Hits at the box office are creating retail blockbusters

The summer’s noisy, raucous, robot-battling blockbuster, “Transformers: Revenge of the Fallen,” is creating a frenzy in the toy aisles as well as at the box office.

The second installment in the Transformers movie franchise has already racked up nearly $34 million in ticket sales in the U.S. and Canada -- and spurred renewed interest in the 25-year-old toy line from Hasbro Inc. on which the Michael Bay film is based. The previous movie, released in 2007, brought in $480 million in revenue for the toy maker. This time, sales are even more brisk, and analysts expect revenue to top $600 million by year’s end, ranking it second only to the prevailing force in movie-related toys, “Star Wars.”

Sales of merchandise with a cinematic hook could reach an all-time high this year, propelled by such perennial favorites as “Star Wars,” new installments of established series such as “Star Trek” and “X-Men Origins: Wolverine,” and newcomers including “G.I. Joe: The Rise of Cobra.”

“This year might be a peak,” said John Taylor, a video game and toy analyst for Arcadia Investment Corp. in Portland, Ore. “People are thinking if everything goes well, “Transformers” could rival “Star Wars” as the single biggest-selling property. With ‘G.I. Joe’ on top of that, you’ve got a shot at breaking $700 million. It’s going to be a great year for this stuff.”


Retailers have come to rely on Hollywood, especially during the summer.

Store buyers are looking for the pop culture phenomenon to lure consumers into shops. They draft off of studios’ multimillion-dollar movie marketing campaigns to spur interest in action figures, building sets, video games and other items with a cinematic tie-in.

“We definitely feel like customers are responding to entertainment-driven merchandise,” said Laura Phillips, vice president of toys in the U.S. for Wal-Mart Stores Inc.

But with a glut of effects-driven summer films to choose from, retailers have grown more discerning about which properties they’ll back. That’s especially the case now, in the depth of a recession, when consumers have cut back on such discretionary purchases.


Shelf space is shrinking as stores devote more real estate to other products vying for a child’s attention, such as video games.

Target Corp. and Wal-Mart stocked little merchandise associated with the Disney/Pixar movie “Up,” principally because toy makers largely stayed away. Even analysts predicted -- incorrectly, as the $269-million domestic box office shows -- that the movie wouldn’t connect with children. Its box-office total was more than “Star Trek” or “Cars.” Neither retailer carried any of the plush toys based on “Monsters vs. Aliens,” which also turned out to be a theatrical success, said Marty Brochstein, senior vice president of industry relations for the International Licensing Industry Merchandisers’ Assn.

Not every movie lends itself to a toy line (and vice versa). Based on the popular Teenage Mutant Ninja Turtles toys, Warner Bros.’ 2007 film “TMNT,” for example, had a less-than-warrior-like box-office performance, selling only $95 million in global ticket sales. The homely Ogre character, based on DreamWorks Animation’s “Shrek,” did not fly off the shelves as a cuddly plush doll, according to analysts.

“If you’ve got a great film that resonates with the target audience, it can do really well,” said Howard Roffman, president of Lucas Licensing. The Lucasfilm Ltd. division’s Star Wars characters and spaceships have accounted for $18 billion in global sales since George Lucas’ first film in 1977. “If it doesn’t, no amount of marketing or ancillary products is going to make it work.”


Walt Disney is considered the granddaddy of movie merchandising. He agreed to put Mickey Mouse’s image on writing tablets in 1929, following the character’s debut in “Steamboat Willie.”

The modern era of movie licensing was reignited by “Star Wars” and “E.T. The Extra-Terrestrial” in the early ‘80s. Disney’s 1994 animated film “The Lion King” achieved a sort of merchandising nirvana, generating an eye-popping $2 billion worth of sales of stuffed animals, toys, clothing and other items, according to the Licensing Letter.

But the recession has cooled toy sales, and retailers have grown more cautious -- paring the number of movies they’ll support in a big way, Brochstein said.

Store buyers are reluctant to gamble on original films such as Disney/Pixar’s “Up,” preferring proven favorites such as Lego building sets and toys based on the animated TV series “The Clone Wars,” the original battle-tested action figure, G.I. Joe., or Disney’s Princesses, a collection of eight characters whose animated legacy dates to the opening of “Snow White” in 1937. The forthcoming film “The Princess and the Frog” will add another royal member to the assemblage, Princess Tiana.


