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Mattel, Inc. (MAT), Hasbro, Inc. (HAS): Make Way For The New Toys On the Block!

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Mattel Earnings ReportWhen console video games first achieved mainstream success back in the 1980s, some investors believed that traditional toy makers such as Mattel, Inc. (NASDAQ:MAT) and Hasbro, Inc. (NASDAQ:HAS) were doomed. They thought that boys would abandon their action figures to spend more time with Mario and Link. However, the toy industry proved those bearish critics wrong, and physical toys continued to sell well over the next three decades.

As a kid of the late 1980s, I owned my fair share of G.I. Joe and Transformers action figures, even though my friends and I were also hopelessly addicted to 8-bit Nintendo and Sega games. This resilience of toy makers in an increasingly digital age is simple to explain – growing kids love to use their imagination just as much as they love engaging in scripted digital adventures.

The new conflict between toys and video games

Today, the dormant decades-long conflict of toys versus video games has returned, after earnings from Mattel, Inc. (NASDAQ:MAT) and Hasbro, Inc. (NASDAQ:HAS) revealed a decline in sales of toys for boys compared to stronger sales of toys for girls. Much of this decline was attributed to the new threat of mobile social gaming, which has made portable gaming a much more social affair than it was in the past. Therefore, the toy industry is now engaged in a contest of tug-of-war against the video game industry for control of the lucrative boys’ market.

Mattel, Inc. (NASDAQ:MAT) and Hasbro, Inc. (NASDAQ:HAS) have signed deals with Rovio and Zynga, respectively, to release board games based on their popular Angry Birds and Farmville franchises in an effort to recapture the interest of boys who spend more time on smartphones and tablets than in a toy box. Hasbro, in particular, has invested heavily in movie franchises such as Transformers, G.I. Joe and Battleship to garner interest in its aging toy and game lines.

However, despite Mattel, Inc. (NASDAQ:MAT) and Hasbro, Inc. (NASDAQ:HAS)’s best efforts to win back the boys, a new threat has emerged – hybrid interactive toys that can be merged into a video gaming experience, created by the largest video game publisher in America, Activision Blizzard, Inc. (NASDAQ:ATVI), and the largest media conglomerate in the world, The Walt Disney Company (NYSE:DIS).

The sky’s the limit

Activision Blizzard, Inc. (NASDAQ:ATVI), best known for its World of Warcraft and Call of Duty franchises, first released Skylanders in October 2011. Skylanders was a unique product, which merged physical action figures with a console-based video game. These action figures are equipped with NFC chips, which are placed onto a pedestal that “transports” the toy into the video game. This allows gamers to collect and trade physical toy collections that can interact with each other in a digital environment. In other words, Skylanders took the card-collecting competitive frenzy of Pokemon and Yu-Gi-Oh! and straddled it across two different markets.

To date, only two supported games have been released – Spyro’s Adventure in 2011 and Skylanders: Giants in 2012, but total sales of the franchise hit the $1 billion mark in February, 15 months after its initial release. That’s a considerable feat for a company that generated $4.76 billion in annual revenue in 2012.

To infinity and beyond

This caught the attention of The Walt Disney Company (NYSE:DIS), which is preparing to release Infinity, a similar product that allows consumers to place their favorite Disney and Pixar action figures into a digital world. Figures placed on the physical pedestal launch their own programmed playsets in the game world.

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