Mattel Can Turn Out To Be A Value If It Plays The Content Game Correctly

| About: Mattel, Inc. (MAT)

Summary

Mattel's stock has been boring over the last few years, and it has a high dividend yield.

The toy company will have to become more like Hasbro in the sense that it must create filmed-entertainment content that resonates with a broad audience.

An acquisition in the media space will help, but finding the right property could be challenging.

Mattel (NASDAQ: MAT) could use some improvement. Selling toys is a tough industry, Hasbro (NASDAQ: HAS) is a formidable competitor, and the consumer tends to be very price-sensitive around a category that isn't a necessity. The company's stock is sitting at a somewhat high yield, and while one assumes it is probably a value given that this particular player is iconic and should be around for a while to come, one nevertheless has to go through the exercise of imagining how the business will capture that next share-price run-up.

One of the big problems facing Mattel is its lack of finding its own unique voice in today's digital age. What that means is that toys can no longer simply be toys; they must instead be part of a larger universe of stories and ideas. Hasbro has that figured out - Transformers can't simply be a line of plastic playthings (or display things, a term which describes when players become collectors); it has to be a movie or episodic series (or, preferably, both). The Ouija board can't exist only as a faux supernatural rectangle; it must be a popular low-budget horror project. Only then can the buyer of the merchandise feel comfortable that what she is buying is not simply a commodity that was made as efficiently as possible to protect margin; it becomes instead a differentiated keepsake tied to a burgeoning mythology that transcends the niche-admirer demographic that only wants to buy the item to either keep it in its packaging or resell it on eBay (NASDAQ:EBAY) at a profit.

Mattel has certainly made strides in its attempt to generate interest in its own creative endeavors. Obviously Barbie filmed-entertainment content exists. It's a question of getting to the next level. How does Mattel compete with, say, Disney (NYSE: DIS) and its princesses by producing a killer-app film/streaming series that either makes a lot of box-office bucks or does incredibly well on the very data-driven Netflix (NASDAQ:NFLX) service?

The company's Mattel Creations division is supposed to be a step in the right direction. An appropriate amount of patience is a requisite on the part of shareholders, for major Hollywood studios are never built in a day. Over time, there will be many partnerships and other associations touted in press releases that probably will seem, while well-meaning, a bit on the side of the banal and outright boring. (I do like this interesting content-creation-via-crowdsourcing initiative with Tongal, I should point out; it's a topic that should be its own article.)

The current media landscape demands acquisitions. Hasbro, you will recall, at one time seemed interested in acquiring DreamWorks Animation; Comcast (NASDAQ:CMCSA), of course, ended up removing that chess piece from the board. Mattel will, at some point, have to look for some sort of production and/or technology company in which it could invest or outright buy. An observer might certainly make the case that Hasbro must at this moment be looking to get further into the Hollywood game, because while age compression will always challenge the toy industry, that same nefarious concept will have no effect on the movie/television/tele-device business - as the cliche goes, it doesn't matter if you're five or eighty-five or somewhere in-between: everyone loves the picture show. Right now, it's difficult to see what Mattel might want to seek out for a purchase, but any acquisition strategy could include an evaluation of opportunities in the multi-channel network space (see Disney's Maker Studios; see DreamWorks Animation's AwesomenessTV).

Mattel could take a long-term view and continue its start-from-scratch strategy, but a strong vision is a requisite; it does no good to think in the simplistic terms of a Barbie Blu-ray released during this holiday season or that. The company should spend some real money on big-budget animated fare and take Disney on. Sure, that sounds risky, because it is; nevertheless, turning some of its toy lines into a Frozen-like spectacle (I'm just using Frozen as a reference point, it is not to suggest that Mattel could synthesize something like that tomorrow) or, maybe even better, creating movies first and then a merchandising program second, is the kind of crazy thinking the boardroom desperately needs at this time for the sake of being competitive and staking a claim in the new content-arms race.

There's no doubt in my mind that Mattel will delve deeper into Hollywood, but I do think management should take on a more aggressive attitude in this arena, and I also believe that execs should keep an open mind to produce content that does not necessarily seem to fit its brand - for instance, any content maker should be willing to make a multi-cam sitcom for a CBS or an NBC, or cartoons for adults along the lines of Seth Rogen's Sausage Party. Just because Mattel makes Barbie dolls does not mean it should be beholden to any one genre; indeed, shareholders will be rewarded the more diverse a content/merchandising slate tends to be.

Disclosure: I am/we are long CMCSA, DIS, HAS, NFLX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.