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Thursday, May 26, 2022

Disney and Mattel Are in Trouble, But the Situation Is Reversible Down, Not Out

This decade has not been kind to the Fortune 500 in Los Angeles, with many firms, particularly in finance, aerospace and energy, slipping away to other locales. Now two of L.A.’s remaining big players, Disney and Mattel, are widely seen as in trouble.

The future of these companies is critical, not only because they are big, but because they epitomize the most dynamic parts of the Los Angeles economy: entertainment and consumer products. For both, many of the setbacks are self-inflicted. But their brand names are still dominant, so the situation is reversible.

Some of the problems may stem from a lack of confidence, which is endemic in Los Angeles today, even five years after the recession. Disney showed its lack of technological assurance by allowing Pixar to do its digital animation, essentially creating a potential monster competitor. A confident firm, or an entrepreneur like Walt Disney, would never have given away the store in that way.

Perhaps even more vulnerable is Mattel, the world’s largest toy company, which has seen its stock value drop a remarkable 70 percent over the past two years. Despite having the dominant brand in the doll business, Barbie, the company has been floundering largely because it tried to build a large piece of its electronics business through the expensive and probably ill-considered $3.8 billion acquisition of the Learning Co., a Bay Area multimedia firm. That stroke of genius lost $105 million for the company last quarter. As a result, its high-profile CEO, Jill Barad, is the most talked-about candidate for execution since Louis XVI.

Once the golden girl of the doll industry, Mattel now seems a company in deep trouble. The stench of failure is attracting vultures, not only on Wall Street, but in the doll business. One small New Hampshire-based competitor, Kid’s Galaxy, is coming out with a hot new interactive program that allows girls to design their own dolls and then have them shipped to their homes within two weeks.

Kid’s Galaxy President Michael Collins sees Mattel, and Barbie, as a bunch of geezers. He left his previous employer, the Pleasant Co., a Wisconsin doll-maker, four and a half years ago when Mattel acquired it. “Entrepreneurial people had no time for that environment,” he sneers. “It’s a company that’s out of touch.”

To Collins, Barbie has become an anachronism. In an age of interactivity and choice, she represents an attempt to impose “a 1950s image” of girls. With his iDolls program (www.iDolls.com), he hopes to be able to reach girls at home over the heads of the Barbie marketers. “It’s what technology allows you to do,” Collins suggests. “Ten people in a garage can compete with the biggest companies. How did Barnes and Noble allow Amazon to develop? How could Toys ‘R’ Us allow for the growth of eToys? It’s a fundamental restructuring.”

Yet it would be a mistake to underestimate the $5 billion toy giant. If the Learning Co. acquisition has been a failure, Mattel itself is still capitalizing mightily on its core strength, the ubiquitous Barbie, which accounts for 30 percent of company sales. If sales growth has slowed, license fees for the nubile California girl have been soaring over the past three years, from $200 million to over $700 million, notes Adrian Fontanella, president of the Girl’s Barbie division.

These days, the plastic fantastic girl’s face is on everything sheets, pillowcases, cosmetics. “I am not a tired old marketer,” Fontanella suggests. “I think I have a lot of vitality. We anticipate what girls want and our products are on the cutting edge.”

For a ’50s kind of gal, Barbie is certainly no cyber-slouch. She keeps dominating the top CD-ROMs for girls, with six of the 10 best-selling titles last year. The company’s year-old Barbie.com Web site which features a “my design” program that allows girls to design their own Barbies averages more than 1 million hits a month.

“Barbie is still a very powerful brand,” suggests Scott Ross, president of Digital Domain, a cutting-edge digital effects firm that developed the phenomenally successful “Barbie Fashion Designer” program. “I can tell you in terms of computer software, Mattel has been pretty good.”

Ross, who has a young daughter just out of the “Barbie phase,” remembers tripping over hordes of the dolls at his Malibu home. Like many dads, he does not think she, or Mattel, are going away. Some things, like the California sun or the Malibu surf, are eternal and not likely to lose their appeal no matter how much the suits screw up.

“Barbie is always being reinvented, and every year there’s another crop of 5-year-olds,” he observes. “I know they may be having tough times, but it’s an evergreen. It’s not going away.”

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