an effort to increase the company’s productivity and to reduce costs.

Mattel says the new plan will be integrated into its previously announced ‘Capital Light’ initiative, which saw it close several factories and working to optimize its manufacturing footprint. Mattel estimates this new program will result in an additional $250 million in savings by 2023, while it will cost US$100 million to $125 million to implement.

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