The $500 Million Battle Over Disney’s Princesses

How Hasbro grabbed the lucrative Disney doll business from Mattel.

Juniper Keithler is 3 years old and wants to be a princess. Her parents aren’t thrilled. “It started a year ago. She went to a friend’s house for a play date and saw the Elsa and Anna dolls, then came home singing Let It Go from Frozen,” says her mother, Athena Lutton Keithler, who lives with her husband and daughter in Denver, along with princess-themed bedsheets, T-shirts, dresses, sleeping bag, lunchbox, and backpack. Juniper would have even more if her parents hadn’t asked family members to stop buying the stuff. Every morning, Juniper asks to wear a princess dress and “loud shoes” with hard plastic heels. When she puts them on, she declares, “I’m becoming a woman!”

Businessweek Disney Princess cover
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Photographer: Sarah Anne Ward for Bloomberg Businessweek

“I really didn’t think this would happen. She’s not even in preschool yet,” Keithler, 31, sighs. She knew about the so-called princess phase that little girls go through, but, she says, “I assumed it was something girls do when it’s thrust upon them.”

Keeping a 3-year-old girl away from Disney’s princesses is a lot like trying to get through January without hearing about the Super Bowl. Since Walt Disney lumped Sleeping Beauty, Belle, and its other poofy-dressed ladies together under the brand Disney Princess in 2000, the market for all things pink and sparkly has skyrocketed. Princess merchandise—dolls, clothing, games, home décor, toys—is a $5.5 billion enterprise and Disney’s second-most-profitable franchise, after Mickey Mouse. (Disney’s new Star Wars movie might change that.) That doesn’t even include Frozen, which came out in 2013 and which Disney measures separately. The movie spawned the top toy brand in the U.S. last year, selling $531 million worth of dolls and dresses, according to NPD Group.

Disney doesn’t manufacture most of the Princess products. It licenses them to all sorts of companies: Glidden makes pink and purple wall paint, Stride Rite makes sparkly shoes. In toys, the most lucrative Disney Princess license is dolls. Specifically, 12-inch Barbie-esque figurines that girls can dress and undress until the dolls’ hairdos get tangled, they’ve lost their shoes, and it’s time to buy another.

Mattel has worked with Disney since 1955, when it became the first sponsor for the Mickey Mouse Club, and it’s been the company’s go-to dollmaker since 1996. Last year, Mattel put the size of its Disney Princess doll business at $300 million, though analysts at Needham say it’s closer to $500 million. With sales of Mattel’s most famous toy, 56-year-old Barbie, tumbling 20 percent from 2012 to 2014 and still falling, Princess dolls have been a much-needed revenue stream.

But not for long: The princess business disappears on Jan. 1, when Disney packs up its glass slippers and takes them to Mattel’s biggest rival, Hasbro. “Disney Princess was probably the greatest coup that Hasbro has had in the last three decades,” says Gene Del Vecchio, a former Ogilvy & Mather executive who has worked with Mattel and Disney in the past and helps Hollywood studios translate their movies into what he calls “merchandise opportunities.” Adweek likens Hasbro’s achievement to the Chicago Cubs winning the World Series.

Disney is taking a risk turning to Hasbro. Mattel owns the doll market, and despite her recent stumble, Barbie is still the best-selling doll of all time. Hasbro, meanwhile, has traditionally kept to the boys’ side of the toy aisle, with brands such as Nerf and Transformers. But it has big plans for the princesses. Hasbro and Disney are redesigning and rereleasing every Princess doll, even Pocahontas, which few stores carry. Hasbro hired a few dozen people, mostly designers and developers, who work out of its newly expanded production studio in Burbank, just minutes from Disney. “We’re going to make the Princess brand far bigger and more ubiquitous than it has been in the past,” says Brian Goldner, Hasbro’s chief executive officer. If Athena Keithler thinks she’s got princess overload now, a lot more pink is headed her way.

Disney used to market movies, not characters. Jasmine dolls were on store shelves only when Aladdin was out—either during its initial run or when it was rereleased. (The studio releases its animated films for just a few years at a time, then takes them out of rotation to drive up anticipation and demand.)

