November 5, 2013 - Variety

Mattel's Bold Plan to Take Control Back From Hollywood
COVER STORY: In-house studio Playground Prods. will produce original films, TV shows, Web series, live events and games

Depending on how bad the traffic is, Mattel's headquarters is just 40 minutes from Hollywood, putting the world's largest toymaker right in the backyard of the major studios. Yet while Rhode Island-based rival Hasbro has successfully turned “Transformers” and “G.I. Joe” into hit movies with sequels, and launched kids' channel the Hub, Mattel has stayed focused on its core business.

It's not as if the El Segundo, Calif.-based company doesn't have the right properties to exploit — included in its toy chest are Barbie, Hot Wheels, He-Man and the Masters of the Universe, Monster High and Max Steel, all blockbuster brands. But for Mattel, entertainment strategy has all been about timing. And after a number of stops and starts, it's now ready to become a much bigger player.

Last month, the company announced the creation of Playground Prods., an inhouse studio through which it will not only produce original films, TV shows, Web series, live events and games, but also manage how consumers are introduced to its brands across various platforms.

“We've got 50-plus years of creating unbelievable products and brands,” says David Voss, a former toy designer for Mattel who runs Playground. “We want to really focus on breaking new ground with entertainment.”

The goal is to tell stories that “provoke play” — another way of saying they want to influence families to shop the toy aisle.

Of course, Mattel isn't alone in that quest. It's part of a quiet but important shift that's been taking place among a number of IP owners. Frustrated with how Hollywood has adapted their properties — sometimes with disastrous results — toymakers and videogame and comicbook publishers are becoming more active in how their brands are portrayed. No longer are companies simply licensing their biggest franchises to studios and hoping for the best. They're taking control of every stage of the creative process, including dictating who gets hired to bring the projects to life.

A wave of recent dealmaking has seen Ubisoft set up four films at Fox, Sony, Warner Bros. and New Regency that the French gamemaker will develop and produce with the likes of Michael Fassbender, Michael Bay and Tom Hardy. Boom! Studios brokered a rare first-look deal with Fox that will split first-dollar gross on comicbook movies. Rovio is making an animated “Angry Birds” feature that will be released through Sony in 2016. And Electronic Arts races into theaters early next year with the first film adaptation of one of its games, “Need for Speed,” produced with DreamWorks and starring “Breaking Bad's” Aaron Paul.

Hasbro, the world's third-largest toymaker behind Mattel and Lego, helped pave the way for Hollywood's developing joy of toys when “Transformers” earned $710 million at the box o� ce in 2007. Together with two sequels that Hasbro carefully developed with Paramount, the franchise has since minted $2.6 billion at the worldwide B.O., and sold warehouses full of shape-shifting action figures.

Then there's Marvel, which leveraged superheroes Iron Man and the Incredible Hulk to independently raise more than $500 million to launch those characters as film franchises. The gamble paid off not only at the megaplex, but in Disney's decision to buy the comicbook publisher for $4 billion in 2009. Thor, Captain America and the Avengers are now also household names.

The new crop of players, which includes Lego, Jakks Pacific and Dark Horse Comics, have all clearly cribbed from Marvel's and Hasbro's playbook over the past decade. Which isn't to say success is assured: Hasbro stumbled badly last summer with “Battleship,” a $200 million actioner released by Universal that sunk after taking in just $65 million Stateside — and left the toymaker holding a lot of leftover merchandise.

In his view of the market, Sean McGowan, an analyst who covers Mattel at Needham & Co., believes it's only natural for a company based in Los Angeles to delve more deeply into the inner workings of content production, but there are risks. “The upside is (that) the product comes out closer to what your vision is, and you don't have to pay someone on the outside,” he says. “The downside is you might not be as good at it as the outsiders are.”

The house that Barbie built isn't glamorous. A pink Corvette isn't parked in the driveway of Mattel's design facility. In fact, there is hardly any pink at all inside its cavernous warehouse facility, where fluorescent lights, stark white walls and rows of cubicles create a look one might expect inside the neighboring corporate offices of airlines and aerospace firms in El Segundo, just south of Los Angeles Intl. Airport. Still there are some fun quirks, like several life-size Hot Wheels cars parked in the lobby, action figures decorating desks, and a woman sewing hair on a Barbie doll's head before sending it off to a Chinese factory for assembly.

