Hasbro’s Chief Transformer09/12/2008
PAWTUCKET, R.I. (MarketWatch) — Breaking into the movie business is never easy. Doing it with a 1980s-vintage action figure is the ultimate outsider challenge. But for Hasbro Inc. CEO Brian Goldner, the pitch for Transformers turned into a Hollywood robots-to-riches story.
With no hands-on film experience but a passion to energize the No. 2 toymaker’s classic brand names, from Mr. Potato Head to G.I. Joe, Goldner, then head of Hasbro’s toy group, sought out movie producer Lorenzo di Bonaventura in 2003 after reading in a trade publication that di Bonaventura was considering a film project about military technology.
Di Bonaventura, who had been involved with movies such as “The Matrix,” said he essentially received a cold call from Goldner, who wanted the producer to consider turning his military film into a G.I. Joe movie.
That conversation not only led to the upcoming release, in 2009, of the G.I. Joe film but also to di Bonaventura’s producing “Transformers,” which generated more than $700 million in 2007 box office and has a sequel coming next year. Goldner, listed as the movie’s executive producer, also helped bring together Paramount Pictures and DreamWorks along with Steven Spielberg, also credited as an executive producer.
“From one conversation to the next, we hit it off,” di Bonaventura said. “In normal times, it could take months of conversation to move forward. Brian and I did it in two or three times. He has that gut instinct and a dynamic vision for what ‘Transformers’ could be and the willingness to jump into it. His contribution was invaluable.”
“Transformers” became a touchstone at Hasbro (HAS: 27.73, -0.11, -0.4%) . It helped to keep the 85-year-old company relevant, transforming it beyond a toymaker to an intellectual-property-owning powerhouse. In 2008 that has translated into a modest stock-price gain of 3% in the face of an overall market and toy-sector decline of about 40%, a nearly 10% profit gain year to date, and a forecast that sales for the entire year will hit a record atop $4.1 billion.
At the same time, Goldner has expanded the Transformers brand into children’s television, brought online and interactive versions of popular games such as Monopoly to market, rebuilt strained relationships with retailers, given employees the training and authority to tackle new challenges, and implemented a “flash” reporting system to the board of directors, all of which have led to Goldner’s being named the 2008 MarketWatch CEO of the Year.
“For many years, Hasbro was very happy to own a piece of the playroom floor or the kitchen table,” said Goldner, 45, who became chief executive in May after predecessor and retiring CEO Al Verrecchia recommended him to the board. “A brand can create these immense experiences. It all integrates together and creates this huge enterprise that we’ve never had before. Our ambitions are big.”
As his Hollywood chutzpah shows, Goldner’s aim is high: to turn Hasbro’s top nameplates into global power brands that consumers can experience in any way and format at any time they want, including movies, video games and even a theme-park attraction.
“He’s able to get the company to visualize the outcome with the big picture he paints,” said Thomas Russo of Gardner Russo & Gardner, which owned more than 2 million Hasbro shares as of September. “He was the person who’s willing to make the hard choices to deliver the outcome and focusing the organization on what’s right early in the game.”
Taking charge in 2008
That focus includes the February signing of a six-year deal with Universal Pictures (GE: 18.60, +0.75, +4.2%) to produce at least four films based on Hasbro’s properties. Goldner also added new positions and named Los Angeles-based executives to nurture and explore Hollywood relationships and opportunities. He led negotiations with Electronic Arts Inc. (ERTS: 21.49, +1.51, +7.6%) , which in October unveiled digital and interactive games such as Monopoly and Nerf N-Strike for the Nintendo Co. (JP:7974: news, chart, profile) Wii that comes with a blaster and has been tapped as a hot holiday toy
To engage kids’ interest, he unveiled an animated “Transformers” TV series this year. This spring he named 26-year company veteran David Hargreaves as chief operating officer and appointed five other executives as global brand leaders in charge of its top seven labels from G.I. Joe to Monopoly, changing Hasbro’s previous structure of organizing along product categories without a manager overseeing any given brand.
To expand in emerging markets, he opened Hasbro’s first office in Brazil this year after selling through a distributor for the past 30 years.
Responding to the economic unraveling that’s all but frozen consumer spending, in November Goldner created a monthly flash report for the board, which otherwise meets four times a year, to keep directors abreast of what’s going on with the company and the industry heading into the sector’s crucial holiday season, said board member Jack Connors Jr.
“It’s very helpful,” Connors said, adding it’s the first time he’s seen a chief taking such initiative, and he’s been on the boards of 30-plus companies and nonprofit organizations. “This is the marketplace where you need to be very quick to respond. He has that rapid-response capability. The board is also very impressed with the senior team that Brian has assembled.”
Hasbro shares had risen 14% this year through Oct. 31, compared with the 21% drop of larger rival Mattel Inc (MAT: 14.78, +0.17, +1.2%) . The Standard & Poor’s 500 Index (SPX: 903.81, +27.74, +3.2%) declined 34% during the same period, while the 14-member Dow Jones Wilshire U.S. toy index was down 36%.