That changed in 2000, when a newly hired Disney executive named Andy Mooney went to a Disney on Ice show in Phoenix. “I saw these girls ages 5 and 7, waiting to go see the show in full regalia—tiara, shoes, the works,” says Mooney, who is now CEO of Fender Musical Instruments. “I asked the mothers, ‘Where did you buy this?’ They said, ‘Well, we had to make this. You don’t sell it.’ I said, ‘If we made this, would you buy it?’ They said, ‘Loads of it.’ ”

From left: Hasbro’s Snow White, and Mattel’s
From left: Hasbro’s Snow White, and Mattel’s
Photographer: Sarah Anne Ward

That year, Disney started selling products that featured all eight princesses, many from movies that weren’t in theaters. Hasbro made games, Mattel made the dolls and plastic Fisher-Price figurines. Disney had never before sold or marketed merchandise picturing princesses from different movies together. “The prevailing wisdom at the studio was that somehow having the princesses gang together would destroy their individual mythology and therefore the value of their films,” says Mooney. To guard against this, Disney invented marketing rules: The princesses couldn’t look at each other. Their dresses had to be different colors. Sleeping Beauty and Cinderella both wore blue, so Sleeping Beauty, marketed under her first name, Aurora, changed into bubble-gum pink.

Even with almost no formal marketing plan in place beyond a few toy commercials, the Disney Princess brand surpassed $1 billion in sales within three years. “This was unheard of,” says Mooney. Disney made more movies and now has 11 princesses—13 if you include Elsa and Anna from Frozen. The next, a Polynesian named Moana, will make her debut in her own film next year.

As Mattel was raking in money from the princesses, Hasbro underwent a transformation. The company, headquartered in a series of squat buildings in Pawtucket, R.I., hadn’t had a hit since the 1980s, when it came up with Transformers and My Little Pony. During the Pokemon craze, it survived on licensing fees. When that ended, Hasbro found itself selling a bunch of outdated toys. It barely survived a takeover attempt by Mattel in 1996. Transformers, once worth hundreds of millions of dollars, made only $25 million in 2000.

Graphic: Retail Value of Toys and Games Sold, 2014

“We’d let our brands lie fallow, and were losing a lot of money,” says Goldner, who came to the company that year as Hasbro’s president of U.S. toys and in 2008 became CEO. At 52, with thick brown hair and a youthful face, he has a sense of credibility when he talks about toys, as if he’s not too far removed from childhood himself. “I still remember a conversation about a cost-saving initiative, and someone asked me if we should close the FunLab,” he says, referring to the room at Hasbro’s headquarters where research teams watch children play with toys through a two-way mirror. “I said, we’re not going to close the FunLab, we’re going to use it to build back our own brands.”

Goldner sent a team of 25 to travel the country, talking to parents and kids about their toy-shopping habits. They found that children still liked playing with Transformers, they just hadn’t seen them on TV. (The original Transformers series ended in 1987.) The toys they really wanted were all connected to movies and shows. “Kids respond to characters and stories,” says John Frascotti, president of Hasbro’s brand division. If Hasbro wanted to get children to embrace its toys again, it would have to give them something to watch.

Photographer: Sarah Anne Ward

This wasn’t a new idea. The toy industry has known about the power of movie-based merchandising since 1977, when the first Star Wars came out and Han Solo and Darth Vader action figures became so popular that Kenner Products, a now-defunct toy company, resorted to selling empty boxes with IOUs inside. But what had changed was that toy tie-ins had gone from something associated with a few smash hits to the near-universal requirement that toys come with a movie or TV show. Today, the $23 billion U.S. toy industry fluctuates a few percentage points every year, but sales of toys that don’t have their own movies or shows are flat or declining.

“Five years ago I would’ve told you that technology was hurting toys because kids were watching their iPads instead. Now I think it’s helping—even preschoolers are engaging with brands,” says NPD Group’s Juli Lennett. Hasbro stopped calling itself a toy company. Today, executives prefer to describe their business as “creating play experiences.”

In 2007, Hasbro co-produced Transformers, directed by Michael Bay, with Paramount Pictures. The movie made $710 million worldwide and was such an astounding hit that Hasbro opened its own film studio in Burbank. It has since made three more Transformers movies, each more successful than the last. Whenever a new one opens, toy sales double. Hasbro transferred a handful of toy designers from Rhode Island to Burbank to “work with the filmmakers to ensure that the characters you see on the screen can be turned into toys,” says Patrick Marr, director for model development. It also collaborated with the Discovery Channel to launch the Hub television network (later Discovery Family) to serve as a home for shows based on its brands. Hasbro used the network to revive My Little Pony. It’s become one of Hasbro’s top-selling lines, with nearly $1 billion in sales last year, thanks to its My Little Pony: Friendship Is Magic show.

Not everything Hasbro touches has been a hit. Battleship, the 2012 movie based on the game, flopped. Jem and the Holograms, released in October, has yet to earn back its $5 million budget. But the successes have more than offset the bombs.

