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Film Toys Getting Thumbs Down

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TIMES STAFF WRITER

Movies for children and families are among Hollywood’s hottest properties. But to the dismay of many studios, toys based on these movies are getting the cold shoulder from consumers.

Kids, bombarded with toy pitches for just about every movie and TV show they know, haven’t been buying enough of them. That has left retailers with loads of leftover Star Wars light sabers and unwanted Pocahontases.

The 1990s were littered with movie toy disappointments--some failing with the films that spawned them, others sinking on their own. Losers included toys associated with “Hook,” “The Last Action Hero,” “The Flintstones,” “Casper,” “Congo,” “Dragonheart” and most notably the “Star Wars” prequel, “Episode I The Phantom Menace.”

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With those and other toy fiascos fresh in their minds, retailers now are more careful in choosing movie toys. Toy makers, in turn, are making fewer film-based characters, games and mementos.

Mattel Inc., the nation’s biggest toy maker, cut its licensed toy lines by 25% in the last two years, opting to make more original toys instead of weaker film-based games and products.

“We’re not replicating scenes from a movie anymore,” said Matt Bousquette, president of Mattel’s boys/entertainment division. “When we make movie toys, we’re making great toys inspired by a movie.”

The cutback in movie-related toys comes just when Hollywood studios need the promotional value of toys more than ever.

A trend toward more family-oriented entertainment, which has been growing in the last few years, only intensified after Sept. 11 as Americans began spending more time at home and with family. And as more consumers turned to what they saw as wholesome amusements, including craft making and playing board games, the film industry saw gentle, nonviolent children’s fare surge as well.

In response to consumer and political pressure, many studios also have worked hard to pare down their R-rated releases.

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During 2001, only 27% of ticket sales came from R-rated films, down from 35% the year before.

By the end of the year, five of the six highest-grossing films were family fare: “Harry Potter and the Sorcerer’s Stone”--the year’s leader with more than $300million in domestic ticket sales--”Shrek,” “Monsters, Inc.,” “The Lord of the Rings: The Fellowship of the Ring” and “The Mummy Returns,” each of which brought in more than $200 million in North American ticket sales through December.

Toys and tie-ins involving fast food or other products help offset rising marketing and production costs of such movies. Manufacturers and retailers help promote films by advertising their movie-related products. These products also generate additional income for studios through royalties.

Toy industry people say wildly popular movies with strong supporting toys always will sell. Toys based on “Harry Potter and the Sorcerer’s Stone,” for example, were among last year’s hottest sellers. Those included Lego’s Hogwarts Castle and Mattel’s Professor Snape’s Potions Class, a cast-your-own-spells toy.

The estimated earnings for the Warner Bros. release offer a good reason for Hollywood’s interest in toys. Salomon Smith Barney projected $400 million to $500million in sales of “Harry Potter”-related merchandise, resulting in a profit of $80 million to $100 million for AOL Time Warner Inc., the studio’s parent company. The “Potter” merchandise largely includes toys, novelties, games, paper goods and other children’s play items, as is typical for merchandising based on family films.

The “Harry Potter” numbers, however, are hardly typical.

The Good Old Days Have Dried Up

Al Ovadia, executive vice president of Sony Pictures Consumer Products, fondly recalled days when he could routinely promise studio executives $15 million or $20 million in profit from consumer product licenses. Now, he said, those opportunities are few and far between.

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The harder line from toy makers and manufacturers is also changing what toys appear on shelves.

Rather than making toys inspired by the newest and most inventive children’s films, movie toys are more likely to be based on sequels, TV shows and remakes. In a recent review of 2002 movie-related toy lines, trade publication the Licensing Letter found that 73% were based on familiar properties, such as this summer’s films “Spider-Man,” “Stuart Little 2,” “Scooby Doo” and “Birth of the Pink Panther.”

The Hollywood studios’ power with the toy industry mostly started--and ended--with “Star Wars.”

Between the original 1977 “Star Wars” movie and the 1999 release of “Episode I The Phantom Menace,” fans bought about $4.5billion worth of “Star Wars” merchandise, a large portion of which were toys. In between, consumers continued to surprise the studios and toy makers with their appetite for movie-related products.

Walt Disney Co.’s “Lion King,” however, went beyond any product tie-in in history. Within just more than a year of its release, “Lion King” generated more than $300million in toy sales alone--and more than $1 billion in sales of all licensed products.

It was then that the studios saw a new pot of gold at the end of the movie rainbow.

More resources flowed into consumer products departments and more money was expected to come back out.

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“The good news was that the consumer products people were treated as professionals and taken seriously and were given input,” said Marty Brochstein, executive editor of the Licensing Letter. “The bad news was that it became ‘planned income’ in a business that is not always prone to being plannable. This isn’t packaged goods. You can’t always have tight forecasts; you’re dealing with consumer culture.”

Still, the toy companies were continuing to sign on. In the rough world of toy making, with thin margins and countless players vying for the year’s big hit toy, a company can fold after just one holiday season of poor sales.

So, eager to latch onto a solid seller--and to deny those sales to a competitor--toy companies in the 1990s began bidding up the toy licenses on even minor movie titles.

“We all got ourselves on a licensing spiral where we all signed everything there was for fear of missing something,” said Warren Kornblum, chief marketing officer for Toys R Us Inc. “Everybody [was] chasing a dream, and no one [was] making any money doing it. The manufacturers weren’t. The retailers certainly weren’t.”

In part, that was because studios raised royalty rates on their biggest potential blockbusters, increasing the percentage they would get from the sale of each item. They also began raising “guarantees,” upfront payments toy makers had to make even if the movie bombed and the toys didn’t sell.

Learning From Some Painful Lessons

In part as a result of earlier failures, toys associated with more recent children’s films--including “Monsters, Inc.,” from Disney and Pixar Animation Studios, and DreamWorks/PDI’s “Shrek”--got a far softer sell and much less time on toy sellers’ shelves. The more cautious approach meant more limited sales, retailers and toy makers said, even though “Monsters” toys in particular sold reasonably well.

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Still, toy makers from around the globe bet the new “Star Wars” prequel of 1999 would be the surest of sure things.

Hasbro Inc. landed the deal with an eye-popping bid, reportedly giving director George Lucas an upfront royalty guarantee of $600million and a 7.4% stake in the company. Royalty rates on the products were believed to be in the 18%-to-20% range, much higher than the typical 12% to 13%.

And though the movie generated about $300 million in toy sales, it wasn’t enough.

Desperate to make back its investment, Hasbro made and shipped more product to stores, people in the industry said. That left retailers to hold “Star Wars” fire sales, taking a big hit to profit.

From there, what Brochstein calls “post-’Star Wars’ stress disorder” began setting in. Suddenly, movie properties weren’t as hot as they used to be.

At Mattel, Bousquette and Mattel Chief Executive Robert Eckert demonstrated their desire for a new relationship with Hollywood in late 2000, when they dumped their rights to the newer movie properties from Disney, the onetime licensing king.

Analysts said the studio’s high fees meant annual sales of $100million to $150 million a year were not enough to make the deal profitable for Mattel, which kept rights to the better-performing classic Disney characters, such as Mickey Mouse.

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In response to toy companies’ withdrawal, studios cut their guarantees and promised to share the risk in order to get toys made. Many studios added their own marketing dollars to push their films’ toys.

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