“It bodes well for some of the major studios like ourselves, because we do have tent-pole films with massive budgets, with a lot of strong promotional partners,” said Karen McTier, executive vice president of domestic licensing for Warner Bros.

The studio’s consumer products unit has a new line of games and apparel to accompany “Harry Potter and the Half-Blood Prince,” which will be released this week. It will be the sixth “Harry Potter” film based on the J.K. Rowling fantasy novels.

“You bring it all together into this massive, multimillion-dollar marketing campaign and blitz. That’s a sure bet for them,” McTier said.

Wal-Mart has formed an entertainment council, comprising representatives from various merchandise categories, to puzzle out Hollywood’s theatrical lineup.


The group tries to determine, a year or two in advance, which upcoming films offer the greatest potential to bring traffic to Wal-Mart stores, and how best to assemble a line of toys, games, bedding, clothing and food to seize upon that opportunity. The retail giant uses a ranking system that places a premium on family-friendly entertainment whose merchandise has the potential to reach several areas of its business.

“We identified ‘Transformers: Revenge of the Fallen’ about a year ago,” Wal-Mart’s Phillips said. “We started working with a group of internal associates from all business units -- apparel, food, entertainment -- around what the big properties are. You’ll see more of that from us.”

Rewards for toy makers can be rich.

Hasbro Chief Executive Brian Goldner was part of a turnaround team that focused on reviving the Pawtucket, R.I., company’s classic brands, including Transformers and G.I. Joe. Spider-Man’s successful leap from Marvel comic books and television animation to the big screen in 2002 sparked the idea that a similar cinematic turn could come from a toy line with a good-versus-evil mythology and larger-than-life characters, he said.


The original “Transformers” film, in 2007, did much to generate fresh excitement for the toy line, which the year earlier had reported $100 million in sales. Revenue increased fivefold, to $482 million, or roughly 13% of Hasbro’s overall sales in 2007, according to financial filings. This summer’s sequel triggered even more vigorous toy sales.

Analyst Sean McGowan at Needham & Co. projects Hasbro will sell $595 million worth of Transformers merchandise in 2009.

“We’re particularly pleased with the global success that the movie is having, to be such a popular film in Korea and in China and across Europe,” Goldner said.

Hasbro hopes for similar success with the big-screen restart of G.I. Joe, which signed up for its first tour of duty in 1964.


But some toy industry analysts are skeptical that the action figure will see a Transformer-sized sales bump, in part because the Aug. 7 opening of “G.I. Joe: The Rise of Cobra” will face tough competition in the theaters, and in stores, from “Harry Potter.”

“G.I. Joe has a following, but a much weaker one” than Transformers, said Lutz Miller, a toy-marketing analyst who runs Klosters Trading Corp. of Williston, Vt.

“Transformers are so incredibly strong, it could well overshadow ‘G.I. Joe’ altogether, even though ‘G.I. Joe’ comes out in August. Secondly, ‘Harry Potter and the Half-Blood Prince’ will put a crimp in the ‘G.I. Joe’ sales.”

Mattel Inc. -- which partners with Disney and Warner Bros. and makes toys based on such popular film properties as “Cars,” “Toy Story” and “Batman” -- is seeking to give some of its own toys a star turn. A movie based on its popular toy cars, Hot Wheels, is in development with Warner Bros., and Universal Pictures is working on a motion picture based on an Apollo-era astronaut toy, Major Matt Mason, who lived and worked on the Moon. Tom Hanks has signed on to the project.


“It turns out it was Tom Hanks’ favorite toy,” said Tim Kilpin, Mattel’s general manager for the girls, boys and games group. “When we find someone who’s excited about our properties, we bring that forward.”





Toy story


* Disney Princess


* Dora the Explorer

* Hannah Montana

* High School Musical

* Sesame Street



* Batman

* Cars: The Movie

* Spider-Man


* Star Wars

* Thomas and Friends

*Top-selling licensed toy properties for the 12 months that ended in May. Hasbro owns the rights to “Transformers,” a movie franchise that started out as a toy, so it does not appear in these results.

Source: NPD Group