Brand Transformer

Hot on the heels of its latest box office smash, Hasbro’s charismatic CEO Brian Goldner explains why there is more to the toymaker than meets the eye.

“Through perseverance and a belief in the brand we arrived at a deal with Paramount and DreamWorks, and people like Steven Spielberg came onto the project, and that's really what gave the brand the momentum it needed”
-Brian Goldner, Hasbro

As befits a film depicting monster robot mayhem, Transformers: Revenge of the Fallen crushed all-comers at the box office on its opening weekend in June. The cinematic juggernaut hauled in a whopping $201.2 million in its first five days of its US release (putting it second only to The Dark Knight in terms of the best ever five-day sales figures), and laid down an early marker in the race to be this summer’s biggest blockbuster. It certainly ticks all the right boxes: big-budget special effects, impossibly attractive Hollywood actors and a plot that comes a distant second to heart-pounding, high-octane action sequences. As one reviewer put it: “It’s 90 percent explosions, 10 percent waiting for things to explode.”

But the real stars are the Transformers themselves. Giant robots, tiny robots, funny robots, evil robots; robots that turn into planes, cars, tanks and trucks; even robots that disguise themselves as hot coed girls and seduce their human counterparts. In every scene it is the Transformers who steal the show – which is great news for the company behind the franchise, Pawucket, Rhode Island-based Hasbro. Why? Because a big summer event movie is the perfect vehicle for selling more of the firm’s core product: toys.

Hasbro’s move into the movie business is part of CEO Brian Goldner’s vision to transform it beyond being a mere toymaker into an entertainment and intellectual-property powerhouse.
“We made a commitment to re-invent, re-ignite and re-imagine our core brands in order to create new experiences for our consumers,” he explains. “We’re now putting our brands in front of consumers in a number of different ways, and Hasbro’s shareholders have benefited as a result.”

Over the last five years, the company has grown its business by a CAGR of six percent, while in 2008 it delivered the eighth consecutive year of record net EPS growth. Transformers has became a touchstone at Hasbro, helping to keep the 85-year-old company relevant while at the same time paving the way for future growth opportunities. Hasbro has another movie release scheduled for this summer (GI Joe: The Rise of Cobra, due out in August), and as part of a four-picture deal with Universal has plans to produce a feature film based on its iconic Stretch Armstrong action figure. Other properties in line for the big screen treatment include Monopoly, Candy Land and Battleship, all based on classic Hasbro games.

So far the strategy has been a runaway success and represents proof – should any more be needed given Hasbro’s remarkable recent turnaround – that in Goldner the company has one of the sharpest marketing minds in the industry at the helm. Over the last year, Goldner has expanded into children’s television in a deal with Discovery, brought online and interactive versions of popular games to market through a deal with Electronic Arts, rebuilt strained relationships with retailers, given employees the training and authority to tackle new challenges, and implemented a flash reporting system to the board of directors to keep them abreast of what’s going on with the company and the industry. “We want to create an array of experiences,” he says in this exclusive interview. “What we need to do now is to be very imaginative about how we reinvent the core toy and game business, and how we tell stories for those brands across a number of formats. The last two quarters have proved to be the most challenging in the current economic cycle, but we’re confident we have the brands and the strategy to succeed.”

There’s always been a natural synergy between the entertainment industry and toymakers, given the merchandising potential offered by TV and film. How is what you’re doing now different to previous approaches taken by the industry?
Brian Goldner. I think Wall Street has often delineated between those firms more known as intellectual property companies and those that are seen as toy companies. Historically, however, the retailer views us agnostically. They want to have brands in their stores that are part of the consumer zeitgeist, that resonate with consumers and that have a very strong storytelling element to them so as to move those products through their stores as quickly as possible. They want to intercept consumers in their daily walks of life with exciting new product offerings related to those entertainment elements.

Throughout our history we’ve done a lot of that, but with a greater focus on other people’s properties. And while we believe that there is always room for some long-term strategic license relationships, we also believe that the company needs to focus more single-mindedly on its own properties and to bring our own brands into those same forms of entertainment as we have had via license relationships with other people’s properties. So that’s been the big shift: to rely more heavily on our own brands.