Unlike Hasbro, Mattel didn’t think it needed movies to sell toys. “I wouldn’t say there’s been a major sea change,” says Tim Kilpin, Mattel’s former chief commercial officer, who left the company in November. “The way we were selling toys in the ’70s and ’80s is the way they’re selling toys today.” Talks of a Barbie movie cropped up internally from time to time—Del Vecchio, the former adman, says he saw scripts 15 years ago and once wrote a draft himself—but nothing ever came of it. Instead, Mattel preferred to go small. A 2012 Netflix series starred Barbie and her Dream House, complete with a talking closet. A Barbie YouTube channel posts three-minute videos once a week. None of it’s very good. But it’s safe. “If you make a big movie about Barbie and it bombs, it could have long-term repercussion for Mattel’s toy business,” says Del Vecchio. “You have to be extremely careful with the golden goose.”

Photographer: Sarah Anne Ward for Bloomberg Businessweek

When Mattel started to make Disney Princess dolls 15 years ago, they came with their own sleek, sparkling movies, and it was basically creating competition for its best-selling brand. It didn’t help that the dolls were the same size and shape as Barbie, giving the impression that Barbie had just gotten a job as a Cinderella or Belle impersonator.

Things got more complicated in the late 2000s, when Mattel released a line of princess-themed Barbie DVDs and dolls, essentially pitting them against Disney’s line. When Barbie’s sales started to fall in 2012, she became Mattel’s problem child. “Barbie is going to continue to be a brand that we spend a lot of time and attention on to make sure she [improves],” Mattel’s then-CEO, Bryan Stockton, told investors last year. Mattel’s focus on Disney’s Princesses waned. “Disney essentially said, ‘Yo, Mattel, you have a Barbie problem—in the process of fixing that problem, are you going to [still] pay attention to my brand?’ ” says Sean McGowan, toy analyst at Oppenheimer & Co.

Photographer: Sarah Anne Ward

In 2013, Disney set up a meeting with Hasbro, which already had Disney’s Star Wars and Marvel licenses, and its FunLab ran regular tests for the company. Before each Star Wars movie, for example, Hasbro tested kids’ familiarity with the franchise. They discovered that parents—“dads mostly,” says Frascotti—passed down their love of Star Wars to their kids in the same way that they taught them which sports teams to root for. “We have a fancy term for it that we made up,” says Frascotti. “We call it trans-generational emotional resonance.” Disney liked Hasbro’s FunLab reports. “They’d seen them work quite well for Star Wars and Marvel,” says Goldner. “Then they asked us what we knew about girls.”

Hasbro researchers found that girls—young girls, particularly—weren’t nearly as into clothes and boys and happily-ever-after as they thought. “What we found was that girls loved the idea of a brand that embraced friendship and kindness,” Goldner says. Impressed with Hasbro’s analysis, Disney gave it a small license for Descendants, a made-for-TV movie it was developing about the teenage kids of its princesses.

Meanwhile, Mattel made what, in hindsight, seems like a pretty dense move: In 2013 it released its own line of princess-themed dolls, Ever After High. Unless you’re a girl under 10—or the parent of one—you’ve probably never heard of them. Designed to be the teen children of Cinderella, Snow White, Little Red Riding Hood, and other characters, they wear platform shoes, bodices, and short, sometimes see-through skirts: tarted-up versions of Disney’s Princesses. Stephen Sumner, a former Barbie designer now at Hasbro, did early sketches of the line. He says Mattel envisioned a line of witch dolls, then realized another company already had one. “So they had to turn it into princesses, even though there was kind of an overlap,” he says. Because the dolls were based on traditional fairy tales, Mattel didn’t have to pay Disney licensing fees. Disney didn’t like the competition.

Several former Mattel employees point to the 2013 release of Ever After High as the last straw for Disney. Chris Sinclair, a Mattel board member who took over as CEO in January, agrees. “We got too competitive with them on Ever After High,” he says. According to Mattel’s annual report, Ever After High accounted for just $53 million in added sales last year.

Hasbro was busy working on its Descendants line when Disney called in early 2014 with a new proposal. “They said,” Goldner recalls, “ ‘What would you do if we gave you the entire Disney Princess business?’ ”

Disney explained that it was reimagining its princesses. Its license agreement with Mattel was coming up for renewal, and it was shopping for a new dollmaker. The company was starting to hear you’re-sending-the-wrong-message-to-our-daughter complaints from parents. The most biting criticism came from New York Times Magazine writer Peggy Orenstein, author of the 2011 book Cinderella Ate My Daughter. She often opined about the time her daughter’s dentist asked her to sit in his “princess chair” so he could “sparkle” her teeth. “Parents were talking about the ‘princess phase’ as if it were an actual stage of development,” says Orenstein.

