Disney Frozen Feature Fashion Dolls are displayed at the Mattel booth, Friday, Feb. 14, 2014 at the American International Toy Fair in New York.Mark Lennihan/The Associated Press
Hasbro Inc. has signed a merchandising deal for the right to make Walt Disney Co.'s princess dolls starting in 2016, offering the toy maker a glittering growth opportunity in the increasingly competitive global toy market.
The deal snatches the rights to produce all of Disney heroines – from first princess Snow White, to new characters such as Anna and Elsa from Frozen – out of the clutches of Hasbro's archrival Mattel Inc.
Rhode Island-based Hasbro currently dominates the industry's so-called boy's toy category, which relies heavily on theatrical releases to generate sales of action figures and other products based on movies such as Iron Man and Star Wars. The company's staples include G.I. Joe and Transformers. The Disney agreement will balance Hasbros business towards toys aimed at little girls.
As the Disney princesses waltz over to Hasbro, so will the money. In 2014, Mattel will likely earn $600-million (U.S.) from sales of the line, estimates Gerrick Johnson, analyst with BMO Nesbitt Burns. Of that, $175-million will likely come from all the Frozen characters, which are part of the deal. Terms of Hasbro's deal were not disclosed, but Mr. Johnson calculates Hasbro could earn two-thirds as much revenue.
"This deal is somewhat of a coup for Hasbro," Mr. Johnson said. "In one swoop, Hasbro can grow its girls' business by 50 per cent." He says the agreement could add 10 per cent to Hasbro's 2016 earnings, or 35 cents a share.
Toy makers have been adopting various strategies to combat the industry's limited growth and confront the soaring competition from technology, which consumes even younger children's attention.
Mattel has invested in the construction toy category, buying Montreal's Mega Brands Inc., makers of Mega Bloks toys, this year. Denmark-based Lego Group has been shifting emphasis from its licensed toys to "core" brands such as Lego City and Lego Duplo, where it doesn't have to share profits with companies such as DC Comics and Warner Bros.
Hasbro's management is pushing its ability to think differently, amid all this competition. "Our strategic thought leadership and innovation has led to the steady growth of our girls business over the past several years demonstrating that we have a true understanding of girls globally, and how today's girls want to play," said Brian Goldner, chief executive of Hasbro, in a statement.
Amid this heightened pressure from major toy brands, BMO's Mr. Johnson questioned whether Disney was seeking a partner that would not be distracted by creating and marketing similar products. Mattel's Barbie and Monster High doll lines could compete somewhat with the princess dolls.
"We wonder if Disney, perhaps tired of its line being the third fashion doll in Mattel's pecking order, went with Hasbro where its line would be the company's primary doll focus," he said, in a note to clients.
Mattel's second-quarter results showed that the sales of Frozen toys helped offset the declines in other brands, and the company called the products a "huge success." Mattel will be able to keep selling its Frozen dolls for two more holiday shopping seasons before Hasbro steps in.
Mattel's chief executive Bryan Stockton has given some indication that the company believes the movie's popularity will fade, telling analysts on a quarterly conference call that "as things continue to evolve with Frozen, we have other things in our portfolio that we feel good about."
Not only are the Disney dolls a new product line for Hasbro, but the Disney name can command higher margins than other dolls. Hasbro will be adding Disney's princesses to its Littlest Pet Shop and My Little Pony lines of toys aimed at little girls.