Lego Became the Most Valuable Toy Company in the World

That’s because the Toy Fair is always a magnet for camera-brandishing nerd bloggers, and some of the toys being shown there revealed entire scenes from upcoming movies and popular TV shows—among them, Man of Steel, The Lone Ranger and the new Ninja Turtles cartoon on Nickelodeon. The scolded photographer’s ears turned red, and he and his friends scattered.

“Does that happen a lot?” I asked.

“All the time,” she sighed.

Entertainment companies love that kind of fandom because it indicates brand loyalty, which is a valuable commodity in this steal-your-favorite-TV-shows world. But brand loyalty is hard to come by among the primary Lego consumers: children. Neither Warner Bros. nor Disney would dream of making a movie in which Spider-Man rides in the Batmobile, but kids play out this scenario all the time because they don’t care. Lego is the exception that proves the rule. While there are hundreds of different makers of action figures and dolls whose corporate logos children are resoundingly indifferent to, Lego boasts an estimated 85 percent share of the building block market.

And Lego has a fandom, too. Grown-up aficionados of the product spend incredible sums to acquire out-of-print sets or painstakingly build stop-motion animations of scenes from their favorite TV shows and post them to YouTube. More than one serious sculptor uses Lego as his medium. Combining fandoms by licensing a popular TV show or movie results in something like a feeding frenzy. A Lego press kit from last year’s Toy Fair sold on eBay for $3,200 last week because it featured a pair of little figures from The Avengers.

All that serves to illustrate that Lego is a particularly desirable partner in the toy-licensing world, not only because kids like the product but also because Lego is very selective about who it chooses to sign deals with. Its partners tend to be major entertainment properties or movies with settings that fit into themes around which Lego designs its toys—usually both. With Disney’s forthcoming The Lone Ranger—the reunion of the original Pirates of the Caribbean team, producer Jerry Bruckheimer and director Gore Verbinski—Lego brand relations director Michael McNally says the company was looking for something in a cowboy outfit. “We look at how to rotate themes in, to have novelty and drive enthusiasm,” he says, “and we hadn’t expressed the Western theme for a while.”

The partnership is an impressive one, and exemplifies Lego’s clout not merely within the toy industry but in the entertainment world as a whole. Among the Ranger toys, there’s a little town with a burglable bank and a sheriff’s office, a full-blown train set (the envy of all AFOLs—adult fans of Lego), an elaborate silver mine and a stagecoach. Not all were originally slated to show up in theaters July 3. “The stagecoach is one of those vehicles…you just have to have one,” says McNally—even though the filmmakers hadn’t included one. What to do? Remember that licensing is a major concern for Disney. Its two Cars films each topped $2 billion in revenue from licensed merch alone, far exceeding box-office receipts. Lego submitted a stagecoach toy anyway, just to see what would happen. And Disney added a stagecoach in post production.

The Billund, Denmark-based maker of small plastic bricks recently became the world’s most valuable toy company at $15 billion, surpassing Mattel, which makes Barbie dolls, among other toys. Lego’s annual report put 2012 revenue at $4.09 billion, profits at $981 million. Lego is closely held by the family of founder Ole Kirk Christiansen; his grandson Kjeld Kirk Kristiansen is chairman of Kirkbi, which owns 75 percent of Lego Group. Kristiansen happens to be the richest man in Denmark. (In March, Forbes estimated his net worth at $7.3 billion.)

Lego got into the intellectual-property game late. The company has emphasized tradition and consistency over brand expansion and resisted creating licensed toys until 1999, at which point the game of slapping Batman on something to earn a cheap buck had become so common that there was a coffee-table book devoted to it. As Lucasfilm geared up for the release of The Phantom Menace, Lego began manufacturing toys based on the Star Wars franchise, which complemented its own spaceships and rockets. It also licensed a Winnie the Pooh line for its younger-targeted Duplo brand.

Lego built its library of licensed toys a few at a time, but that library is now composed solely of major names, many of them direct competitors known for negotiating hard over exclusivity. The company makes toys based on characters from both DC and Marvel comics, for example (which demand loyalty from Mattel and Hasbro, respectively), Nickelodeon and Disney, all under the same roof.

Essentially, brands have to prove to Lego that they’re worth the time and effort the toy maker must commit, laying out not just a product’s appeal to kids but also its appeal across borders. “It has to have global clout, which is very different from other partners in the industry,” explains Manuel Torres, svp of global toys for Nickelodeon. “[Others] will have a strategy for what they do domestically and another for what they do overseas. For Lego, you have to show that you have interest in Europe, that you have interest in the Americas—and then they’ll pursue a partnership.”

Toy partnerships tend to span years and demand breathtaking sums for licensors. Hasbro’s most recent agreement with Marvel, for example, goes across eight years, until 2017. It pays Marvel a base of $100 million, with a potential for $140 million more in royalties.

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