Tuesday July 25, 9:06 am Eastern Time

## Hasbro Looks for New Profits

By MICHAEL MELLO
Associated Press Writer

PAWTUCKET, R.I. (AP) -- In the heart of Hasbro Inc.'s (NYSE:HAS - news) headquarters, 9-year-old James Keane bends and twists 12-inch tall Action Man to do battle with archenemy Dr. X.

``He's like G.I. Joe, but this guy fights evil, G.I. Joes fought for their country,'' the boy says. ``He's cool as an action figure and would be even cooler on TV.''

Hasbro is banking on it, launching a multimillion-dollar advertising campaign for an Action Man toy line in the United States and an upcoming animated television series on Fox Kids Network. The show was developed with the help of young toy buyers and TV viewers like Keane, who the company has long relied upon to test toys.

The project is part of Hasbro's attempt, through its year-old ``Fantasy Factory'' development division, to transform itself into an entertainment company that markets properties for television, theater and other live entertainment, publishing, online play and other projects.

``It's the holy grail of toys to be on both sides of revenue streams by owning the toy and entertainment side of a property,'' said Eric Johnson, professor of management at Dartmouth College in New Hampshire. ``When it happens, it's a grand slam.''

Hasbro, the world's No. 2 toymaker behind Mattel Inc. (NYSE:MAT - news), hasn't stopped looking to Hollywood for toys, such as its product line linked to last year's ``Star Wars'' movie: ``Episode I: The Phantom Menace.''

But the company believes it can also wring new profits out of old favorites by putting popular toys on television with a fresh story. The strategy takes on greater importance as Hasbro seeks to make up for slowing sales of top-sellers such as the interactive furry doll Furby, which has lost steam after two years on the market, and an overall slow retail environment.

The television marketing concept isn't new. In the mid-1980s, three of the company's toys, G.I. Joe, My Little Pony and Transformers, were featured in primarily regional TV cartoons developed outside the company.

What is new is Hasbro developing the stories itself -- with the help of kids -- and selling them in a more competitive marketplace.

Action Man has been a popular international seller for more than two decades, originally as the European cousin of G.I. Joe. Centipede, a popular 1980's video game, will soon be featured in an animated series on the Cartoon Network.

To develop the animated stories, the company goes directly to children, visiting their homes and organizing play sessions. Children are observed and questioned during these sessions, though they are not paid for their time or opinions.

The fantasies youngsters created playing with the toys helped Hasbro develop the story line for the Action Man series.

Jim Silver, publisher of The Toy Book trade magazine, says large toy companies routinely use children to test toy ideas. He thinks Hasbro may be the first to also use them to help develop television entertainment ideas.

Action Man, aka Alex Mann in the TV show, will be sold in the United States as ``the Michael Jordan of extreme sports,'' said Kevin Mowrer, who heads Hasbro's Fantasy Factory. In between sporting events, he faces down evil, in the form of Dr. X.

``Boys paint him with their favorite male fantasy,'' Mowrer said.

The potential profit for Hasbro goes beyond toys and cartoons. There are prospective licensing deals with companies that make everything from sporting goods and clothing to lunch boxes, tableware and school supplies.

The strategy also has increased risks for Hasbro, some analysts say. Toy sales may suffer if a TV project fails and the company would also then have a tougher time finding licensees.

In the case of ``Star Wars,'' the toys did not meet expectations, partly due to a glut of movie-related products on the market.

``A lot of retailer licensees are gun-shy,'' said Charles Riotto, president of the International Licensing Industry Merchandiser's Association in New York. ``They pray for movies to be successful or the merchandise doesn't move.''

Early returns on Action Man have been positive. A May one-hour television premiere ranked first in the morning time slot with kids aged 2-11, according to Fox Kids Network.

Hasbro has high expectations for Action Man in United States, where the toy will be widely available in August. The company said it is too soon to give specific financial projections for U.S. sales. The company also is looking ahead to the fall launch of its Games.com Web site, an online games portal featuring some of its traditional board games, such as Monopoly.

Cliff Annicelli, managing editor of Playthings Magazine in New York, says the company must avoid creating characters that ``seem like a knockoff'' of other toys and shows. If Hasbro can do that, Annicelli predicts copycats will follow.

``If they are successful, you will see others doing the same thing,'' he said.

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