And while at first glance, the toymaker may seem too removed from Hollywood to be able to pull off its plans for expansion into entertainment, there are signs that suggest otherwise. An assistant interrupts a meeting to let her boss know Richard Lovett, CEO of CAA, which reps Mattel, is calling. Later that evening, Mattel execs gather for a private dinner party on the secluded rooftop restaurant of the Petit Ermitage hotel in West Hollywood. And then there's the war room for the newest spinoff of Hot Wheels: “Team Hot Wheels: The Origin of Awesome.” The property generates approximately $1 billion a year for Mattel, and each wall in the room is covered in concept drawings and highly detailed design plans for what the company hopes is its next big hit with kids.

The animated project is one of Playground's first, designed as a multiplatform toon for 5- to 8-year-olds that centers on four thrill-seeking kids who love to race their Hot Wheels over the fictional town of Hilly Woodlands, through which runs the brand's signature orange track. The project will roll out next year as a 22-minute origin story in the spring, followed by 11 two-minute shorts during the summer and a 74-minute direct-to-video film in the fall, available on most digital platforms.

“A movie or a TV series may be a good way to introduce a concept,” says Jason Horowitz, senior director of global brand marketing for the iconic toy cars, which pioneered the usage of TV commercials back in the 1960s. “But we don't need a 26-episode series to get people excited about Hot Wheels.”

Separately, as a sign of Mattel's growing interest in getting its products up on the bigscreen, the company is overseeing a live-action Hot Wheels movie that Joe Roth is producing with Legendary Entertainment, after the project sat idle (first at Sony in 2003, with McG attached to direct, before moving to Warner Bros. with Joel Silver as producer). A Max Steel movie with Dolphin Entertainment is set for release next year as a way to revive the action figure line in the U.S. (a new “Max Steel” series currently airs on cable channel Disney XD); a He-Man pic is in the works at Sony (though “G.I. Joe: Retaliation” helmer Jon M. Chu recently left the project); as is a feature with Universal, based on doll line Monster High, a major hit with teen and tween girls.

In each case, Mattel doesn't necessarily control all of the creative. While Legendary and Sony are taking the lead on the live action Hot Wheels and He-Man movies, “Max Steel” is more a close collaboration with Dolphin. Still, at the end of the day, there's no project without Mattel's approval. Yet Voss is happy to collaborate. “It is so complicated making movies, and the timing of movies and getting everyone aligned,” he says. “We don't need to do everything. I'm afraid of that. I don't want to get to the point where I need to do everything.”

Changes in the way Hollywood operates are helping companies control their own destinies. As studios become more conservative and corporate, they're relying on other people's money to greenlight projects or resorting to just taking fees for movies that others want to make. They've essentially become marketing and distribution partners, eager for product to pump through their pipelines.

Marvel has been down that road, simply licensing rights to its top superheroes like Spider-Man and the X-Men to other studios, and earning 5% or even less of the box office gross. But through David Maisel, who is producing Rovio's “Angry Birds” movie, the comicbook publisher launched Marvel Studios and produced the first “Iron Man” as an independent film — and enjoyed the ripple effects of merchandise sales and everything that followed.

“These are huge stakes that you're playing with,” says Maisel, who raised $525 million to bankroll Marvel Studios' first in-house slate of films. “You need to have the experience, but you also need the cash and the guts and confidence to use it.”

It's worth noting that there are different levels of control. While Marvel and now Rovio fully finance their projects, putting all of the resulting profits in their pockets, other IP owners are willing to compromise when it comes to creativity and greenlight authority to gain partners who take on the risk and give away a portion of the financial upside.

Maisel favors the “all-in” approach. “Owning a movie, its sequels and all the ancillaries completely — that can be worth $1 billion,” he says.

Sometimes that can be unacceptably risky for the Mattels and Hasbros of the world, publicly traded companies that have many shareholders to keep happy.

Given that Mattel earns more than $6 billion in sales each year (the global toy market generated $84 billion last year, $20 billion of that from the U.S.), it doesn't need to be in the entertainment production biz. Around 25% of the company's revenue is generated from being the master toy licensee for Warner Bros. (think Batman and Superman action figures), WWE and Disney (“Cars,” “Planes” figures and princess dolls).

Yet by managing how stories are told around its playthings, Mattel's executives believe the company can create revenue streams that will move more merchandise off retailers' shelves. And they hope Playground and its team of executives well-versed in the ways of Hollywood's often confusing studio system will speed up the development and production process.

