Here is a paper I wrote for a college course in 2012.
Critical
Thinking
Davenport
12.14.12
“The
Mouse and the House of Toys”
Allow me to lay the groundwork for
why this article, “Would Disney buy Hasbro?” by Jason Notte, is relevant to my
interest. I have been a fan of Hasbro toys, the Star Wars “universe”, and
Marvel comic books a good portion of my life. As a child most of my favorite
toys were made by Hasbro Toys including but not limited to G.I.Joe and
Transformers. As an adult collector I
have been buying Star Wars action figures since 1995, and they were a good part
of my childhood toy collection as well. I also watched the Star Wars prequel
movie trilogy which spanned from 1999 to 2005. When I was a teenager in the
1990’s I was a big fan of Marvel comic books, in particular the X-Men part of
the fictional universe. The article
directly addresses the companies that make my hobbies and interests possible.
The
crux of this article is the “news” that surfaced this year within days of
Disney buying Lucasfilm, that Disney buying out toy manufacturer Hasbro was in
the works. Although speculative at best, the article I chose for this paper is
from MSN Money, and could be perceived as business news. Business news, from
what I have observed, is very speculative in terms of the stock market and
mergers and acquisitions. As a speculative article I have some input about what
the author discusses in the article. I feel this topic of Disney possibly
acquiring Hasbro Toys in the wake of recently acquiring Lucasfilm (the owners
of the Star Wars Universe) this year and Marvel Comics a few years ago is of
keen interest to me. The hobby of collecting toys, comics, and such is also a
very speculative hobby as interest in such things is, at least in part, driven
by the value of said collectables.
At the
beginning of the article, the author starts with a questionable analogy
comparing the two large companies Disney, and Hasbro, as kids on a
playground. The companies involved mean
big business. Hasbro is one of the largest
toy companies in the world. Disney is a juggernaut in children’s entertainment.
This subject matter isn’t as trivial as the value kids put on trading cards and
the like.
Notte
moves directly into pointing out that the source reporting the future buyout is
questionable. I don’t know that this qualifies as a fallacy as the author
clearly points out the questionability of the source. However, this article was
not the only one to speculate on Disney possibly buying Hasbro. All sorts of
web sites were picking up this story, when word broke. Really if the “news” is
coming from one questionable source, it pretty much would be more a rumor than
news. However reliable news sources
cited this virtual “fact”.
The
business writer claims that the speculation of the purchase to be fairly “solid
business bedrock considering Disney loves buying anything a kid has ever
liked.” This statement is basically just thrown out without strong support. So Disney bought Marvel, Lucasfilm, and Pixar
Animation. Pixar had worked nearly exclusively with Disney for most of its
feature length computer animated films. Marvel did own a bevy of superhero
characters. Lucasfilm owns Star Wars as well as special effects house Industril
Light and Magic, which had been responsible for a lot of ground breaking
special effects in film since it was formed in the 1980’s. However these
transactions all happened within the last ten years and previous large buyouts
don’t seem to come to my mind, besides perhaps Disney’s operation of Jim Henson
Studios.
Disney
itself has been largely responsible for bringing “anything a kid has ever
liked” into existence with its own powerhouse full of intellectual properties
over the course of decades. It just
seems like good business sense to shore up different elements of children’s
entertainment under one large umbrella, having created so much children’s
entertainment themselves.
The
purchase of Marvel gave Disney the opportunity to publish comic books without
having to start a publisher from the ground up, which has been a shaky
proposition for other would be comic upstarts in the past few decades. The
acquisition of Lucasfilm not only gives Disney control over the fictional Star
Wars but also an integral filmmaking special effects department, ILM. That
should allow Disney to develop modern special effects in house instead of
subbing it out.
The
article may be guilty of begging the question when pointing out that although
Disney now owns Star Wars and Marvel characters, it doesn’t own the rights to
the license to produce toys of said properties. Although current licensing
agreements with Hasbro might be able to be renegotiated now that Disney owns
Marvel and Lucasfilm, but given the longevity of Disney itself, they could just
wait out the current toy agreements. As a toy collector I have noticed that
Disney has gone to cheaper no-name toy companies for action figure lines for
such films as “Pirates of the Caribbean” and “Tron Legacy”. The toys for these
films were shoddy at best, and clearly Disney wanted to maximize their profits and
minimize potential loss by making cheap toys and selling them at prices
comparable to quality toys such as those made by Hasbro. I personally don’t think Disney would have
Hasbro make their toys. For the original “Toy Story” film Disney used a small
company Thinkway toys to make the film’s toys but after it was successful
switched to signing a licensing agreement with Mattel (Hasbro’s Rival). Also I don’t think Disney has worked with
Hasbro previously for any of its intellectual properties.
The
idea that Hasbro will be “funneling money away from (Disney)” since Hasbro
currently owns the rights to the toys from Marvel & Star Wars movies, is
backwards thinking. Hasbro would be doing all the heavy footwork of design,
product development , marketing , and market research. With Hasbro having a
track record of delivering profits from these toys, Disney would in fact be
profiting by allowing Hasbro to continue the production of movie toy tie-ins. Hasbro has a decades long proven track record
of producing premium quality toys. Hasbro sets high standards in toy making,
standards many of Disney’s toys have yet to meet (especially in terms of
likenesses of characters).
