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November 8, 2012

Mickey Gets the Force

DisneyLucasFilm_489x295_0Analyst Insight by Utku Tansel, Global Head of Toys and Games Research at Euromonitor International

On 30th October Disney announced its purchase of Lucasfilm, the maker of Star Wars, in a US$4.05 billion deal that will see a new series of Star Wars feature films. Disney plans to release a new film every two to three years after bringing out Star Wars Episode 7 in 2015. When determining its long term geographical expansion strategy for Star Wars, the Asia Pacific region should not be off Disney’s radar. Seven out of the top ten most heavily licensed traditional toys and markets globally are in Asia Pacific. In 2011, it was also the most dynamic toys market recording 9% value growth compared to the global average of just 4%. 

World’s Top 10 Markets with Highest Penetration of Licensed Toys, Traditional Toys and Games, %, Rsp

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Source: Euromonitor International

Lucasfilm acquisition undoubtedly represents the biggest toy related acquisition for a very long time and the move came part of Disney’s expanding licensing strategy and portfolio in recent years. It gives the company a multitude of opportunities that will justify its investment much like its acquisitions of Pixar in 2006 and Marvel in 2009 which ensured a number of important properties.  With Lucasfilm, the world’s largest licensor gets the 15th largest licensor, putting Disney Consumer Products at US$40.5 billion in retail sales of licensing products worldwide.

Disney’s licensing portfolio now includes, Spiderman, Iron Man, Thor, Hulk, Mickey Mouse, Disney Princesses, Disney Fairies, Cars, Star Wars, Indiana Jones, Toy Story, Wall-E and Finding Nemo. Surely, there are other important licenses such as Transformers, Hello Kitty, Moshi Monsters, Thomas and Friends, Peppa Pig, Ben 10 and Sesame Street among many others, however, ownership of these are largely dispersed between various players. Disney is now the only company in the world that controls so many successful and popular global properties that are directly related to the toys and games industry.

Toys are very licence driven

Licensing is an extremely important area driving sales and new product launches within toys and games. Licensed toys – with some sort of entertainment media backing – often carry a higher price tag than other toys. The share of licensed toys in overall toy sales continues to increase across the majority of countries; in the US, for instance, licensed toys accounted for 26% of traditional toys and games sales in 2011. 

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Consequently, it is no surprise to see securing popular properties has become the Holy Grail for many traditional toys and games manufacturers. Exactly one year ago in October 2011, Mattel, the world’s largest traditional toys manufacturer, acquired British media company HIT Entertainment for US$680 million. The deal gave Mattel total control of franchises including Thomas and Friends, Bob the Builder, Fireman Sam, Barney, Angelina Ballerina and Mike the Knight providing a strong footing in licensing.  In 2011, Mattel was the 4th biggest global licensor reporting US$7 billion in retail sales of licensed products. In 2012, the company teamed up with Saban Brands and as a result of this agreement, new Power Rangers-inspired Hot Wheels products will hit toy retail in 2013.

Hasbro, the world’s second largest toy maker, has also been seeking to expand its portfolio. In 2011, the company outbid and acquired the toy license for the popular Sesame Street series that had originally been held by Mattel. Through the acquisition of Sesame Street (and producing it under the Playskool brand name), Hasbro has managed to grow at Mattel’s expense in the baby, infant, and pre-school categories. In 2011, Hasbro’s combined sales in those categories grew by 9% to reach US$478 million; while Mattel’s combined sales declined by 8% to fall to US$1.4 billion.

Seven out of the top ten most heavily licensed toys markets are in Asia Pacific

In 2012, Star Wars was one of the best performing properties in key toy markets globally. Disney’s expertise and experience in toys, retailing and licensing alongside Star Wars’ evergreen popularity could place the company in a very strong position in the industry that will surely keep some other players awake at night. Having said that Hasbro is projected to be one of the beneficiaries of this acquisition as the company has held the official licence for Star Wars toys since 1991 and retains those rights until 2020.

While Lucasfilm has leveraged its brand extensions perhaps beyond any licensor ever has in the past, Disney’s “Star Wars saga” strategy, announced by the company, leaves no doubt that the Star Wars licence will be more heavily promoted at global level while being expanded to other categories other than toys. Euromonitor International believes that Asia Pacific should certainly be part of this expansion strategy.

Asia Pacific is one of the biggest licence driven traditional toys and games markets globally. The World’s top ten markets with the highest penetration of licenced toys include seven countries from Asia Pacific. South Korea, Singapore and Thailand are the top three most heavily licensed countries as more than 40% of toys had licence properties in 2011. In actual terms, licensed traditional toys and games sales in Japan and China exceeded US$2,253 million and US$673 million, respectively in 2011.

As the region is projected to overtake Western Europe to become the largest toys market in a few years, the opportunity it presents should not be overlooked.


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