So you’re unleashing the creative power of the company a lot more than you were previously?
BG. Yes. Consumers will very readily accept well-loved brands in new forms of entertainment and new experiences. So Transformers is a great example. It was a comic book animation and a toy line, and now it’s also part of the motion picture business. We’re developing it as a theme park attraction with Universal. We’re developing it in numerous other forms such as video games and online. And so if we can take our brands and reinvent them in an appropriate way for each of the consumer audiences that are most interested in them, then we will continue to grow our business and unleash the potential of those brands around the world.

Obviously Transformers is the standout story among the company’s recent successes. It’s been around for 25 years, but what’s the story behind the reinvention of the Transformers franchise?
BG. I first came to Hasbro in 2000 from another toy company that was really well known in the boys’ action arena. I had seen Hasbro’s brands from the standpoint of the competition, and realized and understood that Transformers was one of the biggest potential brands that the company had, and yet one that had really not been fully leveraged over its history, particularly during the 1990s. And so the first step when I arrived was to get the brand growing again.

And so we created the first TV series with our Japanese partners in many years, and that started building some excitement around the brand again. This was back in 2002. At the same time, the first Spiderman hit theaters, which was, for me, a great proof point that a brand that had grown up as a comic book could resonate as a motion picture. And so we took the concept to the studios, many of whom passed. But through perseverance and a belief in the brand we arrived at a deal with Paramount and DreamWorks, and people like Steven Spielberg came onto the project, and that’s really what gave the brand the momentum it needed.

Getting those folks involved was the first step, but the second and third steps were in making sure that we told a compelling story filled with great characters that’s based on the core mythology of the brand; you need to make a movie that contemporizes the brand, but you don’t walk away from the things that made the brand special in the first instance. And we got to work with a great group of filmmakers – Michael Bay, Steven Spielberg, and the producers and the studios – who believed in that; who believed that there was a great marriage between the core mythology and the story, between the storytelling that had been done for two decades and a new contemporary story that could be appreciated, enjoyed and become special for both eth old and new generations of fans.

What sort of creative input did you have on the project? And how did you maintain control of the Transformers brand during the movie development process?
BG. Michael Bay came to our Rhode Island headquarters even before he had signed on to direct the movie, along with the writers and producers, and we spent some time together at what he called “Transformers School.” And we walked through what the brand was about, the stories that had been told, a family tree of all the characters and how they related to each other, and gave him a grounding in a lot of the source material that made the brand so special and beloved by fans.

And then we asked a lot of questions. We challenged ourselves. We brainstormed, and really from that moment in time we have been working together with the filmmakers. They do what they do best, which is to tell big, special effects, motion picture stories. And we, of course, are the custodians of what makes the brand special – the characters and the intimate details of those relationships. And it’s been a great partnership.

I know that Transformers has a huge fanbase with very strong ideas about how things should be done, which characters should appear, what storylines could potentially be worked on as film ideas, etc. To what extent do you interact with fans in terms of taking onboard what they say and integrating that into the products?
BG. We spend a lot of time listening to the fans and getting feedback. I remember after the first movie launched, the very next day USA Today ran a poll asking what characters fans would like to see in the next movie. The fans were online talking about that right after that movie released, so obviously there’s a lot of interest and love there.

What’s also so much fun is that while the adult fans kicked this whole thing off, there’s nothing more heartening than being able to share your favorite brand with the kids of today and tomorrow. And so in many ways, we’re building the next generation of fans; I run into young kids all the time who have very strong points of view about the movie and what’s important to them in terms of characters and story elements as they go forward.

So do you think you’ll be focusing more on the content generation side of things in the future?
BG. Well, we believe that our brands – and not just GI Joe or Transformers, but all of our brands, from Littlest Pet Shop and My Little Pony to our preschool brands like Playskool and Play Doh – have interesting stories to tell. Now, those stories may not be told by a motion picture, but the brands will be regularly reimagined and told in interesting, compelling ways that are appropriate for each of those audiences. So for a young audience, it might be as simple as children’s storybooks, coloring books, preschool television programming or an online experience. What matters is that the experience is highly relevant and enjoyable and innovative for the audience that we intend it for.

