The warning signs for the toy industry started last year when Cars 3 — considered a surefire success — proved lackluster for licensees like Mattel (MAT).
Now toymakers’ big bets on movie tie-ins look downright bleak. Playthings based on the Star Wars saga — the franchise that kicked off the whole phenomenon four decades ago — were down in 2017 despite a new film, Star Wars: The Last Jedi, in December during the all-important holiday-shopping season.
Call it Star Wars burnout, or better yet “movie fatigue,” said Gerrick Johnson, an analyst for BMO Capital Markets. Hollywood and toymakers have fixated on toy-friendly films at a time when kids are increasingly turning to YouTube, Netflix and social media for entertainment.
More than 20 major films, including The Last Jedi, had robust toy-licensing programs last year. A decade ago, it was about half that. Movie attendance in the U.S. has dropped almost 14% in that span.
“There are so many screens now; kids aren’t just at the movies,” Johnson said. “A movie doesn’t have the same resonance it used to.”
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While Star Wars was still the top-selling toy line during the nine-week holiday period, it fell to second place overall last year and below the all-time high seen in 2016, according to data from market research firm NPD Group shared with Bloomberg News.
“Star Wars is a force to be reckoned with in the toy industry,” the brand’s owner, Walt Disney (DIS), said in a statement. “It remains the leading film-driven property for the entire year.”
After a decade without a Star Wars film, Disney has released three movies since December 2015, and another one is coming in May. The latest installment, The Last Jedi, didn’t include many new memorable characters beyond those introduced in the preceding film, Johnson said. That left fans looking for newness elsewhere this year, leading to weaker results than expected, he said.
U.S. sales of the brand’s toys slowed in late 2017, Drew Crum, an analyst for Stifel Nicolaus & Co., wrote in a note to clients last week. This was despite Last Jedi being the top-grossing film released in the U.S. last year at $596 million.
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Adult collectors, who grew up with the brand, are still buying a lot of merchandise when the toys come out, but demand dies down afterward, according to Johnson.
That doesn’t bode well for Hasbro (HAS), which has the main Star Wars toy partnership, or Jakks Pacific (JAKK), which has a secondary license. Jakks said it couldn’t comment on Star Wars sales, but that merchandise tied to Moana, another Disney film, “remains very strong.” Hasbro declined to comment.
The Star Wars performance could hinder Disney’s bid to revive growth at its consumer products division, where sales fell 13% to $4.83 billion for the fiscal year that ended Sept. 30.
The September bankruptcy filing of Toys “R” Us, which makes up about 15% of the market, added to the challenges for Star Wars sales growth this year, though the company continued to market the toys.
Visitors to the Toys “R” Us store on Los Feliz Boulevard in Los Angeles recently had plenty of Star Wars merchandise to choose from. A whole aisle included everything from a $3.99 Millennium Falcon Hot Wheels car to a $250 AT-ACT remote-controlled vehicle that walks and fires Nerf projectiles.
Tracey Gordon, a full-time mom from Glendale, Calif., shopping at the store, said her three boys, ages 2 to 7, aren’t Star Wars fans even though she wore a Princess Leia costume on Halloween for years when she was younger.
“It’s a generational thing,” she said, adding that her nephew likes the toys largely because his dad “drags him to see the movies.”
For years, Hollywood’s push into comic-book heroes and other childhood fare was a gigantic boon for the toy industry. In the last decade, entertainment-related toys grew from 15% of the industry’s revenue to 38%, according to BMO. The movie tie-ins helped propel the industry to some of its strongest growth in decades in 2015 and 2016, when Star Wars merchandise was the top-selling brand with more than $700 million in sales.
In the first half of 2017, tough comparisons to previous Star Wars sales contributed to declines in the building products and action figure categories, according to NPD. The market research firm, which is expected to report full-year sales numbers later this month, said in July that it was projecting 4.5% growth overall for the industry in 2017.
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The original Cars, the 2006 animated film, was one of the stalwarts. Combining memorable characters with a classic kid plaything — a car — it remained a top-selling licensed brand for years after its release. Disney opened a Cars Land attraction at its California Adventure park in Anaheim, Calif., in 2012 that drew hours-long wait times for its signature ride.
But the third film came out in a crowded field, followed over the next several weekends by the latest Transformers, Despicable Me and Spider-Man movies. It didn’t help that Cars 3 got an average score of 68% from critics at RottenTomatoes.com.
Even more toy-licensed films are scheduled, including the prequel Solo: A Star Wars Story and new Transformers, Fantastic Beasts, Jurassic Worl and superhero fare. The lesson toymakers will draw from the 2017 slate is that they can’t just rely on the movie to do the marketing anymore.
“There is a new paradigm,” Johnson said. “Just because there is a movie with a toy tie-in doesn’t necessarily mean it’s going to work. It used to mean it would work.”