Voss previously worked with Warner Bros., Disney and Fox to turn Batman, “Cars” and “Avatar” into toy lines. Through Playground, he's coming at the process from the opposite direction. Working closely with him is Julia Pistor, a Nickelodeon vet who produced Paramount's “Sponge-Bob SquarePants” and “Rugrats” films before heading the movie division of HIT Entertainment. She's now leading Mattel's move into live-action features. The rest of the team members have experience making and marketing toys and telling stories that can be merchandisable.

The entertainment division was formed because the company realized it was creating more hours than it ever had, but was doing so in a disjointed fashion, says Tim Kilpin, exec VP and general manager of Mattel Global Brands. “We had different teams working on different pieces of content in different places that weren't necessarily always in sync,” he notes.

If Playground Prods. invokes a sense of deja vu, it's because in order to sell more toys in the 1980s, Mattel, along with Hasbro, essentially produced commercials in the form of Saturday morning cartoons built around He-Man, G.I. Joe and Transformers. In addition to a successful line of Barbie movies on homevideo, it's also produced several “American Girl” films based on the popular doll. Last year, it completed the purchase of HIT for $680 million in cash, giving it control over the Thomas & Friends, Barney, Bob the Builder and Mike the Knight brands, many of which also are strong performers on homevideo and as TV series among the preschool set.

Mattel was encouraged to further expand into more traditional forms of entertainment after 2010's successful launch of Monster High, a goth-themed high-school property whose 120 characters are related to famous monsters like Dracula, Frankenstein's monster, the Mummy, the Creature from the Black Lagoon, Medusa and the Phantom of the Opera.

It was the company's first new franchise in years, and has evolved into a $1.4 billion-a-year line that sees 40% of its revenue from consumer products such as apparel and accessories, health and beauty aids, and back-to-school merchandise. Just 50 of the characters have been turned into dolls. But Mattel is keeping its young fans captivated via direct-to-homevideo movies, books, comicbooks and Web series. In one brilliant marketing move, the toymaker sends out videos as text messages or instant messages to young girls glued to their smartphones.

Mattel Global Brands' Tim Kilpin says that until recently, the company's plans to leverage its products via entertainment weren't always in sync. (Photo by Misha Gravenor.) Besides marking a lucrative new line, Monster High also has proved to the biz that Mattel may have figured out something the rest of the industry hasn't: a way to create a franchise with global appeal that plays across multiple platforms to easily distracted young audiences.

“It really opened doors more than anything else we have,” Kilpin says. “It wasn't about reaching into the vault for something old that we were going to do something fresh with, but (about) starting from scratch with something that turned out to be a great idea.”

Under Voss' leadership, Playground is coming up with three-year storytelling plans for Mattel's brands that involve every division of the company, from toy designers to consumer products, marketing and social-media teams in order to launch what Mattel calls tentpole events — another sign that the toymaker is borrowing heavily from Hollywood. For an eventual live-action feature film tied to He-Man, for instance, a team is working with DC Comics on a line of books whose stories will weave their way into the movie.

Mattel knows a successful film can do wonders for a brand's bottom line, especially if a refreshed toy line can be launched around a movie's release. Hasbro's Transformers benefitted from nearly $500 million in toy sales because of the first film.

Not that Mattel needs that much help. Sales of its Barbie dolls rose 3% during the third quarter — not bad heading into the holidays (every toymaker's top-selling season). Monster High dolls enjoyed a 28% boost during the same period.

But then there are the flops like “Battleship” that explain why Hollywood's newer players have yet to completely go out on their own and cut all ties to the studios. They still need the majors to get their films into theaters and hype the releases with high-profile marketing campaigns.

Some studios welcome an outside perspective. In announcing his deal with Fox, publisher and Boom! Studios founder Ross Richie (whose comicbook “2 Guns” was released by Universal as an action comedy this summer) pointed to what he sees as a willingness to collaborate. “Instead of looking at us as, 'Hey, this is the guy you have to pay off to get (him) out of the way,' they look at us as people that can develop a script, and develop a project, and work with directors.”

In much the same manner, while delays in ramping up Hot Wheels or He-Man movies may seem frustrating, Kilpin says it's worth finding project partners that understand the properties and are willing to work with Mattel to tell the story. “There were some things we could have gotten done, but we wouldn't have been happy with what the fi lms were,” he notes. “There's been a lot things we started and stopped because we weren't aligned. I wish it all happened faster, but we recognize that in order to do it right, it takes time.”

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 * Mattel's Bold Plan to Take Control Back From Hollywood