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Mattel gets construction toy brand Mega Bloks Proof positive that the struggling toy industry is eager to build a new future — even block by block — was crystallized Friday by Mattel's latest purchase. The toy giant, best know for its Barbie, Hot Wheels and American Girl brands, reached into the kid construction world with the announced $450 million purchase of Mega Brands, a Canadian maker of construction toys and arts and crafts. The move couldn't come too soon for Mattel, which recently reported a tough holiday season as fourth-quarter sales of its key Barbie and Fisher Price brands fell.

"A key pillar of our global growth strategy is the strategic acquisition of brands that will both benefit from our scale and help extend our reach into new and growing categories," said Mattel CEO Bryan Stockton, in a statement. "The construction play pattern is popular, universal and has one of the fastest growth rates over the past three years." For Mattel, which has relied on its now-cooling Monster High doll brand for growth in recent years, there's a serious need to reach into new categories. At the same time, the $22 billion toy industry has been struggling to redefine itself in recent years as older kids increasingly gravitate to electronics and young girls, in particular, continue to move away from dolls at earlier ages. Meanwhile, parents are increasingly looking for hands-on toys that, beyond play value, help to educate their kids.

The so-called $2 billion "building sets" category of the toy industry is, far-and-away, the fastest-growing category. Sales jumped 22% in 2012 vs. 2011, the last year reported by the Toy Manufacturers Association. During the same period, the $1 billion arts and crafts toy category — which also is core to Mega Brands — grew 4%. A small piece of this toy industry evolution even played out during this year's Super Bowl, when Intuit's 30-second ad space was devoted to a tiny toymaker, GoldieBlox, which focuses its attention on construction sets targeted at young girls. "With GoldieBlox, I want to give girls a chance to change the world," says founder Debbie Sterling. Mega Brands is widely known for its Mega Bloks construction sets, which include plastic blocks in an assortment of colors that can be snapped together to create various objects. At the recent Toy Fair in New York City, [Mega Brands rolled out new Mega Bloks offerings in more than a dozen categories — many licensed — including Barbie, Hot Wheels, Hello Kitty and SpongeBob SquarePants. Mega Brands, based in Montreal, ranks among the top 15 toy companies globally in sales, according to NPD Group. Last year, it posted record sales of pre-school construction toys. Aside from Mega Bloks, Mega Brands' arts and crafts brands include Rose Art and Board Dudes. Mega Brands estimates its sales totaled $405 million in 2013. Its sales and distribution network extends to more than 100 countries, says the company's website. The Canadian company's board unanimously approved the acquisition. Mattel, based in El Segundo, Calif., said that it plans to fund the deal with available cash and new debt. Contributing: Associated Press

March 3, 2014

Mattel Buying MEGA Brands; What it Means for the Play Industry

The status quo in the toy industry just got upended on Friday with Mattel’s announcement that they are purchasing MEGA Brands for $407.5 million Canadian dollars ($366.4 million U.S.). The decision by Mattel means that Lego is going to face some heavy duty competition on the construction aisle.

No matter what happens, we are going to find out if Lego has been beating up on lightweights or has the muscle to face down a heavy weight. I for one would not bet against Lego yet I wouldn’t bet against Mattel either.

As we wait for the purchase to go through, it is interesting to speculate on the fallout from Mattel’s acquisition. So what does it mean for the play industry?

It removes one of the few publicly held toy companies from the marketplace. That means less competition and interest in the industry’s second tier.

It lifts the MEGA Brands brand of construction blocks from being a distant number 2 construction toy (Lego revenues are $4.7 billion US / Mega Brand revenues are $400 million US) and puts it in the hands of a deep pocketed company that knows how to market and has the brands to do it with.

It’s going to be good news for advertising companies as they create marketing for what could be a major war for consumer time and dollars.

Its going to be good news for licensors as Mattel seeks licenses to fuel its Mega Brand push.

It is going to make life more difficult for buyers who are going to be facing far more difficult choices in space allocation.

It’s going to be life more pleasant for buyers who are going to face a more competitive environment which should be good for their bottom line.

It’s going to make life far more difficult for the other construction toy companies as Mega Brand flexes out to greater shelf space. Initially, that space will probably not come from Lego but from secondary and tertiary players. If they do, they could resurrect the brand Crayola, Cra-Z-Art and other arts and crafts players are going to be praying that Mattel does not see the RoseArt segment of the purchase as a good fit. If Mattel does, it could mean a resurrection of RoseArt as a significant brand.

No matter what happens, it is important to remember that Lego is no longer just about plastic blocks. They are now a major player in the digital and movie arenas; two areas in which Mattel is a smaller player.

What about Hasbro? According to Gerrick Johnson in his February 24, 2014 “Toy Scout Report” on Hasbro: “The company seems to be Moving away from its Kreo construction line, now making the product as an exclusive at Toys “R” Us with Dungeons & Dragons, Transformers, Cityville Invasion, and GI Joe themes.” If that is indeed the case, Hasbro may want to take another look at that strategy. Mattel’s move is a change maker and that means all bets are off for all players.