Goldner is “really in tune,” said another director, Paula Stern. “He’s very smooth, very youthful and very attractive, and, as we’ve continued to work together, his maturity and experience and his vision have been the most impressive.”
Toys in the attic
The son of an electrical engineer and a school teacher, whose only toy growing up in Huntington, on New York’s Long Island, was a box of Legos, Goldner said he loved getting lost in the woods playing army men and going to a friend’s house to play with other toys, including an astronaut G.I. Joe .
An ardent player of tennis and practitioner of yoga, the adult Goldner has expanded his toy chest: iPod, iPhone, BlackBerry, PlayStation Portable, PlayStation 2 and 3, and Nintendo’s Wii. He buys Hasbro’s Scrabble game for his iPhone and plays Monopoly. He also loves playing the Madden football video game and spends hours immersed in Wii tennis with his brother.
His office has afforded him the toys he didn’t have as a child — Monopoly board games in different languages, Nerf football and Nerf blaster, Star Wars’ Darth Vader mask, an actual movie replica signed by director George Lucas, and a life-size G.I. Joe cardboard cutout in Goldner’s likeliness saying, “I’m not getting older. I’m getting tougher.”
Goldner, with a bachelor’s degree in government from Dartmouth, counted speech among his favorite classes, and credited a progressive career history that honed his skills in marketing and consumer insight.
From his career at the advertising agency Leo Burnett and later at J. Walter Thompson, he worked on promoting new products such as Procter & Gamble Co.’s Pert Plus, the industry’s first two-in-one shampoo and conditioner; Kraft Foods Inc.’s Oscar Mayer Lunchables; and Power Rangers, licensed by Japanese toymaker Bandai. He later joined Bandai.
Chris Byrne, an independent toy consultant, came to know Goldner when he worked at Bandai. Byrne remembered how Goldner stood out from other executives during the annual Toy Fair in New York, where Goldner introduced a new Power Rangers toy embedded with the latest technology.
Other toy companies were “talking about what their toy can do, but he was talking about what people can do
with it,” Byrne said. “He was all about ‘Look at the experience kids are going to have with it,’ and not just technology for technology’s sake. That’s really visionary. Several years later, the rest of the industry has caught up with where he was.”
Goldner was a rising star soon after he came to Hasbro in 2000 from Bandai. A few months after he joined Hasbro’s Tiger Electronics unit in Chicago, the company promoted him to head its consolidating toy group, its most challenging business at the time, in Pawtucket. He became part of Verrecchia’s key management team to return Hasbro’s focus to its own portfolio of toys and games.
“The cream rises to the top,” said Verrecchia, 65, who now chairs the board following a 41-year career at Hasbro. “Brian was clearly one of the key players. He made significant contributions and really demonstrated ability in marketing and selling.”
Goldner was promoted to president and chief operating officer in 2006. Under his watch as head of the toy group, the unit’s compound annual operating profit rose 47% from 2002 to 2006. As chief operating officer running the North American segment between 2006 and 2007, that division’s compound annual profit surged 39%.
“We’ve watched him for a while,” said Connors, who’s on the Hasbro board’s nominating committee along with Stern. “It was obvious to a lot of us that he very much was on the right track to be the CEO. In addition to his marketing skills, he’s got great people skills.”
Spurring record sales
Aside from its own toys and games, Hasbro also reaps royalties from licensing Transformers for product categories ranging from bedding to sneakers. A Transformers theme-park ride is scheduled to launch in 2011. Unlike licensed properties such as Pokemon, Hasbro makes more profit from brands it owns, Goldner said.
“He really has a sixth sense,” said Vijay Govindarajan, a professor at Dartmouth College’s Tuck School of Management, who leads Hasbro’s executive training program through the school. “Transformers could have been a big flop. He knew the market was ready for it.”
Transformers product sales grew almost fivefold to $484 million in 2007 from $100 million in 2006. While sales are expected to slow absent a movie this year, they could still reach $425 million, driven by the new TV cartoons and overseas demand, and could top a record $600 million next year with the sequel’s release, Needham & Co. analyst Sean McGowan said.
“They’ve broken out of the good-year-and-bad-year cycle,” McGowan said. “He’s bold enough to envision what Hasbro can be to be more than just a toy company. That’s done wonders.”
After record sales and profit in 2007, Wall Street expects the toymaker to generate another record $4.11 billion in sales this year. Goldner said Hasbro could grow per-share profit this year, depending in part on how consumers fare during the holidays, as Hasbro also is investing in emerging markets, entertainment and digital gaming. He expects sales and per-share profit gains next year, he said.
The biggest challenge and concern in the immediate future is the economic environment, he said.
Hasbro has spent more than $1 billion to repurchase more than 45.9 million shares and in February increased its quarterly dividend for a fifth straight year to 20 cents a share.
While not immune from problems, Hasbro’s name was absent from the list of lead-paint-tainted-toy recalls that plagued Mattel and other toymakers in the past year.
