Real Life Toy Story

By Matthew Church,

The Financial Post Magazine, 1996

If you are a parent of a boy anywhere between the ages of five and 11, you probably know about Beast Wars Transformers already, a line of boys' action figures that also feature in a television program. Unlike what you might expect, however, the toys aren't spin-offs from the show. The show was created to promote the toys.

Beast Wars figures are based on the hugely successful Transformers of the mid- to late 80's. The hard plastic animals (rat, cheetah, dinosaur, boar, armadillo and more) resemble malevolent mutants of their real-life counterparts, and can be twisted, pulled and unfolded into complex and menacingly robotic forms. So far, the best-selling figures are good guys Optimus Primal (a gorilla), Cheetor and Rat Trap, and evil guys Megatron (a dinosaur), and Tarantulas. Boys in particular are fascinated by the complex series of moves required to transform them. (Less than 15% of total sales will be purchased for or by girls, according to Hasbro Inc., the company that manufactures the toys.) To many adults, the transforming action is as befuddling as a Rubik's Cube, though some five- and six-year-olds can completely reconfigure even the "Ultra" models in mere seconds. Inspired by the TV show, they often yell "Maximize" as they do so.

Equally fascinating to boys is the array of bizarre weaponry that presents itself, including attack bees and bats that are built into the animal's structure but that can be detached and fired off the host creature, as well as darts, bullets, boomerangs, tail-ends and a variety of weapons mounted on spring-loaded arms. The simplest versions, with limited features, are sold in blister packs retailing at $8.99 and up. At close to $30, the much more complex "Deluxe" and "Ultra" figures come with detachable projectiles, instructions and promotional comic books offering a story line. Every package, featuring the garish Day-Glo logo and lurid artwork, also includes a cut-out collector card that lists "bio & tech specs" and rates intelligence, strength, courage and other traits on a scale of 1 to 10, as well as additional information on weaponry, shield composites and primary functions. Clip and save! Collect 'em all!

Popular as they are, the Canadian Toy Testing Council gave the toys only one star, complaining that "transformation was difficult and body parts continually fell off." True, but the kids who play with them don't care. What they do care about is owning as many figures as possible and watching Beast Wars, the TV show, which involves the warring tribes of heroic Maximals and evil Predacons -- all of them highly evolved robotic beings -- marooned on a planet that looks a lot like Earth. Both groups are locked in perpetual warfare as they attempt to seize control of the planet's Energon, a uniquely powerful energy source that will enable whoever controls it -- no surprises here -- to rule the universe. However, they also need to adapt to their new environment (for reasons at once too complex and too simplistic to explain here). Thus they take on the outward identity of indigenous insects, mammals and dinosaur-like creatures, enabling them to transform themselves from their animal forms into devastating robots with a fantastic array of weaponry.

Despite claims that the show is non-violent, it consists primarily of stylishly rendered warfare without blood or guts (they are robots, remember). The claim is also made that the violence happens only between robots, which can never kill each other. While that may teach children that there are no consequences to such behavior, Beast Wars is certainly not as violent as other programs on the air -- the news, for instance. At least in Beast Wars, the good guys always win.

In fact, the real war being fought here is for your children's hearts and minds, since they are the quickest way to your wallet. A great deal of money is being spent before Christmas to convince your children -- who will, of course, then try to convince you -- that what they really, really want is at least one Beast Wars Transformer lurking under the tree. Here's why and how.

First, nearly 60% of the roughly $900 million Canadians spend on toys is being spent right now, in the three months leading up to Christmas. Sales of toys for girls four to 11 ring in at around $130 million each year in Canada (top-sellers include Barbie, Polly Pocket, Littlest Pet Shop and Sky Dancers). But the most lucrative segment -- $210 million -- is toys sold to boys in the same age range. Boys action-figure lines (G.I. Joe, Beast Wars Transformers, Gargoyles, X-Men and so on) take in an extraordinary $90 million annually. Hasbro Inc.'s Batman tops the list as the best-selling action line. In the secretive world of the toy wars, where sales tallies are nearly impossible to come by, one source speculates that the Batman pantheon of action figures -- Laser Disc Batman, Batman dressed as a pirate or sporting a version of Ancient Egyptian garb, 18-inch Talking Batman, as well as vehicles, punching bags, lunch boxes, slot-car sets, electronic pinball machines ad infinitum -- accounts for about $30 million in this country alone.

As one of the largest combatants in the worldwide battle for toy supremacy, Hasbro has an army of boys' toys. G.I. Joe, reconfigured to a steroid-enhanced 4 3/4-inch cartoonish figure with a hundred permutations, and the Star Wars category both ranked in the top six best sellers in Canada for boys four to 11. As a result, Hasbro has 60% of the male action-figure market in Canada, a sizeable chunk, but one that could still be improved.

