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The companies involved in the toys & games industry fall into three general categories: traditional toys, video games, and casino games and accessories. In 2007, there were 6,296 manufacturers of traditional toys (which consist of action figures, dolls, playsets, stuffed animals, models, and other related products) in the United States. The traditional toy industry is essentially stagnant, as its 2007 revenue was $21.2 billion, compared to $22.3 billion in 2006.[1] In contrast, the video game industry is one of the quickest growing industries in the United States. Its 2007 revenue of $18.9 billion was 51.2% higher than its 2006 revenue.[2] Meanwhile, in 2007 the casino game industry began to see a shift in consumer preferences towards electronic casino games such as slot machines. As a result, manufacturers of electronic video games have benefited, while manufacturers of more traditional casino games suffered.[3]

Downstream

Wal-Mart (WMT)

Target (TGT)

Gamestop (GME)

Companies Involved

Traditional Toys

  • Mattel (MAT) has the largest market share for both action figures and dolls[4] and is the world’s largest manufacturer of traditional toys, with a 2007 revenue of $5.97 billion.[5] Mattel sells products under a host of well-known brand names such as Barbie, Matchbox, Fischer Price, and Hot Wheels. However, because Mattel focuses so much on traditional toys, its business faces pressure from the fast-growing video game industry, an industry it entered in 2006.[4]
  • Hasbro (HAS) is the United States' second largest toy company, with a 2007,2008,2009 revenue of $3.84B, $4.022B and $4.068B respectively.[6] Hasbro owns the largest market share in the board game industry as of 2007, producing popular board games such as Clue, Monopoly, and Scrabble. Its other products include the Transformers, Mr. Potato Head, Play Doh, Milton Bradley, and Parker Brothers brands, as well as licensing agreements with brands such as Star Wars and Marvel.[7]
  • JAKKS Pacific (JAKK) is the United States' third largest toy manufacturer, obtaining $857 million in 2007 revenue.[8] JAKKS Pacific produces traditional toys under licenses for brands such as Cabbage Patch Kids, Care Bears, and Hannah Montana, a particularly big earner for JAKKS in 2007.[9] Furthermore, JAKKS Pacific produces video games under the World Wrestling Entertainment (WWE) name through a joint venture with THQ.[10]
  • Russ Berrie and Company (RUS) designs and distributes gift consumer products for the infant and juvenile demographic. Russ Berrie's products include infant bedding, bath toys, feeding items, baby comforting products, and stuffed animals,[11] under brands such as Sassy, KidsLine, and CoCaLo, Inc..[12] In 2006, its revenue was $294.8 million, which increased by 11% to $331.2 million in 2007.[13]
  • RC2 (RCRC) has grown significantly during the new millennium through a host of important acquisitions, and has, as a result, become an influential company in the toy industry. It is perhaps best known for its products under licenses with the Thomas & Friends, Bob The Builder, and John Deere brands. In 2007, RC2's revenue was approximately $489 million.[14]
  • Action Products International (APII) designs, manufactures and distributes educational and non-violent toys, children's books, stationery, and souvenirs. Its products include names under brand names such as Space Voyagers, Play and Store, and Kidz Workshop.[15] In 2007, Action Products' revenue was $6.1 million, down from the $7.4 million it made in 2006.[16]
  • Corgi International (CRGI) is a manufacturer of die-cast model vehicles whose 2007 revenue was $35.5 million, a 53.5% decrease from the $76.4 million it obtained from 2006 revenue.[17] In May of 2008, British toymaker Hornby acquired Corgi for 7.5 million pounds.[18]

