Licensing, marketing and retail expert/opinion leader Tony Lisanti, provides insight and perspective for the top headlines of the week. “Licensing and Merchandising Report” is a must read for top execs who want objective, straightforward and authoritative analysis.
The ‘New’ Disney
It’s no surprise that shareholders for both The Walt Disney Company and Twenty-First Century Fox today approved the $71.3 billion offer that will make Disney an even bigger media/content company and change the landscape of entertainment worldwide. Conversely, it was somewhat surprising that neither top exec Bob Iger nor Rupert Murdoch were present at the New York Hilton for the vote. This simply indicated that their work was respectively done, the deal was already okayed by the U.S. Justice Department, and the shareholder votes were simply a required formality and would be approved unanimously.
The deal gives Disney access to many popular and successful franchises, the opportunity to expand consumer products and brand extensions, a stronger presence in key global markets and the huge future potential of streaming services. But the deal also leaves Disney with a considerable debt load; several critical decisions regarding Sky and Hulu, among others; a lengthy and complex integration process; and as in most mergers of this size, the reality of huge layoffs. The deal is expected to close in the first half of 2019.
Disney, which will have a combined revenue of more than $85 billion, becomes an even bigger global entertainment juggernaut and the owner of highly regarded IP portfolio that includes such franchises as X-Men, Fantastic Four, Avatar, Planet of the Apes, Ice Age, Avatar, The Simpsons, Family Guy, Empire, This is Us and Modern Family, a coveted library of popular titles, plus National Geographic and Endemol Shine.
Disney has long held the title of being the world’s largest licensor and the addition of Fox only increases their annual retail sales of licensed merchandise, which is approaching $60 billion, as well as valuable shelf space and a powerful presence at retail. The company, which obviously has a benchmark global structure in licensing and consumer products, now has the opportunity to enhance and expand the Fox CP portfolio beyond what Murdoch’s studio had been able to do.
Furthermore, Disney already accounted for about a 22% share of annual box office revenue in 2017, according to Box Office Mojo, and the addition of Fox’s titles will further increase their dominance in the theatres to almost a 34% market share. It also raises the question of how many films Disney will continue to release annually and whether it will continue to support the production of Fox’s lower revenue films produced by Fox Searchlight. For example, in 2017, FS released 12 movies which generated box office revenue of $99 million or about an average of $8 million per film, according to Box Office Mojo.
The deal also gives Disney the following:
- A 39% ownership of Sky, which Comcast is focused on acquiring, leaving Disney with the decision of whether it wants to bid for the entire company;
- A strong presence in India;
- A majority ownership in streaming service Hulu, which it must also decide whether it wants to buy the entire company.
Following such big deals as AT&T and Time Warner, Verizon and Yahoo, and now Disney and Fox, the big question is what will the next mega entertainment/content deal be? It won’t be Verizon, which reported this week it will focus on 5G service versus content. Perhaps Comcast and Sky? Viacom and CBS? Sony? Lionsgate?
The TRU Effect
The second quarter earnings releases this week resulted in two very different stories for the largest entertainment/toy companies—Hasbro and Mattel. Hasbro exceeded expectations, Mattel didn’t. Hasbro reflects consistency, Mattel reflects uncertainty.
Hasbro reported net revenues for Q2 2018 decreased 7% to $904.5 million versus $972.5 million in 2017, while net earnings for Q2 were $60.3 million, compared to $67.7 million in 2017.
“We don’t expect to recapture all of the lost revenues in 2018, but by 2019 we should have moved beyond Toys “R” Us,” said Hasbro CEO Brian Goldner.
By contrast, Mattel reported a decline in revenue of 14% in the second quarter along with the elimination of 2,200 positions.
For Q2 2018, net sales were down 14% to $841 million versus $975 million in the prior year; the company reported an operating loss of $189.2 million versus a loss of $49 million for the same period in 2017. Mattel attributed the sales decline to the liquidation of TRU.
“Mattel is a company with great potential. We see a lot of opportunities, but there has been a big discrepancy between our financial performance over the last few years and where the company should be,” said Ynon Kreiz, chairman and CEO of Mattel. “While the industry is evolving, the toy market continues to grow, and we should be able to reverse our own trends given our strong standing and the quality of our assets. With that said, we are in a turnaround and as expected, had a challenging second quarter driven primarily by the Toys “R” Us liquidation. At the same time, we saw continued strong performance by Barbie and Hot Wheels, and we made substantial progress on our Structural Simplification program to restore profitability and improve productivity in the near-term.”