What’s so interesting about owning an amazing array of brands in this day-and-age is the opportunity to let them move quickly between all the different formats. It used to be much more separate, but young people these days are digital natives. They think nothing of moving seamlessly between television and online, between their mobile phone and television, a motion picture and a game, and so our goal is to provide experiences that enable the consumers to move across all those different platforms.

How do you make sure that the branding or the message remains consistent across all those different platforms and channels?
BG. Up until recently we’ve been working to restructure the company and focus more on our brands, and it took about six years to get where we are today. Now we’ve restructured as a global brand organization, we have global brand leaders for our biggest properties and those leaders are responsible for the architecture for each of those brands. Three or four years ago, there were all kinds of different people involved, but today there is just one person with ultimate responsibility for being the architect of a certain brand across all those platforms, augmented by subject-matter experts who enable those elements to come to life. It’s been a real big change to the organizational structure of the company.

In the 1990s you focused on other people’s properties, but recent growth has been achieved in a much more organic fashion. Are acquisitions still a part of your strategy moving forward, or will you continue to focus on exploiting the potential inherent in your existing portfolio?
BG. I think we’re much more focused on our own portfolio. In the 1970s, 1980s and 1990s, the company was very acquisitive and acquired a number of great brands through those decades that are a part of the company today. Milton Bradley and Parker Brothers were acquired in the 1980s. Kenner Parker Tonka became part of the company in the 1990s. Tiger Electronics, Wizards of the Coast, Laramie, Oddzon and Cap Toys – we’ve combined all those elements. And now we have so many brands – both the ones that are on the market and those that are not on the market today but that have great salience to consumers – that it makes sense to focus on these. We have to reimagine these existing brands and relaunch them in the marketplace.

We also have some long-term license relationships that are important to us, such as with Lucasfilm and Marvel. But we also have a number of preschool relationships that are licensed that we are equally interested in continuing to drive, like the relationship with the BBC and Ragdoll for In The Night Garden, and Weta Workshops with a brand called WotWots in preschool. And so we’re selective about the licenses we do, but we do know that there is a role in our portfolio for licensed properties alongside of our own core brands.

Will you be developing further in-house brands as well as working on the ones that you already have in the portfolio?
BG. There are three phases to all that we’re doing today. One is making our most well known brands bigger across more formats and global markets. The second is taking brands that are less well known in certain geographies, or brands that are only known by one attribute or in one form, and making them known across multiple forms – for example, Nerf is a great brand in the United States, and we’re just beginning to roll Nerf out with great success around the world; similarly, Candy Land is a brand that’s really only been known as a game, and yet we’re developing a motion picture for Candy Land that will enable us to turn it into a whole new experience. The third phase will be introducing new brands using the disciplines that we’ve developed and the expertise we have in the company, and you will see us introducing new brands to the marketplace over time.

On dealing with the downturn…
Our goal, first and foremost, is to develop tremendous value for our shareholders – which is really all about Hasbro having the tools necessary to re-invent, re-imagine and re-ignite the growth of our brands across multiple platforms. We need to keep our heads down and focus on that, irrespective of the environment, recognizing we need to be cautious about the utilization of our cash, have a strong balance sheet, and continuing to generate growth in earnings and revenues over the long term. I think what we would say, though, is that our most recent move with Discovery is not some signal that we are going into a more acquisitive or bolder period. It’s really the completion of a strategy, the assembly of that toolset. And so in many ways we are entering the next phase of our development – we now have the tools to take our brands to these formats.

One of the things we’ve seen is that the last two quarters have proved to be the most challenging in the current economic cycle. So we are not immune to the current challenging economic environment. Having said that, the majority of our products are still very value-oriented, with the majority selling for under $20 at retail, so we see this as a key strength in the current climate. Our approach is very value-oriented and innovation-oriented – providing great value at every price point and trying to focus on enabling people to have a great play experience at a reasonable cost.

On China…
Hasbro is a global company. In fact, the first Transformers movie was the second most successful foreign film ever released in China. The most successful was Titanic. When I was over in China, I had all these 30-something-year-old men coming up to talk to me about how excited they were to see Transformers coming back into the market, because for many years the Transformers brand had disappeared from Chinese television and animation. So the motion picture provided this great opportunity to reignite that brand for Hasbro in the Chinese market, and it’s been a significant contributor to our growth in China since that time.