The company decided that what it needed to boost sales still further was to revamp and relaunch a former success. In the early '80s, Hasbro has stumbled upon a concept that was to redefine action figures and create immense profits. That line of toys was Transformers, vehicles that could be converted, through some fairly complex manipulation by the child, into imposing robotic warriors. Designed by a Japanese toy manufacturer, the gadget took North America by storm. From a standing start in 1985, Transformers grew to sales of $55 million in 1987 in Canada. Tony Demacio, a Hasbro Canada senior vice-president, sales and marketing, worked for a competitor at the time. "Occasionally a phenomenon hits," he says. "Cabbage Patch dolls were one. Transformers were another. It was a frenzy. The demand just grew and grew." By the early '90s, though, Transformers had begun to die out. The market had been exhausted, and boys were turning elsewhere. "The peak lasted for three or four years," says Demacio, now responsible for all of Hasbro's Canadian pre-school activity and boys' toys sales and marketing, "before dropping down to $2 million annually. There was still a demand, but nowhere close to what it had been. We felt that it shouldn't go to the grave."

So in 1993, orders came down from Hasbro headquarters in Pawtucket, Rhode Island, to save the line. A battalion of designers and market researchers specializing in boys' toys was assigned the task of remaking Transformers. After months of studies, speculation, story lines and sketching, the team had created several possible strategies. In October, 1994, presentations were made to the Hasbro senior-management review team. Two approaches were selected as most likely to succeed and sent back for further development. The first was an update on the old concept -- just new vehicles, new robots. The other was based on animals that could morph into robots.

Demacio recalls the meeting where the decision to commit was made. "In January, 1995 we got the hand-made samples of what they were designing. The reaction in the room was, "Wow!" They decided to give the vehicles -- which had been on the market for 10 years -- a much needed furlough. The rejuvenation of the Transformer product line was going to be based on a rat, a gorilla, a cheetah and an assortment of dinosaurs.

Immediately, line manufacturer Takara Inc., the inventor and liscensor of the original Transformers, was given the designs to determine what was actually possible within the crucial retail price points of $8.99 and $29.99. From its headquarters in Tokyo, the company costed out every feature. The most cost-effective place to manufacture them was in one of the company's plants in the Shenzen Special Economic Zone near Canton (more than 50% of all toys sold in North America are manufactured in China).

It was time to get the retailers on-side and begin making the pitch for volume and in-store locations. "We meet regularly with the buyers, merchandise managers, senior executives from Toys 'R' Us, Wal-Mart, Zellers, the department stores," says Demacio. "We let them hold the toys, play with them. We tell them how we're going to present the product, how it will be supported. If the response is negative, it's back to the evaluations. Then we come back to them with a stronger marketing plan."

The retailers can be helpful in other ways, too. "They also buy a lot from our competitors," says Demacio. "They won't give us specific product information, but they do give us insight. They'll say, 'There's something similar coming out there. You might want to look at adding another feature to that item.' Or maybe we'll change one of the features so we don't add to our cost, but are different from what our competitor is bringing to market."

In those meetings with their most important retailers, Hasbro presented the Beast Wars product as well as its retail presentation, pricing and positioning strategy, including plans for a TV show as support. This last component of the marketing offensive is crucial for today's toy manufacturers in creating demand. "It was a resounding success," says Demacio. "We thought it was in touch with what people are thinking about in the '90s." In other words, Hasbro is banking on the fact that, by using animals instead of vehicles, the company can cash in on the generation of consumers interested in the environment and the toll of species extinction.

The first assault on the public was in February and March '96, in partnership with one of the most successful advertisers to kids (and through them to their parents): McDonald's. Cheaper, less intricate versions of Beast Wars Transformers were specially manufactured and given away as part of a Happy Meal promotion. At the same time, Hasbro tested the new Littlest Pet Shop line for girls, a pocket-sized set of animal dolls and houses.

Getting toys to kids through McDonald's "is an incredible marketing tool," says Sandy Sinclair, a director of marketing for boys' toys at Hasbro Canada, with responsibility for the Beast Wars line. Product placement "gets the product out there. And can be a source of a lot of information about reactions to it." Follow-up research showed they could be a winner. "We had an instant response from the children and their parents," says Sinclair. "This was a very basic transforming toy. Nothing compared to the current product... but it created the need." Still, to have legs, it would need a strong story line, a ready-made play scenario the kids could adopt for their own.

In 1969, Hasbro had acquired Romper Room Inc., the producer and distributor of the television show of the same name. Now named Claster Television Inc., it is an integral component in the marketing of Hasbro toys, a means to create and distribute the programs that will support the product lines, from the Littlest Pet Shop (which has a show of the same name) to G.I. Joe. This kind of situation is not unusual. There is a profoundly symbiotic relationship between the toy and entertainment industries. Many of the hottest toys every year owe a tremendous amount to the movies that inspire them, creating demand for anything and everything from action figures to bubble bath. In fact, licensing arrangements are often signed long before principal photography even begins. Batman had benefitted from the Batman movies and ongoing Saturday morning cartoons. And last year's Toy Story had demonstrated what a film could do for even aging staples like Mr. Potato Head. For Beast Wars Transformers to really go over the top in terms of sales, Hasbro needed a vehicle that kids would watch, a TV show to get the product into little boys' fantasies. Sort of an infomercial with great action.