Minor League Baseball Scores Major League Licensing
While Major League Baseball recently announced its London games in 2019, Minor League Baseball announced its list of the top 25 teams in licensed merchandise sales. On the one hand, it shows the popularity of baseball globally, and on the other, the popularity of the game locally.
The combined totals of 160 teams set a record with more than $70.8 million in retail sales of licensed merchandise in 2017, a 3.6% increase from $68.3 million last year.
The top 25 list includes: (alphabetically, with Major League affiliate): Albuquerque Isotopes (Rockies), Buffalo Bisons (Blue Jays), Charlotte Knights (White Sox), Columbia Fireflies (Mets), Columbus Clippers (Indians), Durham Bulls (Rays), El Paso Chihuahuas (Padres), Fort Wayne TinCaps (Padres), Frisco RoughRiders (Rangers), Hartford Yard Goats (Rockies), Indianapolis Indians (Pirates), Jacksonville Jumbo Shrimp (Marlins), Lehigh Valley IronPigs (Phillies), Nashville Sounds (Athletics), New Orleans Baby Cakes (Marlins), Omaha Storm Chasers (Royals), Portland SeaDogs (Red Sox), Reading Fightin Phils (Phillies), Rochester Red Wings (Twins), Sacramento River Cats (Giants), Salt Lake Bees (Angels), South Bend Cubs, Tacoma Rainiers (Mariners), Toledo Mud Hens (Tigers) and Trenton Thunder (Yankees).
The Albuquerque Isotopes, Buffalo Bisons, Fort Wayne TinCaps, Hartford Yard Goats, Jacksonville Jumbo Shrimp, New Orleans Baby Cakes, Reading Fightin Phils and Rochester Red Wings made the list in 2017 after not making the Top 25 in 2016. Six teams have made the list every year of their existence, or since the program began in 1993: Columbia Fireflies (two years), Durham Bulls (25 years), El Paso (four years), Lehigh Valley Iron Pigs (11 years), Sacramento River Cats (18 years) and Trenton Thunder (24 years).
“Minor League Baseball team names and logos continue to be among the most popular in all of professional sports and our teams have made promoting their brand a priority for their respective organizations,” said Brian Earle, Minor League Baseball’s chief operating officer. “The teams have done a tremendous job of using their team marks and logos to build an identity that is appealing to fans not just locally, but in some cases, globally as well.”
Minor League Baseball’s licensing partners include New Era Cap, 47 Brand, Bimm Ridder, Majestic/Fanatics, Original Retro Brand, Outdoor Cap and Nike.
“The increase in popularity of Minor League Baseball logos, combined with high-quality product design and superior manufacturing capabilities of these licensees, has provided MiLB with a vehicle for current and future growth,” said Earle.
Ivanka Trump Shuts Down Licensed Biz
This is definitely a story that has multiple angles and generates varied opinions from different perspectives. It’s a case study for textbooks, seminars and classrooms, which I will definitely add to my “Licensing and Merchandising” syllabus this fall at New York University.
The fact is that when I started to write my analysis I decided to defer to a well-respected licensing executive who have known for many years. Michael Stone, chairman of Beanstalk, captured all the factors of Ivanka Trump’s business and decision in his blog that first appeared in Forbes. Here’s a link to Stone’s analysis.
Licensing Stat of the Week
LIMA reported that the U.S. accounted for $149.6 billion in retail sales in 2017 representing 55% of all licensing revenue generated globally. To add some perspective, one key takeaway that I have: Disney accounts for more than one-third of the total.
Retail Comeback of the Week
So, when was the last time you talked about RadioShack or even thought about the electronics retailer? Well, it may be part of a conversation again as the retailer announced plans to open express stores within Hobby Lobby. I am not so sure about this strategy, but maybe it will drive some incremental sales for Hobby Lobby and give RadioShack a gauge as to whether this could be a viable strategy on a bigger scale with major retailers.
NOTE: Please be sure to look for my insights, Lisanti on Licensing, every Friday. You can sign up here.