Walt Disney (NYSE: DIS) makes it look so easy. Its movies have created a portfolio of characters that spawn toys, theme park rides, and TV shows, producing a virtuous circle of revenue generation. Each of its businesses helps reinforce the others to build up what has become one of the most successful entertainment stocks in the world.
Many try to replicate that Disney magic, but few succeed -- and certainly none on the scale that the House of Mouse has done. Unfortunately, toy maker Hasbro (NASDAQ: HAS) is not among even those lesser companies.
This formerly high-flying growth stock is realizing just how difficult it is to create the flywheel effect that extracts greater profits from its properties, and it's now considering dismantling yet another piece of what Disney makes seem effortless.
Image source: Getty Images.
The sum of its parts
Hasbro is having second thoughts about being a Hollywood mogul and may be ready to sell off its entertainment business, according to Bloomberg. While a clearer picture of its strategic priorities may emerge at Hasbro's investor day conference this October, the toy maker is reportedly considering selling off large sections of its Entertainment One (eOne) media company it acquired in 2019 for $4 billion.
Home to cartoon characters like Peppa Pig and PJ Masks, eOne also owns movie production companies, TV studios, music and video distributors, and more. Although Hasbro paid as much as Disney did to acquire Star Wars' Lucasfilm Studios, the promised synergies never really materialized.
Originally bitten by the moviemaking bug following the massive success of its Transformers franchise, the billion-dollar box office blockbuster originally produced with Paramount Pictures, Hasbro convinced itself it didn't need to split the profits with someone else. It saw how Disney transformed its intellectual property into a goldmine and wanted to copy the playbook.
Yet where Disney has Mickey Mouse, Iron Man, Spider-Man, and a host of other superheroes and princesses to choose from, Hasbro basically had a lot of board games mixed in with G.I. Joe, My Little Pony, and The Micronauts.
Although the two G.I. Joe movies enjoyed some limited success, Battleship was a hot mess and may have led to the broader unraveling of Hasbro's vision to create a connected universe.
Failure to launch
Hasbro has actually been calving off different businesses related to its grand scheme for years. It launched a cable TV channel for kids called The Hub in partnership with Discovery but ended up selling back its half of the venture. Hasbro also sold off its music studio, which owned Death Row Records, and closed down its mobile game developer, Backflip Studios.
The ability to create pieces of content that spread out across different media and help lift one another to boost sales and profits is apparently much harder to do than it appears.
Hasbro maintains entertainment is still a "core foundation" of the company, but the toy maker won't ever be another Disney. Sure, it will probably produce more Peppa Pig and PJ Masks cartoons, as well as new installments of its Transformers movies, but more ambitious projects like Yellowjackets or the Designated Survivor series that ran for two seasons on Netflix will probably not be a part of it.
Disney is the rare entertainment industry exception that is truly able to profitably cast a spell over its audience. Hasbro succeeds in helping others capitalize on their success with toys. It would do well for its investors by just being a better toy maker.
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Rich Duprey has positions in Warner Bros. Discovery, Inc. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool recommends Hasbro and Warner Bros. Discovery, Inc. and recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
