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Innovation & Design

Hasbro: Where Toys Are Still Serious Business

Despite the company's growing film revenue and the upcoming launch of Hasbro Studios, it's investing heavily in toy R&D and marketing

When Brian Goldner arrived at Hasbro (HAS) in 2000 as chief executive, the toy and game maker generated $30 million from its Transformers action figures. In 2007 the Transformers movie grossed $700 million at the box office and helped company sell $480 million in related toys. And revenue from the 2009 sequel, Transformers: Revenge of the Fallen, has already topped $830 million worldwide. Combine the big-screen hits with the launch of Hasbro Studios—a Los Angeles unit that, when it officially opens next fall, will develop and produce content for movies, games, television, and mobile platforms—and it seems that Hasbro is morphing into an entertainment company. Indeed, Goldner, 45, talks about the Pawtucket (R.I.)-based company as a creator of "immersive brand experiences." Yet toys and games remain Hasbro's bedrock, accounting for most of its revenue. So even as Goldner builds Hasbro Studios, he's investing heavily in basic research and development and marketing to revive old toys and build up more recent ones such as FurReal Friends and Beyblades, two top sellers introduced in the last decade. "My Little Pony, G.I. Joe, Transformers—we own hundreds of brands that have been loved by generations," says Goldner. "For every one there is an audience, and for every audience there is a recipe for an immersive experience." Leveraging Hasbro's Brands

Goldner has learned from Hasbro's past, specifically its failed foray in the 1990s into computer games based on other companies' brands. Now the focus is on enlisting outsiders to leverage Hasbro's own properties. For instance, Hasbro has partnered with Electronic Arts (EA), which now has more than 300 people developing games related to Hasbro toys and Activision. In Hollywood, Hasbro has joined with Universal (GE), Paramount (VIA), and DreamWorks (DWA). Hasbro also paid Discovery Channel (DISCA) $300 million for a 50% stake in its children's channel, which will be relaunched with a new name next fall. "If you're focused on other companies' brands," he says, "you're less likely to invest in customer research because you're trusting your partners to tell you what their customers want." The media partnerships bring Hasbro more than royalties and licensing payments; they drive toy sales. G.I. Joe revenues topped $100 million through the third quarter, lifted by the Paramount movie G.I. Joe: The Rise of Cobra. Such movie-driven sales have helped Hasbro, the second-largest toy maker behind Mattel (MAT), though they haven't been enough to keep revenue from slipping 2% in the third quarter, to $1.28 billion, in line with the rest of the U.S. toy industry. Thanks to cost cutting, however, profit increased 9%, to $150.4 million. But Hasbro can't scrimp too long. To get the most from its brands, the $4 billion company generally channels 5% of revenues into R&D and roughly 10% into marketing. The investments, says Goldner, have helped the girls toy group grow from $6 million in revenue in 2002 to more than $700 million in 2008. Martini Meetings

To spark innovation, the company also has reworked its development process. One of the first changes: a regularly scheduled session called a martini meeting that, Goldner is quick to explain, is named for the shape of the traditional martini glass rather than the drink itself. Researchers start at the rim by looking for emerging technologies and new inventions. These are then winnowed down to the most promising. When ideas reach the metaphorical stem, Hasbro has a sense of how the new technology could be applied to its toy and games. FurReal Friends, a line of soft animal toys with robotic innards, came out of the martini process. At the rim were advances in animatronics, the field that had given movies and theme parks the ability to create animal puppets with lifelike movements. Next, "the head of engineering came to a meeting with a new idea for animatronic plush toys," says Goldner. That led to the girl-targeted toy brand, which launched in 2002 and was the hard-to-get toy that season. FurReal Friends is now sold in more than 60 countries. Another of the more recent Hasbro brands is BeyBlades, a line of spinning tops, licensed from Japanese manufacturer Tanaka and introduced in 2002, that earned the Toy of the Year award from Britain's Toy Marketers Assn. two years in a row. Such brands are years away from movie or game tie-ins, but Goldner knows that Hasbro can't rely on Transformers and G.I. Joe forever.

Jessie Scanlon is the senior writer for Innovation Design at BusinessWeek, where she covers the intersection of design and business.

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