Partnerships with film and TV producers could add value to portfolio and help the toymaker navigate a tough retail environment
Fans and critics hailed “Barbie” for being a feminist retelling of a controversial doll’s history, a big-budget project for an indie director, and an amusing theatrical accompaniment to a grim biopic. For Mattel, the maker of Barbie, it was a life-saver.
Actress Margot Robbie’s portrayal of Barbie helped cloth the globe in pink this summer, helping her plastic counterparts overcome slow sales growth before the Covid-19 pandemic and uneven performance during it.
The movie, in addition to being a box-office hit, was the first big payoff of a company strategy years in the making. The toymaker wants to become a steward of pop culture and treat its brands like Barbie and Hot Wheels, both of which have been around for decades, like entertainment franchises that can underpin television shows, movies and more.
“You get forced to expand outside of manufacturing pretty easily pretty quickly,” said Dr. Zoe Chance, a marketing professor at the Yale School of Management and former Barbie brand manager for Mattel. “You can only sell so many toys to each kid each year.”
Company executives have touted the “Barbie” movie as a success in content creation and not as a mechanism to sell toys, but that is exactly what Mattel needs. U.S. toy sales are primed to decline for a second consecutive year, according to data from Circana and the Toy Association, an industry trade group. Annual revenues for Mattel were $5.4 billion in 2022 and are expected to remain at that level for 2023 this year as well, even with the “Barbie”-related boost. Profits for the year are forecasted at $419 million — higher than 2022, but less than half of that in 2020.
Mattel is eager to have studios mine its toy box. The company’s share price is down nearly 60% from a decade earlier, battered by a string of losses, weak sales of key products, the bankruptcy of retail chain Toys R Us and management missteps including losing the license to manufacture Disney Princess dolls.
Under Chief Executive Ynon Kreiz, who was hired in 2018, the company has worked to turn a corner. Mattel has cut its debt load and closed factories in at least four countries. Its philosophy has moved away from developing movies and shows on its own and instead is leasing its intellectual property to larger content production houses. It also regained the license to make Disney Princess and Frozen toys in 2022.
Investors and analysts have noticed Kreiz’s progress. Mattel stock has risen 26% since Kreiz was hired, closing at $19 a share Thursday — though they have still broadly underperformed the S&P 500. S&P analysts upgraded the company’s credit rating in April, noting confidence in its fundamental business and long-term strategy. (Mattel did not respond to a request for comment.)
The company is no stranger to live-action entertainment. Mattel in 2013 launched in-house studio Playground Productions and it had big content-development plans for films, TV shows and more. But after “Max Steel” flopped in theaters, panned as a big-budget franchise that fell flat, the studio was shut down and folded into another company unit.
Meanwhile, Mattel competitors Hasbro and Lego were able to find box-office success with Transformers and the The Lego Movie franchises, respectively.
“If a toy company does not have any experience, the Hollywood business is very brutal,” said Dr. Sundar Narayanan, an entertainment marketing professor at New York University. “And a handful of studios control it. A toy company just cannot walk into the studio business and say ‘we got to invest money,’ they’ll just lose all their money.”
Mattel Films, born in 2018 under Kreiz’s tenure, is different. Instead of running expensive projects in-house, Mattel Films licenses the company’s IP to studios like Warner Bros. Discovery and Netflix for them to develop content.
That leaves Mattel with less risk in financing productions, but it also doesn’t reap rewards that are as large on smash hits. Mattel’s cut of Barbie’s global box office revenue and related merchandise sales was over $125 million, The Hollywood Reporter reported. Had Mattel invested more in Barbie, it could have reaped more than 8% of the global box office revenue of $1.4 billion.
Mattel Films’ next projects, much like with “Barbie,” attach industry-leading names to iconic brands. Daniel Kaluuya will produce “Barney,” slated to be an “A-24’’ type surrealist production. J.J. Abrams of “Star Trek” and “Star Wars” will helm the “Hot Wheels” movie. Lena Dunham of HBO’s “Girls” fame will direct a Polly Pocket movie starring Lily Collins of “Emily in Paris.”
“The revenue generated by the merchandise related to a toy movie is very much a contributor to the bottom line,” said Chris Byrne, an independent toy analyst and consultant.
Barbie sales bore that out: third-quarter sales of the doll rose 16% from the previous year driven majorly by movie-related sales, company executives said on an earnings call. Entertainment and toy offerings are side-by-side in the company’s key strategy: to grow its “IP-driven toy business” with franchises and content.
Still, even with an asset-light model where Mattel can lighten some of the production costs, the IP-driven business strategy also comes at a turning point this year for Hollywood studios. This year saw the largest actors and writers’ strikes in decades over issues of pay, the role of artificial intelligence in writers’ rooms and increased residuals. Warner Bros. Discovery stock has shed 12% and Paramount Global shares have dropped 7% in the last six months.
Paramount Global and Warner Brothers Discovery shares have trended downward this year owing to the Hollywood actors’ and writers’ strikes.
Worry over strikes featured in Mattel’s internal discussions as well: Kreiz noted in the company’s second-quarter earnings calls that the strikes had delayed some of the company’s projects in development.
And it’s yet to be seen if a Mattel Cinematic Universe will succeed on the same level as say, a Marvel or DC franchise — comic-book characters have a wealth of existing storylines to plumb where many of Mattel’s characters don’t.
“I don’t think they have strong enough characters to do that,” said Dr. Chance. “It’s quite different from Marvel whose properties are based on strong characters. Like even with Hot Wheels, you can create characters that go along with that, but there’s a limited amount of space and bandwidth.”
To be sure, entertainment, though it’s a crucial revenue stream for long-term sales, is not the end of the road for Mattel’s IP franchise strategy. Location-based entertainment is another response to the broader customer preference for experiences over goods. The Mattel Adventure Park is set to open next year in Phoenix, Ariz., featuring Hot Wheels and Thomas the Tank Engine rides, a Barbie Dreamhouse and a Masters of the Universe laser tag arena.
“Their plan for the future is to be more diversified in general,” said Adam Mansell, a Yale University student who interned with Mattel’s franchise marketing team this summer. “Movies are not the endpoint.”