“Hasbro deserves a lot of credit for having better-than-industry standards in testing,” said McGowan. “Their system was more rigorous and less susceptible to deliberate tampering.”
The company also scored better than 96% of the consumer durables and apparel group and higher than 71% within the Standard & Poor’s 500 group in its corporate governance score, said RiskMetrics Group, which owns proxy advisory group Institutional Shareholder Services.
Employees said they weren’t surprised that Goldner would succeed Verrecchia. “People in the building were just thrilled,” said Samantha Lomow, a global brand leader who had worked for Goldner at Bandai before deciding to move from Toronto to follow him to Hasbro.
Govindarajan said Goldner impressed him when he took it upon himself to make the six-hour round-trip drive from Pawtucket to Dartmouth in Hanover, N.H., three times a week for an hour dinner to speak to Hasbro executives in training.
“To me a great CEO is one who places great emphasis on people,” said Govindarajan, “That’s how you become successful. He really believes the future of Hasbro lies not in technology and product, but in people.”
“He trusts that you know what you are doing,” said Lomow. “He’s very good at helping you make your plan better. He’s not someone who’s into hierarchy. He makes everybody feel they are part of the team. You spend a couple of minutes with him, you are engaged and energized for a few more weeks. I’ve really learned a lot from him.”
It was Goldner’s vision that convinced Terry Scott to uproot his family of five from a comfortable life in Napa, Calif., and turn down numerous job offers in the San Francisco Bay area to move to Rhode Island eight years ago.
“He said: ‘This is not the old Hasbro. This is going to be the new Hasbro, and you can be part of shaping that,’ ” said Scott, now head of Hasbro’s creative services and studios, recalling a phone call from Goldner, then in charge of the company’s toy group.
“He wanted me to hear from him what his vision was, what opportunity he was going to allow me — creating an advertising agency and spending millions of dollars for a studio. The leap of faith was in believing in the passion he was exuding in where he wants to take the company.”
Eight years later, what Goldner described for Scott has turned into a full-fledged in-house studio for the production of commercials and promotional videos, complemented by a 180-strong creative-services team.
Jerry Storch, chief executive of Toys “R” Us, said Goldner has also helped to transform what he described as the retailer’s “too adversarial” relationship with Hasbro.
“He came here,” Storch said, recalling Goldner’s visit to the retailer’s Wayne, N.J., headquarters when Storch became CEO in early 2006. “I challenged him and said our relationship with Hasbro wasn’t as good as some other companies. He explained why. I agreed with him, and we said, ‘Let’s fix it.’ ”
Since then, a relationship that used to revolve around what Storch described as arguments over product prices or whether Hasbro would help fund marketing, turned into one where the chiefs of both companies talk “all the time” and even have dinner together, complete with spouses.
“It’s not just a transactional relationship,” Storch said, adding that the retailer’s business with Hasbro has increased in both sales and profit terms. “He made the relationship so much better. He’s worked very hard to make it happen. I feel very strongly that I have someone I can partner with.”
That confidence in Goldner led Storch to place a big bet on Transformers — putting its products at the front of stores and front and center in circulars and advertisements even before the movie came out. The line ended up becoming one of Toys “R” Us’ biggest growth drivers last year, Storch said.
“Retailers don’t have to worry about what they are going to have to fill the space with from Hasbro next year,” Ver
recchia said. “They know they can rely on Hasbro. That’s the kind of credibility we had 10 years ago, and then we lost it. Brian helped immensely to build that back.”
Hasbro’s sales to No. 1 customer Wal-Mart Stores Inc. (WMT: 57.16, -1.05, -1.8%) hit a record $1 billion last year.
While rebuilding the company’s relationship with top customers Wal-Mart, Toys “R” Us and Target Corp. (TGT: 36.96, +2.00, +5.7%) , which together represent about half of Hasbro’s sales, Goldner is also diversifying sales to other retailers, such as helping to ink a deal with CVS Caremark Corp. (CVS: 27.27, -0.61, -2.2%) to carry an exclusive Playskool baby-care line.
Goldner, who recently returned from a two-week trip to Brazil, Germany and Mexico, is also fueling growth through emerging markets. In addition to Brazil, He’s also set up the company’s own office in Poland and is doing the same in the Czech Republic, Russia, China and South Korea.
“Emerging markets is really one key cornerstone of growth for us,” Goldner said. “We’ve not been realizing the value of the market.”
As he cultivates Hasbro’s own brands, Goldner said acquisitions won’t be keys to his growth strategy. Since 2000, Hasbro has only made two purchases, including this year’s acquisition of Cranium games, a reversal from its streak of buying brands to spur growth in the prior decade.
“This has been a very clearly focused organization,” Russo said. “I applaud [Goldner’s ability to create growth] without going for acquisition.”
If the manner in which Goldner’s past visions have turned into reality is a reflection of things to come, there are plenty of companies, perhaps even beyond the toy space, that need to watch out.
“In this crazy world, play is universal truth,” Goldner said. “We have the opportunity to make our brands significant around the world with audiences in every country.”