Even
though Viacom’s Paramount Pictures may own the rights to the first three
Transformers films and the first G.I.Joe film; there is no guarantee that these
two properties will continue to be “cash cows” for Viacom. Viacom might be
better off selling the rights to future sequels off to Disney to get money up
front rather than wait for the possibility that continued sequels would be
large box office draws. Also prior to the live action movies of Transformers
and G.I.Joe from the past handful of years a different company owned the rights
to the animated feature films based on these properties from the 1980’s. So
it’s not a stretch that another company like Disney would take over the rights
to future films of these two franchises, not to mention possibly gaining the
rights to the current Paramount films.
The conflict
with Discovery Network sharing partnership with Hasbro of their joint venture,
cable network “The Hub”, in regards to Disney wanting to fold the network into
their own stable may be overplayed as well. With both Disney and Discovery
being large companies, it’s also unfair to claim that these two companies
couldn’t work out terms for transfer of ownership (or partial ownership) of
Hasbro/Discovery’s joint cable network “The Hub” which launched in 2010.
Different distributors have gained the right to the home video market of
Hasbro’s properties in the last three decades. Would it be a surprise if
another company, like Disney, gained television distribution rights of Hasbro’s
current shows. Another option might be new shows based on the properties currently
being shown on “The Hub.”
The author goes on to suggest that Disney is
in an all encompassing exclusive toy agreement with Hasbro’s rival Mattel. Again I cite that both the Pirates of the Caribbean
film franchise and Tron Legacy had toys produced by a company other than Mattel
or Hasbro. Disney is likely to handle toy rights as one intellectual property
at a time. This would allow for different manufacturers to produce toys per
property which seems to be what Disney has been doing with at least its market
for boys’ toys. Personally I have been attracted to the toys produced by Hasbro
for their superior construction and attention to detail. The only toys I can
think of that I have purchased that were made by Mattel are “Monster High”
dolls which are a girl’s toy property. Also, different toy companies have had the
rights to produce toys based on the same property, like Hasbro and LEGO both
having separate agreements to make toys based on Star Wars.
The
author refers to Mattel as “the biggest toymaker in the US”, but calls Hasbro “
’a’ toy company.” Hasbro is not just another toy company. Hasbro is also one of
the largest toy companies in the US . Mattel and Hasbro have rivaled each other
for decades in regards to size and revenue. If Disney were to acquire Hasbro,
they would either wait out any agreements made with Mattel or end those
agreements.
The
author treats a recent decrease in revenue by Hasbro as though Hasbro’s other
toy properties are “toys nobody wants.” Hasbro itself has been “shoring up” its
own stable of properties and licenses over the last three decades, building its
portfolio up. Also if Hasbro’s girls’ toys jumped up 17% on its own within
Hasbro, then it doesn’t necessarily need a property like “Disney Princesses” to
increase revenue in the girls market. Also the basis of Hasbro being purchased
by Disney is that it would improve Disney’s strength in the boys’ toys markets,
which is the primary reason Disney did acquire Marvel and Lucasfilm.
The
suggestion that the talk of Disney acquiring Hasbro is “premature” because it
waited three years between buying Marvel and buying Lucasfilm. This is in a way
the fallacy of conventional wisdom, whereby because Disney waited three years
between the first two purchases that it somehow would have to wait another 3
years before considering buying Hasbro. This ignores all sorts of market
factors, like available capital, the rapid growth of Disney which could lead to
being able to make these large purchases sooner. Also it assumes that Hasbro would
be bought with a price tag in the vicinity of $4 billion because that is roughly
how much Disney paid for Marvel and Lucasfilm respectively. The market value of
Hasbro in its entirety isn’t actually investigated in this article, it is
simply assumed to be similar. Hasbro may have either more or less value than
the other two companies were sold to Disney for.
This
entire speculation that Hasbro may be bought by Disney as reported by only one
source, and needing some three years to come to fruition, only helps drive the
rumor. If the public and business news sources won’t know an outcome of this
rumor for upwards of three years, it leaves plenty of time to be guessing about
the future of both Disney and Hasbro.
Another
thing not addressed is whether or not Disney acquiring its own toy company
would violate Anti-Trust/Monopoly legislation. If Disney had a vertical
monopoly of owning all forms of marketing from film, to comics, to toys their
might be a possibility that the merger isn’t even possible.
The author
closes with another questionable analogy comparing the CEO of Disney and the
possibility of buying Hasbro to that of a child and a holiday toy. The whole proposition of $4 billion being
child’s play is ludicrous. Many factors
come into play with a deal as large as the done deals of Disney with Marvel,
and that with Lucasfilm, or the proposed buyout of Hasbro. All three parties have market shares of very
different elements of the entertainment industry. It is not clear why the connection between Hasbro
and Disney was given as much credence as that in this article and others like
it on the internet.
To sum
up, I strongly believe the proposition of a buyout is bunk. Firstly Disney and
Hasbro have rarely worked together on boys’ toys projects in the past. Secondly
Disney has been known to seek smaller toy companies with lower quality toys
rather than take the kinds of risks that Hasbro does when it commits to a toy
line. Next Disney owning a toy company may form a vertical monopoly that may
not pass Anti-Trust regulations. Even though Hasbro owns a lot of intellectual
properties, the marketability of the majority of them on a level that would
make the buyout profitable is unlikely. As much as I respect both Disney and
Hasbro for what they have offered the public as far as entertainment and
collectability based on my years of experience as a buyer of Hasbro products, I
doubt Disney is a good fit for what they have to offer.
Works Cited:
“Would Disney buy Hasbro?” Jason Notte, November 6th
2012, (http://money.msn.com/top-stocks/post.aspx?post=6dd4cbb8-d936-444a-8f2b-6869a1e26688)
