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from the Boston Globe... a good high-level overview of this 10% of Hasbro, its great growth potential, and its competitors in the industry.

http://www.boston.com/dailyglobe2/153/business/Video_game_wars%2b.shtml

text:
Video game wars
Hasbro Interactive fights for share in crowded market
By Kathy McCabe, Globe Correspondent, 06/02/99

BEVERLY - In the incredible universe of electronic games, the force is clearly with Hasbro Interactive Inc.

Monopoly Star Wars, Frogger, Tonka Workshop, and Email Scrabble are just a few of the tricky titles that have sent the multimedia division of toy giant Hasbro Inc. of Rhode Island soaring to the top of the nation's $5.5 billion video game industry.

In just three years, Hasbro Interactive, pioneer of the casual and family game market, has emerged as the world's third largest video game company, with sales expected to top $300 million this year, from $35 million in 1996, the company says.

'They have put amazingly strong numbers on the board,' said analyst David Leibowitz of Burnham Securities. 'They are clearly a force to be reckoned with.'

But the fast-growing company, already fending off the likes off Microsoft and Sony, faces a new challenge from its old rival Mattel Inc., which last month completed its $3.5 billion acquisition of Cambridge-based Learning Co., the nation's second largest maker of entertainment and educational software.

Now armed with such popular titles as the Carmen Sandiego and Reader Rabbit series, along with best-selling strategy games Myst and Riven, Mattel has been transformed overnight into a $1 billion behemoth in the explosive interactive industry.

'They're players. They've gained a significant amount of market share in a short time,' says Doug Lowenstein, president of the Interactive Digital Software Association, a trade group representing computer and video game companies. 'Their acquisition of the Learning Co. is a pretty strong statement about their commitment to the interactive industry.'

But Hasbro Interactive is prepared to battle its old nemesis on new turf. 'Our goal is to knock all of our competitors out of business,' said Hasbro Interactive president Thomas Dusenberry in a recent interview at the company's Beverly headquarters. 'Mattel is about as good a competitor as you will ever get, but we see the competition as anyone who takes up shelf space. We don't dwell on Mattel specifically.'

Indeed, going forward, Hasbro Interactive still faces tough challenges from nimble competitors Havas Interactive Inc., a French-owned maker of strategy games, and California's Electronics Arts Inc., which specializes in sports titles. As of April, the companies ranked first and second, respectively, in overall PC game sales, according to PC Data, a Virginia software sales tracking firm.

Said Leibowitz, 'The market is very fast moving. Hasbro has to come up with titles that are fresh, exciting, and that capture the consumer's imagination. That's a very tall order.'

And MattelMedia, the toy giant's interactive division in El Segundo, Calif., seems ready to meet it. Since starting three years ago, the company's on-line and CD-ROM products have focused mostly on the always-fashionable Barbie, and Hot Wheels. Still, sales for the division soared to $100 million last year, from $20 million in 1996, the company said.

Mattel, which posted a $17.9 million first-quarter loss because of sagging retail sales in its traditional business segments, is now gunning for a bigger piece of the fast-growing interactive children's and family game market.

Drawing on the technology of Learning Co., Mattel said last month it will spend $50 million to create a new Internet subsidiary, Mattel.com, which will bring together its top brands, such as Barbie, Carmen Sandiego, and American Girl, for both sales and play. Mattel expects total e-commerce revenues to reach $60 million this year.

'As with all our interactive products, we want to do things that relate to the basic play patterns of these properties,' said Glenn Bozarth, a Mattel spokesman. 'We see a lot of synergy between the Learning Co. titles and our own brands.'

Of course, wherever Mattel's Barbie goes, Hasbro's G.I. Joe is not far behind. Hasbro Interactive took a step toward the Internet last year, introducing a line of Email Games. Hasbro's signature boardgames including Monopoly and Trivial Pursuit are played on-line through agreements with Microsoft and Sony Online Entertainment.

Its line of CD-ROM games, which now includes 85 titles, contains computer chips to convert to Internet play. And in the last year, the company has expanded its playing platforms from PCs to Nintendo 64s, Sony PlayStations, Windows CE, and personal e-mail accounts.

For now, however, Dusenberry won't say whether Hasbro Interactive will launch a separate Internet subsidiary, saying only, 'We know we need to apply technology into our business even more than we already have.'

But at least one analyst expects Hasbro Interactive soon will launch its own Internet gaming site. 'What they've done is take all their core properties and put them onto new platforms, first with PCs, and now with video game consoles,' said analyst John Taylor of Arcadia Investment Corp. 'They're well positioned for an on-line gaming strategy. They've got the brands everyone knows and loves.'

Indeed, Hasbro Interactive entered the video game business armed with an arsenal of top consumer brands, including Parker Brothers, Milton Bradley, and Playskool. 'We have gone after the mass market with known brands with proven play patterns,' said Dusenberry, a former vice president of new product development at Milton Bradley.

The strategy, aided by falling computer prices, has helped build Hasbro Interactive into a growing powerhouse for parent Hasbro Inc. Although the unit's sales still account for less than 10 percent of the company's total revenues, it holds the greatest growth potential - the interactive industry is expected to grow an average of 15 to 25 percent in the coming years, according to the Interactive Digital Software Association.

'It will be a key driver for Hasbro in the next couple of years,' said Taylor.

Helped by sales of its popular chattering Furby and the Teletubbies, Hasbro reported a 77 percent jump in first-quarter earnings, to $13.8 million, up from $7.8 million for the year-ago quarter.

In the last year, Hasbro Interactive made three strategic acquisitions, making it a player in the top-selling action and strategy game segments.

The Atari brand of video games, purchased from JTS Corp., gave Hasbro Interactive top titles such as Centipede, Missile Command, and Pong. It also bought MicroProse Inc. and Avalon Hill Inc., two small, cutting edge makers of strategy and action games, and it entered into a strategic partnership with SmartGames, a Salem game company that specializes in puzzles and other brainteasers.

These moves have allowed Hasbro Interactive to focus more on research, development, and distribution, and boost its overall product portfolio. The CD-ROM version of Monopoly, among the first titles it released, has sold over 1 million units. Frogger, a souped-up version of the old Atari arcade game, has become one of the top-selling action titles. In all, the company now markets 85 titles ranging in price from $14.99 to $39.99.

'We were a virtual publisher until we made those acquisitions. But now we have four studios and 12 development teams,' Dusenberry said. 'We can now control our own destiny.'

The Beverly headquarters handles marketing, sales, distribution, game design, quality control, and financial and manufacturing services. A third-party manufacturer in North Carolina ships the finished products to Beverly for testing.

New licensing agreements will bring Email NFL Football and a line of NASCAR racing-themed games, and a new line of kids' computer and video games based on Nickelodeon's popular CatDog and Nicktoons. Said Dusenberry, 'Our job is to put fun into everything we do.'
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