Video Games

  • Activision (ATVI) publishes and distributes video games, and produced three of 2007's top ten games: Call of Duty 4: Modern Warfare, Guitar Hero III: Legends of Rock, and Guitar Hero II. In December 2007, Activision acquired Blizzard, Vivendi's video game division.[19] Blizzard is the developer behind the popular World of Warcraft game, thus letting Activision become a key player in both the console gaming and online gaming industries, as well as the largest video game company in the world (surpassing Electronic Arts).[20]
  • Ubisoft Entertainment SA is a French video game and software developer, and the name behind popular games such as the Rayman franchise, the Splinter Cell franchise, and Assassin's Creed, its best-selling title in fiscal 2007. Ubisoft's 2007 revenue was €608 million (approximately $868 million), a 24.35% increase from the year before.[21]
  • Take-Two Interactive Software (TTWO) publishes games for the Nintendo Wii, Xbox 360, and Playstation 3 game consoles, as well as PC. Take-Two is perhaps best known as the name behind the highly popular Grand Theft Auto franchise. Its newest title, Grand Theft Auto 4, made approximately $500 million in sales in its first week of release in Q2 2008, making it one of the most successful video games of all time. However, Take-Two's revenue decreased by 5.4% in 2007, to approximately $982 million.[22]
  • Leapfrog Enterprises (LF) produces technology-based educational products under the LeapFrog, LeapPad, Leapster, and Quantum Leap brands.[23] Although Leapfrog had a somewhat weak 2007 fiscal year, its 2008 revenue figures to increase substantially following the launch of acclaimed products such as the Leapster 2 and Didj educational gaming systems.[24] Its 2007 revenue was $442.3 million, compared to $502.3 million in 2006.[25]
  • Mad Catz Interactive (MCZ) manufactures and distributes accessories for the interactive entertainment industry. Their product lines include extension cables, television connectors, memory cards, and controllers for PC, game consoles, and portable gaming systems.[26] In 2007, Mad Catz Interactive's revenue fell from $99.7 million in 2006 to $87.6 million.[27]

Casino Games

  • International Game Technology (IGT) manufactures electronic casino games, and, with a 70% share, commands the largest market share in the North American slot machine industry.[28] The largest producer of electronic casino games in the United States, IGT obtained $2.62 billion in 2007 revenue. In addition to simple slot machines, IGT manufactures video poker games, electronic traditional casino games, and related network systems for operating casinos.[29]
  • GameTech International (GMTC) is primarily a manufacturer and distributor of electronic bingo machines. In 2007, however, it also introduced its video lottery terminals (VLTs) segment, which consists of electronic games such as slot machines and video poker. The VLTs segment figures to let GameTech become a player in the Class III gaming market, where it had previously only been a player in the Class II gaming market. GameTech International's revenue in 2007 was $59 million.[30]
  • FortuNet (FNET) manufactures and distributes electronic video games and related servers. Its primary focus is on electronic bingo games, which it helped pioneer in the 1980s. Its BingoStar platform is its primary product, and the company obtains most of its business from casinos and bingo halls. FortuNet obtained $16.49 million in 2007 revenue, 34% of which came from Texas and 98% of which was domestic.[31]
  • Gaming Partners International (GPIC) manufacturers casino equipment such as gambling chips, dice, wheels, playing cards, table layouts, and furniture.[32] Because consumer preferences have been shifting away from traditional table games and towards electronic casino games such as slot machines and video poker,[3] GPIC's business suffered in 2007. Its 2007 revenue fell to $58.8 million in 2007, from $74 million in 2006.[33]

Key Trends and Forces

Consumer tastes are rapidly shifting from traditional toys to video games

From 2006 to 2007, revenue from the traditional toy manufacturing industry fell from $22.3 billion[2] to $21.2 billion,[1] a 4.9% decrease. The video game industry, on the other hand, increased from $12.5 billion[2] to $18.9 billion[34] over the same period of time, a 51.2% increase. As a result of this shift in customer preferences, many companies in the toy industry have begun to place more emphasis on video game products. For example, Mattel, the world's largest toy manufacturer and the company behind names such as Barbie and Hot Wheels, entered the video game industry in 2006 to keep up with the changing face of the toy industry.[4]

Revenue of the Traditional Toys and Video Games Industries ($ in billions)
Industry 2007 2006[2] 2005[2] 2004[2]
Traditional Toys 21.2[1] 22.3 22.2 22.4
Video Games 18.9[34] 12.5 10.5 9.9


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Domestic Crude Oil Prices per Barrel: Inflation adjusted for 2007 prices[35]

