Mattel Buying MEGA Brands; What it Means for the Play Industry

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The status quo in the toy industry just got upended on Friday with Mattel’s announcement that they are purchasing MEGA Brands for $407.5 million Canadian dollars ($366.4 million U.S.).  The decision by Mattel means that Lego is going to face some heavy duty competition on the construction aisle. 

 No matter what happens, we are going to find out if Lego has been beating up on lightweights or has the muscle to face down a heavy weight.  I for one would not bet against Lego yet  I wouldn’t bet against Mattel either.

As we wait for the purchase to go through, it is interesting to speculate on the fallout from Mattel’s acquisition.  So what does it mean for the play industry?

  1. It removes one of the few publicly held toy companies from the marketplace.  That means less competition and interest in the industry’s second tier.
  2. It lifts the MEGA Brands brand of construction blocks from being a distant number 2 construction toy (Lego revenues are $4.7 billion US / Mega Brand revenues are $400 million US) and puts it in the hands of a deep pocketed company that knows how to market and has the brands to do it with. 
  3. It’s going to be good news for advertising companies as they create marketing for what could be a major war for consumer time and dollars.
  4. Its going to be good news for licensors as Mattel seeks licenses to fuel its Mega Brand push.
  5. It is going to make life more difficult for buyers who are going to be facing far more difficult choices in space allocation.
  6. It’s going to be life more pleasant for buyers who are going to face a more competitive environment which should be good for their bottom line.
  7. It’s going to make life far more difficult for the other construction toy companies as Mega Brand flexes out to greater shelf space.  Initially, that space will probably not come from Lego but from secondary and tertiary players.  If they do, they could resurrect the brand
  8. Crayola, Cra-Z-Art and other arts and crafts players are going to be praying that Mattel does not see the RoseArt segment of the purchase as a good fit.  If Mattel does, it could mean a resurrection of RoseArt as a significant brand.

No matter what happens, it is important to remember that Lego is no longer just about plastic blocks.  They are now a major player in the digital and movie arenas; two areas in which Mattel is a smaller player.

What about Hasbro According to Gerrick Johnson in his February 24, 2014 “Toy Scout Report” on Hasbro:  “The company seems to be Moving away from its Kreo construction line, now making the

product as an exclusive at Toys “R” Us with Dungeons & Dragons, Transformers, Cityville

Invasion, and GI Joe themes.”  If that is indeed the case, Hasbro may want to take another look at that strategy.  Mattel’s move is a change maker and that means all bets are off for all players.

6 thoughts

  1. Thanks Richard-you once again have broken a complex situation down into understandable chunks.
    @Andrew-thanks for the insight into the sales reps thought process with a new product.
    Sarah Dugo
    College Savings Dolls, Inc.

  2. Hi Richard,
    Lego is a private not a public company. This is significant because it means the owners can invest all their huge profit in defending and building their position if they wish, which a public company cannot readily do.
    Looking at the history of acquisition of Tyco, Power Wheels and Radica, it is by no means sure that Mattel will build and make a success of Megabrands, though I personally would bet on them doing fairly well with it. However Lego has kept its powder dry and could unleash huge promotional investment to combat Megabrands growth in its category. In some countries, particularly Germany, Lego has an iconic status with consumers which results in them buying Lego even if Megablocks are next to it on the shelf with similar products at much lower prices. I have received an email yesterday from the director of a major toy retailer in Germany telling me that Lego is liked because it at least tries to give retailers a worthwhile margin, and he is negative about Mattel saying it is ‘opportunistic’. These widely held views in Germany can take a long time to turn round.
    A crucial issue is the sales effort which will be allocated to Megabrands. It has been common for toy chief executives to add an acquisition , thinking the existing sales resource can do the job. This is usually a mistake. It will mean the salespeople will have less time available to sell Barbie, Hot Wheels, etc. If salespeople are incentivised to sell Megabrands hard, something will suffer. Time and time again I have seen that management which lives and dies by success with one range will compete much harder than those responsible for the same brand once it is acquired and sold as part of a much broader range. This happens often when an infant product manufacturer is acquired by a toy company. Faced with competing draws on their time the sales force ends up neglecting the new range which is a tougher sell. I have experienced this lack of insight by CEOs because I spend some time sniffing around stores in Europe and listening to what not only retailers say but also what reps for the toy manufacturers say. The chief executives of companies are so far removed from the cutting edge of their business they would be shocked to hear what some of their own employees say to their customers.
    Having explained my caveats , I think Mattel will probably succeed in building Megabrands significantly, though I think the main opportunity will be in the area of character licenses, where Megabrands with Halo etc has already managed to win turf from Lego with unique products which appeal strongly to fans of the character.
    Andrew Dobbie
    Gameplan Europe Ltd

  3. Great article with all the points disclosed. It seems the big players are heading towards the construction segment. After SpinMaster’ acquisition of Meccano, now Mattel’ acquisition of Megabloks. What is your vision about the market for the next 5 years. Can these bands really take over some market share from Lego?

  4. Richard – great commentary on the purchase. It is going to be an interesting time internationally as Mattel brings its overseas muscle into play. You last point regarding RoseArt is very intriguing!!

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