Disney decided to try to portray the princesses more as heroines than damsels. The company worked with Jess Weiner, a branding consultant who helps companies rethink the way they market to women. “Disney wanted to reach girls and women in more authentic ways,” says Weiner. “We looked at the Princess products. On backpacks and things, these princesses had always been fairly homogenous-looking and in passive poses. Anyone who’s spent time with a 5-year-old knows they’re not into passively posing.” In new movies, Disney was able to create courageous, independent women from scratch. In Frozen, the princess Elsa winds up without a prince. Star Wars: The Force Awakens focuses on a female warrior named Rey, who runs and fights and at no point becomes enslaved in a gold bikini. But the older princesses needed some work. “The Princess franchise has to evolve,” says Josh Silverman, executive vice president for global licensing at Disney Consumer Products, the division that handles all the brand licenses. “The focus will be on empowered heroines.”

“These princesses had always been fairly homogenous-looking and in passive poses”

To win Disney’s Princess license, Hasbro had to figure out how to translate this lofty vision of “empowerment” into a plastic doll. Hasbro’s researchers talked to thousands of girls at the company’s Pawtucket headquarters, as well as in Hong Kong, London, and Los Angeles, and found that girls thought about princesses in much the same way that boys viewed superheroes. Sometimes they liked a character because of her dress; other times they focused on her abilities, such as archery and sword fighting (Merida, from Brave) or the ability to conjure ice and snow (Elsa). “Sometimes they want a prince, sometimes there is no need for a prince,” says Frascotti. Disney didn’t have to reimagine the princesses, it turned out. Girls had already done it themselves. The dolls had just never been marketed like that.

Photographer: Sarah Anne Ward

“Every girl knows Cinderella, but there are 11 princesses,” says Andrea Hopelain, a former Disney marketing director who’s vice president for global brand strategy at Hasbro. In toy stores today, at the end of Mattel’s reign, the available Disney Princess dolls almost always come from one of four movies: Cinderella, The Little Mermaid, Beauty and the Beast, and Frozen. Toys “R” Us’s flagship store in Times Square is 110,000 square feet and sells toys to millions of children every year, but right before Christmas this year, it had only one Tiana toy (Disney’s only African American princess, from The Princess and the Frog). That will change with Hasbro. “We can reintroduce Mulan,” says Hopelain. “We can play up that Tiana is a great cook.”

Hasbro’s ideas impressed Disney. “It was pretty late in the game last year when we became aware the loss was a potential,” Sinclair says. “It deteriorated in about three or four weeks.” Disney officially gave the Princess license to Hasbro in September 2014. Mattel is tight-lipped about how and when it found out, but Sinclair was surprised when Stockton, still CEO, called him to say they’d lost the business. “We took Disney for granted. We weren’t focusing on them,” Sinclair says. “Shame on us.”

Three months later, Stockton was out and Sinclair was in; one of his first moves was to call Disney and apologize. Disney executives drove across town in Los Angeles to Mattel for several meetings and to see what other toys Mattel had in the works. Since January, two-thirds of Mattel’s senior executives have stepped down or been laid off. “We’ve dealt with it as directly and forthrightly as we can,” Sinclair says. He and Disney insist that their relationship is fine and point out that Mattel still makes toys for other Disney brands, including Mickey Mouse.

“We took Disney for granted. We weren’t focusing on them. Shame on us”

When Hasbro’s Disney Princess dolls go on sale on Jan. 1, all 11 will be available in toy stores for the first time. The dolls will have different heights and waist sizes (though not by much). Their flawless skin will come in various shades of—well, mostly white—and their facial features have been directly modeled after the characters in the films, not painted on a preexisting mold. Their arms are stiff, and their hair isn’t as easily brushable as Barbie’s, but they’re simpler, cleaner, and easy to tell apart. They look like Disney’s animated characters come to life.

These distinctions are subtle, but, Hasbro and Disney hope, they’ll make each princess feel like a fully realized person, not just one of 11 lookalikes separated only by the color of her dress. Hasbro CEO Goldner admits that the first few months of sales will probably be slow as stores discount Mattel’s old dolls to get rid of inventory. “After that, it’s our brand to manage,” he says.

Both Hasbro and Disney say they plan to highlight the princesses’ bravery and skills in future advertising, and to give the nonwhite princesses more shelf space. “A 4-year-old girl doesn’t realize how the world she lives in is different from 10 or 15 years ago, but her parents do,” says Frascotti. And parents, he points out, are the ones who buy the toys.

Little girls’ worlds will soon be filled with even more dolls and dresses and sparkles and tiaras as Disney churns out more movies and Hasbro makes more toys to go with them. The Frozen sequel, the new Moana movie, and a live-action Beauty and the Beast film are all coming out in the next few years. “I had no idea the princesses would grow into this,” marvels Andy Mooney, who still can’t believe how one trip to a Disney on Ice show could inspire an empire now worth more than the Dallas Cowboys. “The phase when little girls play dress-up is a brief moment in time. But it’s a brief moment in time when they spend a lot of money.”