Chapter 1: What is Hasbro's strategy for engaging adult toy consumers?
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Hello, and welcome to Decoder. I'm Nilay Patel, editor-in-chief of The Verge, and Decoder is my show about big ideas and other problems. Today, I'm talking with Chris Cox, the CEO of Hasbro. You know Hasbro. The toys and games company makes some of the most iconic products in the world, from Transformers and My Little Pony to Monopoly and Magic the Gathering, and of course, Dungeons and Dragons.
Chris was last on Decoder three years ago. He was a newer CEO then, just a year into the role. And we spent quite a bit of time talking about his plan to collect more data, spin off parts of Hasbro, and really think about the future of collectibles, which at that time meant NFTs. Look, a lot's happened in three years. NFTs just weren't one of them.
You'll hear Chris laugh about how wrong he was throughout this conversation. You know what did happen, though? Well, a global supply chain and manufacturing nightmare precipitated by tariffs, the AI explosion, and of course the endless chaos of the video game industry. And then there's the relentless continuation of a trend that defines the modern toy industry.
More and more toys and games being made for adults who have a bunch of money instead of kids who don't. Chris and I talked about that quite a bit, and I think his point of view here is at once totally logical and also completely surprising. Chris and I also talked a lot about Hasbro investing so heavily into video games in a time of relative uncertainty in the industry.
For example, you'll hear Chris mention several times how important Monopoly Go, the mobile game, is for Hasbro. And while Magic the Gathering and Dungeons and Dragons are already huge brands, Hasbro's trying to expand with original video games, like Exodus, which is slated to be released next year.
That's another huge set of challenges in an era where video game studios are shutting down more or less weekly, and the distribution market is controlled by a small handful of players like Sony, Microsoft, and Steam. And being a company that's so reliant on big IP with big fandoms, well that puts Hasbro right at the center of a bunch of thorny cultural issues as well.
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Chapter 2: How has AI impacted Hasbro's product development?
You're just the CEO. What is Hasbro to you today?
I think it's the same as what it was three years ago and what it's always been when it's at its best. It's a company about play. I think probably the biggest thing we've articulated in the three years since you and I talked is this concept of what our superpower is. And it's kind of borrowing from one of my favorite
business authors, Jim Collins, he talks about the hedgehog concept and it's what's the thing that you are best in the world at or could be best in the world at. And I think Hasbro's superpower, what we're best in the world at is inspiring a lifetime of play. We do it across more categories and more brands and more things than just about any company in the world. And what we're super good at
is, you know, building a relationship anchored in play and pretend and imagination with two, three, four year olds up to teenagers and then kind of never letting go. We just keep giving them something that they want to collect, that they want to game with their friends, that they want to play with for an entire lifetime. I'm kind of customer one on that superpower.
I've been playing with our stuff since I was two years old and I continue to play with it today.
Can I ask you about that trend in particular? I think It's obvious to people who pay attention to toys. It's maybe less obvious from the outside. But the idea that toys are now a thing that adults buy and collect and play with and adults have a lot of money so the toys can get more expensive, that's pretty new in this industry.
It's not so new that it's like a surprise, but it's new in terms of how a company like Hasbro would conceive of itself. What's the balance there? Because I think there's a lot of criticism that while making this stuff for adults is really lucrative and you might lose sight on the kids who are the primary audience for the toys.
I think kids are always the first handshake audience, the people that you want to build a relationship with as young as possible and kind of grow with them. But I think just looking at the basics and the fundamentals of the addressable market, There's less kids today being born today than there was 10, 20 years ago. And there's more substitutions than ever.
So you've got a smaller base of children, especially in Western markets that we tend to distribute in, like the U.S., Europe, a lot of Asian countries. And those kids start to shift decisively into video games and mobile phones and digital experiences at younger and younger ages.
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Chapter 3: What challenges does Hasbro face in the video game market?
And you have... You know, if you have a decent sized checkbook, you can go and go on a walkthrough and say, I'm going to pick that one and that one and that one and buy a bunch of toys. And suddenly you are a toy OEM. And then you have a massive amount of distribution options ahead of you, especially with the rise of e-commerce.
But on the flip side, it's never been harder to be a traditional toy company. There's more competition than ever. Like we talked about before, there's more substitution, especially from digital than ever. And you've got a narrowing set of customers to be able to appeal to. The great thing about that is there's going to be more choice for a kid and there's going to be a higher cycle time.
The bad thing from a business perspective is it's really hard to establish a moat. The kids cycle through and they learn about things in unpredictable ways. A lot of kids are exposed to social media, even though they're not supposed to at earlier and earlier ages. They watch YouTube. They watch all these kinds of influencers.
And the whole notion of like Saturday morning cartoons or even just watching cartoons after school on a linear network has totally flipped upside down. You know, I think as a toy company, you have a choice. You can either kind of double down on that market and try finding, you know, these big entertainment moments that really punch through.
