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Star Wars III: A gamble for Hasbro
No. 2 toymaker is hoping the upcoming 'Revenge of the Sith' can revive sales of its boys' products.
February 7, 2005: 1:49 PM EST
By Parija Bhatnagar, CNN/Money Staff Writer
Hasbro, which is the master licensee for Star Wars toys, this month launched the new
Hasbro, which is the master licensee for Star Wars toys, this month launched the new "Darth Tater" Mr. Potato Head toy. (Price:$7.99)
The Anakin Skywalker action figure (left, available in April: $5.99) from the
The Anakin Skywalker action figure (left, available in April: $5.99) from the "Revenge of the Sith." Hasbro's Beyblade spinning top toy.

NEW YORK (CNN/Money) - Hasbro has an exclusive license to make and sell Star Wars toys and games until 2018. But it needs to see the payoff from that deal in 2005, when the last scheduled installment of the movie franchise is set to be released.

The Pawtucket, R.I.-based No. 2 toy manufacturer, after Mattel Inc. (Research), posted disappointing fourth-quarter profit and revenue results Monday. It blamed the shortfall on softness in its domestic market, and specifically on an unexpected decline in sales in its boys division -- something it hopes the new Star Wars film will overcome.

"The overall decline in our boys' business hurt toys' profitability because that is a high margin business for us," CEO Alfred Verrecchia said in a conference call with analysts that was monitored in New York through a Web cast.

Verrecchia said the company was blindsided by an unexpected $97 million year-over-year decline in sales from its Beyblade brand of spinning top toys and lower margins on its high-volume Videonow products, which is a portable, handheld personal video player for kids.

"It was a clear success with consumers but not a clear success from a financial standard," said Verrecchia of Videonow. "We overstated our market demand for Videonow and one key retailer featured it at a significant discount during the holidays.'"

Hasbro (Research)'s quarterly miss seems even more glaring in light of its rival Mattel (Research)'s recent better-than-expected fourth-quarter performance that was spearheaded by a long-awaited revival in sales if its marquee Barbie brand.

With that, industry watchers say the ball's back in Hasbro's playchest to prove that it can manage to recover from its recent stumble.

"The force is strong" but can it deliver?

Enter "Revenge of the Sith," set for release May 19. Hasbro is gearing up to release a slew of new boys' products tied to the film,

For instance, there's the new "Darth Tater" Mr. Potato Head , a collection of action figures from "Star Wars Episode III," and a new "Darth Vader" voice changer mask that converts kids' own voice to that of the evil Lord Vader.

Given the positive performance of its "Star Wars" merchandise last year, Hasbro's chief financial officer David Hargreaves told analysts that he expects the toys and games linked to the epic to "be a profitable line for us this year."

Hasbro negotiated the 10-year license extension in 2003. "We have an extra ten years to exploit this property," said Hargreaves. "The Star Wars property is a high gross margin area. It generally requires less advertising because its the movie that drives interest in the merchandise."

At least one industry analyst, however, pegs the "Star Wars" property as more of a gamble for Hasbro.

"No doubt 'Star Wars' is an important property for Hasbro but the history of that license hasn't been overall profitable for them," said Timothy Conder, analyst with A.G. Edwards. The company struggled with sales of Star Wars toys in 1999 after Hasbro originally paid about $590 million for the exclusive worldwide rights.

"If you look at the 'Harry Potter' merchandise sales, they tended to go down as each sequel was released," said Conder. "Hasbro was somewhat non-committal when we asked them what they expected the trends this year to be with the Star Wars-related products."

Verrecchia said he's confident about the rest of Hasbro's product lineup for 2005, which the company unveils next week at the American International Toy Fair in New York.

"While 2004 was below our expectations, we have a good feeling about 2005," he said. "We're bringing back Furby, we're mining the investments made in technology with new toys like the I-Dog, and we have a few other surprises."  Top of page


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