Toy Companies Take Cyclical Dip with Competition from Apps and Video Games: A Wall Street Transcript Interview with Gerrick Johnson, an Analyst in BMO Capital Markets Corp.'s Equity Research Group

Wall Street Transcript

67 WALL STREET, New York - November 14, 2013 - The Wall Street Transcript has just published its Entertainment, Toys and Games Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Brick-And-Mortar Versus Online Retail Sales - Cautious Consumer Spending - International Paid Television Growth - Digital Advertisement Trends - Mobile Device Gaming Prospects - Toy Company Competition

Companies include: Mattel Inc. (MAT), Hasbro Inc. (HAS), LeapFrog Enterprises Inc. (LF), JAKKS Pacific Inc. (JAKK), Harley-Davidson, Inc. (HOG), Polaris Industries, Inc. (PII), Thor Industries Inc. (THO) and many others.

In the following excerpt from the Entertainment, Toys and Games Report, an experienced hard goods toy and leisure products analyst discusses the outlook for the sector for investors:

TWST: Is your coverage in the entertainment space the game subsector?

Mr. Johnson: Yes, I cover toys and physical games. I do not cover video games.

TWST: How have video games and electronic games in general impacted the physical game space?

Mr. Johnson: More than video games, tablets and smartphones and their apps have had an impact on this market. We are living in the era of free apps, so the consumption of that product for a child is pretty inexpensive, especially if parents have an old iPad to hand down, they disconnect the cellular and make it Wi-Fi enabled and download some free apps for the kids to play. That will change over time, because I don't think there are many companies making money by distributing free apps or $0.99 apps. So over time, apps are going to become more expensive, and when they do, you might see that trend change somewhat. Right now, the tablet app games are pretty novel, so that is also going to wear off eventually. But for right now, the apps are definitely having an impact.

We also expect to see some impact when the new Xbox and Playstation consoles come out late next month. If you ask an 8-year-old boy if he would rather play a physical game or the new video game, he's likely going to pick the video game. For Christmas, if you tell that same boy he can have several smaller items on his wish list plus one big item, this year they are likely to pick that PlayStation or Xbox One rather than a physical toy or game.

TWST: Within the physical toys and games, what types of products do continue to have traction?

Mr. Johnson: The hottest category right now in girls is fashion dolls, and that's piggybacking on the success of Monster High. Barbie has been a little bit soft, but you have a lot of new brands. In the past, it's been very difficult for new brands to break into fashion dolls with Barbie's dominant position, but now you have a lot of new and innovative fashion dolls in that segment, whether it be Pinkie Cooper or Equestria Girls or Novi Star; you've got Monster High, Ever After High. So you've got a lot of innovation and a lot of creativity in fashion dolls.

The boys segment is a little more difficult. Action figures and anything related to the super heroes are pretty soft. Lego is still very, very strong, but that growth rate is decelerating quickly...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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