Or you can try finding kind of like a different market to be able to appeal to and build like a more durable mode in those spaces. And I'd say we have been doing both. We certainly license with a bunch of huge kind of mega brands. We just announced Harry Potter. We do K-pop Demon Hunters. We announced Voltron and Street Fighter.
The Walt Disney Company we've been in business with since 1954 with Marvel and Star Wars. So we do a lot that appeals to kids. And then we have some of our own house brands like My Little Pony and Peppa Pig and Transformers.
But increasingly, I think we're choosing to, you know, invest our capital and some of our best talent in kind of that older audience where you can build a play system where you can establish more kind of strategic brand moats and distribution moats. And it's a little harder for new competitors to edge in.
And the brand loyalty tends to last a bit longer than the attention span of a typical four-year-old.
Can I ask you about K-pop Demon Hunters? For a variety of reasons. One, I'm personally curious. Two, my daughter will kill me if I don't ask you about K-pop Demon Hunters. It's the IP that runs our house. Is it true that K-pop Demon Hunters was a surprise to the industry and you weren't ready for Christmas this year?
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Chapter 4: How does Hasbro navigate cultural issues with its IPs?
We specialize in products that appeal to all ages. We have multiple categories that we can execute that in. And, you know, I think I think within two weeks of us having that initial conversation with them, which probably happened on like the Monday or the Tuesday, we were in pitching them, showing them full featured products. Two years ago, that would have been impossible.
But now, with the advent of AI enabled design tools, we can go in and do what used to take us two or three months in basically two or three weeks, sometimes two or three days.
and come in with very high fidelity pitches and very high fidelity product lines and not only just show it digitally, but when you couple that with like 4K level of 3D printing with full color, we can actually come in with models. That used to take us like six to eight weeks because you'd have to go to Hong Kong or Shenzhen and be able to source it from there.
And so we had really good conversations with them. The rest of the industry also wanted to pitch them. They maybe took a little more time than us, but eventually it kind of materialized that Mattel and Hasbro and Lego kind of came out on top and we kind of split the license.
When you say you used AI tools to make fully featured models to show them, how does that process work now? Is it your designers went away and came back with ideas? Did you personally prompt ChatGPT to make you Rumi toys?
I don't do that for our products, but I do that all the time for kind of like just personal passion projects. And Dungeons & Dragons is kind of my jam. And I DM like probably three or four groups and stuff. There is so much AI based animation and images and text and and sound effects and voice cloning on my PC. It would it would floor you.
But like, you know, basically our design teams are all enabled with like a suite. of the latest tools from basically every major company. And then we've trained a bunch of models ourselves with RIP. And so from doing that, we can have pretty sophisticated renderings pretty fast of products and ideas. And when we have a little bit more time, we actually can even program in
a character and the character from the IP can actually be a co-designer with us and help us with ideas and help us with like, that's authentic, that's not authentic. And that's actually been pretty wonderful in how we've been creating things.
Wait, so you code in like the personality of a character from reporting franchises?
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Chapter 5: What role does licensing play in Hasbro's business model?
And I think, you know, we're seeing people are using that probably on average 20, 30, maybe 40 times a week. It's helping to save time in crafting emails and in doing action steps for meetings and just kind of with idea generation and researching. It's probably saving the average person in the company maybe an hour or two from a productivity perspective.
And then in pockets, we're able to employ it on a much deeper basis as basic agents. Probably one example that's probably the farthest along is we process a huge number of purchase orders every year to buy toys from mom and pop toy stores to huge mega giants like Walmart or Target. And our IT systems just traditionally haven't been super effective at being able to standardize those orders.
We're able to use AI agents to basically take hundreds of thousands of man hours out of the system where we don't have to touch orders. They can be standardized, processed in our system, and it nets out in a material savings for us. A lot of that work was outsourced already. So that's not necessarily saving our employees a lot of time, but it is kind of saving the bottom line a bit of time.
So when we did a couple of different gut checks on what we think the impact of AI was going to be this year, we saw it in the neighborhood of a million to a million plus man hours of savings that we can redeploy. And, you know, a lot of that work wasn't the fun work. Like no one likes to write the action steps from a meeting. No one likes to kind of touch an order from a toy store in Peoria.
And instead we can kind of invest it back into, I think, what ultimately counts, which is delivering for our customers and kind of dreaming up new ideas and new ways to play it.
I hear a lot from creatives who listen to the show, who read The Verge and other ways. And the fear in the audience is that being a creative has been a pretty hallowed, a pretty special role, especially at a company like Hasbro. And AI makes everyone feel like they can have taste, right? You can prompt Gemini. And you can just get a nano banana image of whatever.