Hasbro approached Mainframe Entertainment Inc. in Vancouver with an offer to license a Beast Wars television show. One of a new wave of small companies using computer-generating imaging (CGI) to create an entirely new style of animation, Mainframe shot to prominence in 1993 with the hit TV series, ReBoot, a cyber fantasy set inside a computer. The show was Mainframe's first creation, and its success has since spawned a line of action figures, made under license by Irwin Toys.

The Beast Wars deal was soon struck. Mainframe would produce 26 30-minute episodes based on the concepts created by the Hasbro marketing team. Hasbro would put up a portion of the money and would review the scripts; Claster would handle distribution. Mainframe and Alliance Communications Corp., then a 50% partner in Mainframe (since reduced to 15%), would garner additional financing and produce the show. In addition to considerable sales revenue through Claster's extensive syndication network, Mainframe would also earn a back-end royalty on wholesale sales of the toys, a potential gold mine for the small company.

The result, says Louise Brown, parenting reporter for The Toronto Star, is "cotton candy for the eyes." Beast Wars, the TV show, has a slick look, featuring gleaming surfaces, sophisticated lighting effects and intriguing 3-D visuals. But, says Christopher Brough, Mainframe's president and CEO, it is the ability to capture "down to the molecule" the look and feel of the toys that likely appealed to Hasbro. CGI's ability to hyper-realize violence and explosions makes it very appealing to Beast Wars' intended audience.

Since first airing in April, the show, to Hasbro's delight, is doing very well. Syndicated in 90% of the U.S. market, Beast Wars Transformers airs on weekday mornings, and is No. 1 in ratings for its target audience in 75% of its markets. Each show can air as many as 15 times (and in some case, more) over the first year in a given market. In Canada, the youth-oriented specialty channel YTV airs the show under the name Beasties. When they were initially shown the program, says YTV programming director Paula Parker, "we loved it. We knew Mainframe because we had such success with ReBoot. But we weren't comfortable with the name. Beast Wars just wasn't in keeping with our image." The otherwise identical show airs at night, since YTV's programmers also felt that the level of violence should be kept away from the youngest children, even if that violence is, as its defenders say, between machines representing good and evil. "The name-change is not an ideal situation," says Hasbro marketing director Sandy Sinclair. "But the names are close and the logos are identical. We've seen very little confusion."

Small wonder. With heavy advertising concentrated on this specific target group, most children will see a Beast Wars action-figure commercial countless times before Christmas. (The broadcast code prohibits any advertising of action figures or toys during the airing of the relevant show.) While no one will reveal such closely guarded secrets, the advertising budget for Beast Wars figures is in the millions. "It is TV-advertised very heavily," is all Tony Demacio will say. "As much as Batman and Star Wars figures."

The campaign is working. A phenomenal success, certain figures were selling out as early as March. Kids are playing with them at recess, engaging in mini battles of good versus evil, arguing over who is more powerful and eyeing the "coolest ones" for inclusion on their Christmas lists. Demacio sees the early success in Canada as a harbinger of great things. "This could be the next big one. In this brand development, this brand introduction, all the elements are working. The show is a hit, the toys are great collectibles, lasting. Kids want more than one."

It's intesting to speculate on why that should be. Dr. Otto Weininger, professor of child clinical psychology at the Ontario Institute for Studies in Education, University of Toronto, has spent his professional life studying children's play. Boys, he says, have always felt a need for aggressive play. Transformers "give them the sense of controlling a situation." Unlike their own lives, governed by adults and filled with frustrations, these toys allow them to be in charge. "They can 'transform' themselves when a situation demands aggression," says Dr. Weininger. "It isn't necessarily an expression of hostility. It may be that they are mimicking what they see around them, helping them to cope with the aggression and hostility they witness every day." As for the fascination with collecting several figures, Weininger sees this as an attempt to manage aggression. "In a way, the boy is saying, 'I can control them.'"

Whatever the reason for Beast Wars Transformers' phenomenal popularity, demand is being driven higher and higher. Availability has become a problem. In the frenzied run-up to Christmas, there is little opportunity to get new product in the stores. "We anticipated high demand," says Demacio with a smile, "but not like this. If we could get the product, I think we could sell $10 million." With a three-month lag between order and delivery, there's not a lot of flexibility in ramping up. Still, with weekly and even daily inventory sell-through data available through Electronic Data Information downloads from points-of-sale, Hasbro read the numbers in September and October and placed rush orders with the manufacturer for the hot sellers. "We are hustling for inventory," says Sandy Sinclair. "Calling in favors, twisting arms." However, as demand has heated up in the U.S., inventory has become slimmer and harder to get. "We'll probably manage 60%, maybe 70% of what we could sell," allows Demacio. Which adds up to $7 million in Canada in less than a year. For a toy that was fading, it's quite a transformation.