Hasbro 2009 Annual Report Download - page 33

Download and view the complete annual report

Please find page 33 of the 2009 Hasbro annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

marketed product lines based on these motion pictures. As a result of pairing these core brands with motion
picture entertainment, both the movies and the product lines benefited. In addition, the Company has entered
into a strategic relationship with Universal Pictures to produce at least three motion pictures based on certain
of Hasbro’s core brands, with the potential for production of two additional pictures. The first movie is
expected to be released in 2012. As part of its strategy, in addition to using theatrical entertainment, the
Company continues to seek opportunities to use other entertainment outlets and forms of entertainment as a
way to build awareness of its brands which has proved instrumental to achieving its overall long-term growth
objectives.
In April 2009 the Company announced the entry into an agreement to form a joint venture with Discovery
Communications, Inc. (“Discovery”) to create a television network in the United States dedicated to high-
quality children’s and family entertainment and educational programming. The transaction closed in May
2009. Programming on the network will include content based on Hasbro’s brands, Discovery’s library of
children’s educational programming, as well as programming developed by third parties. The Company expects
the rebranded network, THE HUB, to debut in late fall of 2010 and believes that it will reach approximately
60 million homes in the U.S. at that time, with programming targeted to children 14 years of age and under.
The Company believes that this effort will support its strategy of growing its core brands well beyond
traditional toys and games and to provide immersive entertainment experiences for consumers of all ages in
any form or format. In connection with this transaction, the Company has begun building an internal creative
group that will be responsible for the creation and development of television programming based on Hasbro’s
brands. The Company expects to incur a certain level of investment spending leading up to the debut of the
rebranded channel, as well as costs in 2010 and beyond related to the production of television programming.
While the Company believes it has built a more sustainable revenue base by developing and maintaining
its core brands and avoiding reliance on licensed entertainment properties, it continues to opportunistically
enter into or leverage existing strategic licenses which complement its brands and key strengths. The
Company’s primary licenses include its agreements with Marvel Characters B.V. (“Marvel”); Lucas Licensing,
Ltd. (“Lucas”), related to the STAR WARS brand; and Sesame Workshop, related to the Sesame Street brand
of characters. The majority of product offerings under the Sesame Workshop license will commence in 2011.
In 2009 and 2008, the Company had significant sales of products related to the Company’s license with
Marvel, primarily due to the movie releases of IRON MAN in May 2008, THE INCREDIBLE HULK in June
2008 and X-MEN ORIGINS: WOLVERINE in May 2009. In addition, the Company had significant sales in
2008 of products related to the movie release of STAR WARS: CLONE WARS in August 2008 as well as sales
from the movie release of INDIANA JONES AND THE KINGDOM OF THE CRYSTAL SKULL in May 2008.
During 2009 the Company has also had a high level of revenues from products related to television
programming based on SPIDER-MAN and STAR WARS.
While gross profits of theatrical entertainment-based products are generally higher than many of the
Company’s other products, sales from these products, including our owned or controlled brands based on a
movie release, also incur royalty expense. Such royalties reduce the impact of these higher gross margins. In
certain instances, such as with Lucasfilm’s STAR WARS, the Company may also incur amortization expense
on property right-based assets acquired from the licensor of such properties, further impacting profits earned
on these products.
The Company’s long-term strategy also focuses on extending its brands further into the digital world. As
part of this strategy, the Company entered into a multi-year strategic agreement with Electronic Arts Inc.
(“EA”) in 2007. The agreement gives EA the exclusive worldwide rights, subject to existing limitations on the
Company’s rights and certain other exclusions, to create digital games for all platforms, such as mobile
phones, gaming consoles and personal computers, based on a broad spectrum of the Company’s intellectual
properties, including MONOPOLY, SCRABBLE, YAHTZEE, NERF, TONKA, G.I. JOE and LITTLEST PET
SHOP. A number of products under this agreement have been released in 2008 and 2009 and the line will
continue to be updated and expanded in 2010.
The Company is also investing to grow its business in emerging markets. During the last two years, the
Company expanded its operations in China, Brazil, Russia, Korea, Romania and the Czech Republic. In
23