Mattel Needs to Redefine Its Business; So Don't Hire a Toy Chief Executive

Due to Mattel's dramatic 7% drop in worldwide sales last year, its chief executive stepped down. Perhaps most embarrassing for Mattel is that the overall toy industry grew a modest 4%. There are many reasons cited for Mattel's woes. They include a decline in the toy company's traditional girl toy brands such as Barbie, an inability to greatly expand into boys toys, lack of creativity in traditional toys, and missing out on key trends outside the toy industry, especially the digital revolution of play which now includes everything from video games to tablet computers to smart phones.

But these are symptoms of the problem and not the problem itself.

I ran the research and planning department at Ogilvy & Mather advertising in Los Angeles during most of the 80's and 90's when the agency handled the Mattel business. Those were the days when a gifted, creative team at Mattel and Ogilvy helped lift Barbie from a roughly $350 million brand to a nearly $2 billion dollar juggernaut, and when an understanding of where the industry was headed helped launch such unique story driven ideas as He-Man and the Masters of the Universe.

But as I look at Mattel of today, they appear to be stuck in yesteryear as custodians of the past rather than of drivers of the future. The problem, I believe, is in how they define their business.

Mattel defines itself as a toy company, whereas it should be thinking of itself as an entertainment company. Mattel's 2013 annual report (which closely mimics its online statement) says that "Today, Mattel, Inc. and its family of companies comprise the world's largest toy company with a strong portfolio of brands and toys that children and their parents have cherished for generations." That certainly sounds like they are mired in the past. Contrast that with the way Hasbro defines its business in its 2013 annual report. "We are a branded-play company dedicated to fulfilling the fundamental need for play for children and families through creative expression of the Company's world class brand portfolio. From toys and games to television programming, motion pictures, digital gaming and a comprehensive licensing program, Hasbro executes its brand blueprint in all of its operations."

See the difference? When Hasbro defines itself as a "branded-play company", it permeates the mindset of its executives at all levels and motivates them to think about how its traditional playthings can enter other venues, and how it can create new entertainment franchises in other venues. Hasbro has done so for many years, from its venture into the television network called the HUB (now called the Discovery Family Channel), to its foray into films. The best example thus far is its Transformers toy line that leaped to television animation and then to live action films that have grossed roughly $3.7 billion worldwide. There are risks. It stumbled with the film Battleship. Though it grossed a respectable $303 million worldwide, its huge production budget of roughly $200 million resulted in a loss. Its film Ouija based on the popular game, on the other hand, had a production budget of roughly $5 million and made $95 million at the worldwide box office. That's a nice lesson about keeping production costs in check.

LEGO also understands the importance of having a dynamic definition of its business in order to reflect trends. For many years the Lego building bricks have reflected trendy entertainment franchises including Star Wars, Batman, Harry Potter, SpongeBob and The Hobbit. More importantly, they operate roughly 90 retail stores, launched Legoland amusement parks and have recently introduced a blockbuster film, The LEGO Movie, which cost roughly $60 million to produce but grossed nearly $469 million worldwide.

Hasbro and LEGO are no longer toy companies, nor do their executives think of themselves that way. They will undoubtedly struggle as all entertainment companies do. But their broader perspective has the potential to reap bigger rewards.

But what of Mattel? You can see glimpses of its desire to redefine itself over the years, but a lack of talent, perseverance, fortitude, cash and/or opportunity seems to have prevented it from doing so in a truly significant way. At the end of 2013, Mattel did announce the creation of Playground Productions, an in-house studio tasked with creating original films, TV shows, web series, videogames and such. Projects include those for Monster High, Barbie, and Masters of the Universe among others. But redefining a business is more than simply adding an in-house studio. It needs to be a corporate mindset. Mattel must wholly embrace the idea that entertainment is king, and that story-based entertainment is supreme. They need to look no further that Star Wars and Toy Story to see its impact. Those franchises are estimated to have made over 5 times the retail sales in merchandise and ancillary markets than they made at the box office. So to be successful in toys, you need to own the franchise. And more often than not, that means inventing and owning the story. This, above all else, is the way for Mattel to regain its footing. Time will tell if its Playhouse Productions is a studio or a mindset. This is a case where the tail needs to wag the dog.

Mattel has plenty of stellar executives. But as the company searches for its new leader from outside or within its walls, it needs to select the one who has entertainment, franchise development, and storytelling expertise in his or her DNA, and who can infuse the same at all levels and in all discussions. In today's climate, that is the only road to prosperity. The last thing Mattel needs is another toy executive, or worse, someone from an arena far from entertainment.