Rising raw material costs increase manufacturing costs for traditional toys

The majority of traditional toys are made from plastic resin. One of the key components of plastic resin is petroleum, which reached all-time high price levels in 2008. In fact, in May of 2008, the price for crude oil reached $117.40 a barrel, a staggering 76.8% increase from 2007, when it was at $66.40.[35] With most experts believing the price of crude oil is unlikely to decrease anytime soon, these rising petroleum prices figure to continue to negatively impact manufacturing costs. And although most primary traditional toy manufacturers, such as Mattel, Hasbro, and JAKKS Pacific, have hedging strategies to keep its raw material costs under control, further increases in the price of petroleum are a potential disaster for the traditional toy industry.[4]

Consumer preferences are shifting towards electronic casino games

As of fiscal 2007, customer preferences have begun to shift away from traditional table games and towards electronic casino games.[3] In 2008, casinos, racinos, and bingo halls nationwide continued to follow this trend, implementing high-tech game systems, wireless customer-service features, and other technologically advanced services.[36] This trend helps electronic video game manufacturers like International Game Technology, FortuNet, and GameTech International, all of whom obtained higher revenue figures in 2007 than in 2006. However, this trend is detrimental to manufacturers of traditional casino game equipment, like Gaming Partners International, whose 2007 revenue was 20.5% lower than its 2006 revenue.[33]

The decrease in U.S. consumer spending negatively impacts the entire industry

Consumers tend to gamble or buy toys and games only when they feel they have enough disposable income to afford such luxury goods. Rising oil prices, a struggling U.S. housing market, and other similar factors limited Americans' disposable income in 2007 and the first half of 2008.[35] Shaky consumer confidence sent the Applied Analysis Gaming Index, which includes casino operators and gaming machine manufacturers, down by 15.7% in January 2008.[37] The toy industry also felt the effects of this trend, as its overall revenue decreased by $1.1 billion from 2006 to 2007.[1][2]

References

  1. 1.0 1.1 1.2 1.3 Entrepreneur.com: Toy Manufacturing Industry Analysis
  2. 2.0 2.1 2.2 2.3 2.4 2.5 2.6 SeekingAlpha: JAKKS Pacific: Room for Growth in Video Games
  3. 3.0 3.1 3.2 SeekingAlpha: International Gaming Technology: Clear Leader in a High-Growth Industry
  4. 4.0 4.1 4.2 4.3 Wikinvest: MAT
  5. Google Finance: MAT
  6. Google Finance: HAS
  7. Wikinvest: HAS
  8. Google Finance: JAKK
  9. BNet: Disney's "Hannah Montana" is Holiday Season's Brightest
  10. Wikinvest: JAKK
  11. RUS 2007 10-K, Item 1: Business, page 2
  12. Russ Berrie: Our Brands
  13. Google Finance: RUS
  14. Wikinvest: RCRC
  15. Action Products: About Us
  16. Google Finance: APII
  17. Google Finance: CRGI
  18. BBC News: Hornby to buy Corgi in £7.5m deal
  19. BusinessWeek: Vivendi, Activision Form Games Juggernaut
  20. Wikinvest: ATVI
  21. Wikinvest: Ubisoft
  22. Wikinvest: TTWO
  23. Wikinvest: LF
  24. SeekingAlpha: LeapFrog Turnaround Still Ahead of Schedule
  25. Google Fiinance: LF
  26. Mad Catz Interactive: About Us
  27. Google Finance: MCZ
  28. International Gaming Technology: Clear Leader in a High-Growth Industry
  29. Wikinvest: IGT
  30. Wikinvest: GMTC
  31. Wikinvest: FNET
  32. Wikinvest: GPIC
  33. 33.0 33.1 Google Finance: GPIC
  34. 34.0 34.1 Ars Technica: Growth of gaming in 2007 far outpaces movies, music
  35. 35.0 35.1 35.2 Inflation Data: Historical Oil Prices
  36. Native American Times: Downstream Casino Resort Goes High-Tech
  37. ReviewJournal.com: Casino-stock index declines during January
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