Image: "Transformers,"
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The movie "Transformers" helped Hasbro sell its two-decade old toy line. The toy giant hopes to get cozier with Hollywood to boost future sales.
updated 10/19/2007 6:03:43 PM ET 2007-10-19T22:03:43

Like one of its own Transformer robots, Hasbro Inc. has spent the last few years trying to change itself from simply a toy company to a business that creates the ideas behind movies, TV shows and electronic games.

When the Pawtucket, R.I.-based company reports its third quarter earnings Monday, investors hope to see the early payoff from the strategy. Analysts surveyed by Thomson Financial expect net income to rise nearly 18 percent from this time last year, to $117.5 million, and earnings of 71 cents per share.

Part of what's driving those expectations is the two-decade old Transformers toy line. "Transformers" the movie was released in the United States on July 3, just after the quarter began, and has helped make Transformers products among the most sought-after toys for the upcoming holiday season.

The movie was the first step in what Hasbro hopes to be a long and fruitful relationship with Hollywood: Hasbro supplies the characters and story lines from its toys — household names such as G.I. Joe and Monopoly. Hollywood turns the ideas into big-budget movies or successful TV shows. Then Hasbro reaps the benefits. A Transformers animated TV show is coming in the spring and Hasbro is also planning a Transformers sequel, a G.I. Joe movie and at least one TV game show.

Hasbro, the world's second largest toy maker behind Mattel Inc., has made movie-related toys for years, but it didn't own some of the most popular brands, such as Spider-Man, and had to pay royalties. A few years ago, it struggled with an overreliance on fads, including Furby, and movie-related toys and was forced to cut hundreds of jobs as it lost $144 million.

These days, the company's strategy is to look at the time-tested brands it already owns — Trivial Pursuit, Battleship, Littlest Pet Shop and Mr. Potato Head, for example — and turn those into new products like movies, TV shows, games or online experiences, said Brian Goldner, Hasbro's chief operating officer.

"Our goal is to create that immersive experience that allows consumers to enjoy our brand anywhere — in any format they want — when they want," Goldner said.

Hasbro has had several good quarters and investors responded by driving Hasbro's share price up 56 percent in the last two years, from about $19 per share in mid-October 2005, to a close of $29.25 Thursday.

Still, in a note to investors earlier this month, Gerrick L. Johnson of BMO Capital Markets Corp., cautioned that the entire toy industry could see fallout from a slowing economy and concerns about toy safety. While Hasbro hasn't been involved in the most high-profile toy recalls this year for lead paint, Johnson wrote that sluggish sales could cause retailers to put off buying any more toys in the quarter.

In a separate note, Johnson said he expects Transformers sales could drop off next year due to the lack of a new movie in 2008.

The Transformers movie has made about $700 million worldwide since it was released this summer and about $316 million domestically. Hasbro does not share significantly in the box office — something Goldner says it agreed to forgo because it didn't invest in the movie's production cost. But it shares in the success in other ways.

It made money by licensing about 230 Transformers products, including cell phone games, video games, even a jacket that transforms to a backpack and a pillow and sells for about $500.

Goldner wouldn't comment specifically on sales of Transformers toys ahead of the earnings report. But Jim Silver, editor-in-chief of the trade magazine Toy Wishes, said retailers tell him Transformers sell out as soon as they're put on the shelf.

"These toys, the way they transform and the things that they do, they're really fun," Silver said. "It's the hottest thing in the boys' category."

A new Transformers animated series is scheduled for TV this spring, the Transformers movie DVD hit stores this week, and Hasbro is again working with DreamWorks-Paramount on a sequel, tentatively scheduled to be released in June 2009, Goldner said.

Also in development for a tentative 2009 release is a G.I. Joe movie, based on the 1980s comic books and animation series and pitting the G.I. Joe team against the evil forces of Cobra, Goldner said. Stephen Sommers, of "The Mummy" movies, signed up to direct, along with Stuart Beattie, who wrote the first "Pirates of the Caribbean" movie.

As with the Transformers movies, Hasbro would not share significantly in the box office, Goldner said. The company said it will make new toys based on the G.I. Joe movie, but would not give details.

Silver said he was excited to see how Hasbro updates the toy line.

"I'm sure G.I. Joe's going to have a lot of cool accessories," he said.

Sean McGowan, an analyst with Wedbush Morgan Securities, said Hasbro is right to avoid the risk of a box office bomb but should be sharing more directly in the success of a movie based on its properties. He said Hasbro has the right idea in an agreement reached this year with Electronic Arts Inc.

The Redwood City, Calif.-based video game maker now has the right to make Hasbro games for PCs, video game consoles and cell phones. The licensing deal keeps Hasbro from having to get into the video games business itself, and also allows it to do what it does best — make traditional games and toys based on EA's existing video games.

"I don't want to see them get into the business of producing TV shows," McGowan said. "But if they're able to work with the producers to use the intellectual property they have, they should do that."

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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