And you're like, now I'm creative too. And the audience can participate in that with your brands and your IP as well. And there's something there that has a lot of people very skittish. You can see it actually in games. You mentioned gamers don't want AI anywhere near their games. Like even the audience in some categories really doesn't want this to happen.
How are you managing that inside a company like Hasbro? How are you keeping your designers and your creatives protected or empowered instead of fearful?
Well, it's really giving them the tools and putting them on the vanguard of it. And, you know, if Joe or Sally Sixpack feels like they're suddenly like an avant-garde creative with these powerful tools, take a legitimate avant-garde creative and give them these tools and they just level it up way more. And I think what we found is, you know, when our creatives had had a chance to use it,
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Chapter 6: How is Hasbro adapting to changes in consumer demographics?
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Chapter 7: What are the implications of tariffs on Hasbro's manufacturing?
And then we kind of flow it through the businesses that we have. And we organize our businesses across three primary lanes. There's games, which is really anchored by Wizards of the Coast and then Hasbro Games, which is our beloved board game portfolio with Monopoly and Clue and the Game of Life.
Then there's licensing and entertainment, which is, hey, how do we take our brands and execute it more broadly across categories that we're not experts in or we don't have powerful distribution in? So we do that with entertainment companies, with like location based entertainment, which is a fancy word for like theme parks and quick service restaurants and whatnot.
know things uh like play centers that you go to in like a ball or something and then publishing and then other toy and kind of soft good categories and then the last area we execute is probably the area that most people if you if you met someone from hasbro at a cocktail party and they said i work at hasbro it's toys uh so like kind of the toy and game aisle
So we execute that gem squared insight and that inspiring a lifetime of play mission through those three categories. And then we break down kind of like how we kind of address that gem squared insight across like about five or six building blocks across the company. So how do we become relevant in digital games? How do we scale through partners? How do we age up?
How do we make play available anywhere in more occasions? So how do we win more occasions where you could pick a candy bar or you could pick a toy? How do we convince you to pick a toy? And then last but not least, how do we expand kind of like the demographics of who we serve and the playographics of who we serve?
So like, you know, Hasbro to date over indexes with kind of play patterns and collectible patterns more associated classically with boys. So we want to win more with people who identify as girls. And then likewise, you know, Hasbro is very strong in markets like the US and France and the UK and for Wizards of the Coast in Japan.
But really, we're only servicing a market of call it a billion and a half people on a planet that has 8.5 billion. So then how do we execute kind of gem square based products to the other 7 billion people that we aren't building for and that we aren't distributing for?
That kind of manifests into a bunch of different product categories that we drive, how we think about where we want to invest in versus where we want to leverage partners for. What partners do we want to in-license with that we think really powers that kind of particularly gamified and entertainment driven kind of insight?
Yeah.
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Chapter 8: How does Hasbro view the future of its franchises amidst changing fandoms?
It sounds like these play leads, they sit in the division that is most naturally associated with whatever property, and they get to use all the functions of the other divisions. There's some resource constraints there. You can see how there would be some division of who gets to do what at what time, depending on the capabilities of all these divisions, how many resources you have overall.
Who breaks those ties?
Usually it's me. So we have to do prioritization. Not every brand is kind of built equally. So we have a hierarchy for our brands called Grow, Optimize, and Reinvent. So our growth brands are the ones where we see the highest three year kind of continuous growth potential.
We see the highest kind of like operating profit margin potential, and we see them operating in markets that are pretty buoyant. They tend to be more blue ocean and less red ocean. And so those growth properties tend to get first pick on available capital and available talent. Optimized brands tend to be in less high growth categories.
We tend to see them as kind of steady eddies, maybe low growth. They still do a decent operating profit for us. And so then they get kind of next tranche. And then reinvent brands are like we talked about at the beginning of the discussion on toys. Toys are kind of a fast fashion, like cyclical business. What's popular this year is likely not going to be popular three or four years from now.
And so the reinvent brands tend to be the ones that are in that kind of late stage cycle where they're either rest investing or we're thinking about what the next phase of them is so that they can be a future growth brand. And so they get mostly kind of like conceptual product development and market research support, but not a lot of go-to-market or inventory support.
Where do new ideas come from in the system? This is the thing I worry about most in our current information environment that... existing IP has so much value associated with it because you don't have to try to get attention for it. And new things, you're just sort of waiting for the next weird influencer to show up with an idea that goes viral. You know what I mean?
Like, did you have a meeting where, like, we have to make a 6-7 toy? Like, I don't know where the new ideas come from.
No, we didn't have a meeting on that, but we did carefully avoid saying 6-7 around little kids in any playtest labs. I think we purposely capped our rating scale at 1 to 5 and no longer 1 to 10. That's very good. I mean, to be perfectly candid, I think it's a structural weakness of most large companies is thinking about new category development.
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