The toy fiasco that cost Disney 50m

Buzz Lightyear is Christmas 1996. A sensation which has led to parents offering up to 100 on the black market, four times the shop price, for a plastic Disney character which came to life in Toy Story but is virtually impossible to find in the high street.

Originally it was believed that Disney, the company for which everything traditionally turns to gold, was limiting supply to generate the sort of tabloid hysteria that advertising cannot buy, as a prelude to swamping the market.But the real Toy Story, and the tale of the Buzz Light-year famine, is one of missed opportunities which has cost Disney and its largest toy supplier, Mattel, as much as 300m in unrealised sales – more than the film has grossed at the cinema – and left thousands of children heartbroken.

The resignation of Walt Disney president Michael Ovitz last week capped a frustrating year for the company. Rumours of management ructions have been rumbling for months, fuelled largely by expansion into China but also by Disney’s failure to exploit its most valuable property of the year.

Mattel declined its option to manufacture the toys before the release of what has become one of Disney’s most successful films so far, grossing 225m at the cinema even before the video revenue is counted. But it isn’t only Mattel with egg on its face. Before Toy Story’s release, Hasbro and a number of other major manufacturers were offered a deal, but failed to spot its potential. At that stage, April 1995, Albert Chan – the chief executive officer for tiny Toronto-based toy manufacturer Thinkway Toys – stepped in and said he could fulfil the order.

This was only five months before the film’s release date; licensing deals are usually completed 18 months before a film’s première. So this incredibly tight order was given to a company which is not even Canada’s largest toy manufacturer. It was a contract beyond its wildest dreams – a heart-warming story which could have come straight out of the Disney archive.

On the surface Thinkway is the major winner. Globally, character toy sales from the film have raised revenues of 100m – 9m in the UK alone. But the revenue of 100m is a quarter of what could have been achieved because Thinkway was unable to cope with demand. Sources estimate that, all told, Disney has missed out on 48m; its 16 per cent cut on 300m unrealised sales.

Gerry Masters at the British Association of Toy Manufacturers says sales of the biggest selling toys in the UK – Action Man and Barbie – are worth 50m a year each in the UK and believes Buzz Lightyear might have pushed Action Man close for the top-selling boys toy had it been properly stocked.

Peter Woodhead, managing director of Disney UK consumer products, admits that Toy Story represents a missed opportunity. “We would like to see more products on the shelves. “

The roots of the Buzz Lightyear drought – and the reasons why a small toy manufacturer ended up with the licensing rights to the hottest toy property of the year – go back to the beginning of last year.

Disney offered all its main toy suppliers the chance to pitch for the merchandising of Toy Story. Mattel has held the rights to classic Disney characters like Mickey Mouse since 1988 and the two companies are increasingly working together.

But toy manufacturers were scared by the phrase “computer animation”. It sparked memories of Disney’s futurist 1982 adventure Tron, which ranks as one of the company’s biggest flops. The prevailing view among toy manufacturers was that people don’t like the hard images

of computer animation and would stay away from the picture in droves.

A second factor was Disney’s Hunchback of Notre Dame. Everyone in the industry believed that the animated Hunchback would be this year’s blockbuster while Toy Story would at best be an interesting niche film.

“We were surprised to get the deal,” says Thinkway’s John Johnson, executive assistant to Chan. “Bigger companies were interested in the project before us – we didn’t think we would have a chance.”

But Hunchback did not become the blockbuster everyone had predicted and Toy Story went on to be one of the company’s greatest triumphs. Thinkway refuses to give exact figures but industry estimates say that before the film was released the company had advanced orders for only 50,000 Buzz Lightyears , but manufactured about 250,000 and 200,000 copies of his cowboy co-star, Woody.

An industry observer takes up the story: “The film opens and hits the jackpot. Demand now reaches around 2 million for each figure. Thinkway could never have delivered that number. It is just too small an operation.”

The two-year Toy Story deal between Disney and Thinkway ends at the end of this month but is expected to be extended for at least a year. Another 20,000 Buzz Lightyears will be in the shops – but even if they make it for Christmas it still represents too little, too late.

“We don’t believe this is a case of what might have been,” says Thinkway’s Johnson. “Any retailer which confirmed its Christmas order by mid to late summer pretty much got what it wanted. And we are way past what we originally predicted with Disney. This has been a tremendous success for us. No one knew how successful this was going to be – the rush for the hot toy at Christmas is something that catches many manufacturers out.”

However, Johnson admits that four times as many toys could have been sold.

John Diver, group marketing director at Toy Options, which distributes the Toy Story characters in the UK, stresses that shortages are not unique. Japanese toy giant Bandi ran out of stock when pushing Power Rangers in 1994, he notes. But critics argue it was not that Thinkway ran out of stock, it was that it ran out so early.

“Shortages began to show up right after Easter when the film was released in the UK,” says a boys toy buyer from one of Britain’s largest retailers. “Stock was available during the summer but it was very limited – we knew there would be problems when the video was released at Christmas.”

Others criticise Thinkway for lacking the muscle to twist suppliers’ arms and speed up the manufacturing process.

As a result of the Thinkway fiasco Disney has signed a three-year exclusive deal with Mattel, which beat off arch rival Hasbro to the deal, guaranteeing rights for all the studio’s film and TV properties. The deal was signed only four months after Toy Story’s US release.

“We have cemented our relations with Mattel, in the future if we have a movie like Toy Story, the licensing will be handled by a bigger player. We want to avoid this happening again,” says Woodhead.

But he admits that the Mattel deal does not guarantee future success. “It will depend on Mattel having the vision to see a good product because we did originally offer it Toy Story,” he says.

Already with the rights for the Hunchback of Notre Dame and the live action version of 101 Dalmatians, this wide-ranging deal gives Mattel the exclusive first-choice options from Walt Disney Pictures and its divisions, Touchstone and Hollywood Pictures.

Last year sales from Disney products accounted for 337m – 12 per cent of Mattel’s total.

“The tie-up between Mattel and Disney is an attempt to stop these shortages,” says Diver, “but although it is an impressive deal you can’t legislate for a hot toy at Christmas.” By turning down Toy Story, Mattel could have been trying to prove to Disney how much it was needed. But even for Disney that would be too Machiavellian to believe. Mattel was unavailable for comment.

The size of the deal has not been disclosed. Industry sources say that Disney will take an estimated 16 per cent royalty from toymakers on the wholesale volume of its products, compared with an average of between ten and 12 per cent for other major studios.

This deal effectively shuts out Hasbro from major Disney productions. One observer says: “Disney was pleased with the way Mattel handled its ‘classic’ brands like Mickey Mouse back in 1988. Ever since then, Mattel has worked hard to become the studio’s “preferred supplier”.

Disney and Mattel have been the biggest losers in the Toy Story fiasco but it has ironically cemented their relationship. Thinkway’s struggle has made Mattel appear even more important to Disney. But at a cost of 300m.