“You don’t know what’s going to be the next hit,” admits Ronnen Harary, CEO of Spin Master, the parent company to a basket full of toy and entertainment franchises, including PAW Patrol. Yes, even when you’re the company best known for a squad of CGI search and rescue dogs that are beloved the world over, you still need a backup plan.
Spin Master has been producing PAW Patrol since 2012 and, during this period, it has become the top show among preschoolers in the US. The show is available in 160 countries, and the franchise generates a large chunk of Spin Master’s annual revenue of over $1 billion.
Spin Master calls itself a ‘multi-platform children’s entertainment company.’ In many ways, the TV show—and most recently, its movie spin-off Mighty Pups—could be said to be an ad for the toys. New gadgets and outfits are constantly introduced, generating an almost non-stop cry of “I want one of those!” from kids around the world who don’t want to go on another day without the jetpack backpacks, the night-vision goggles or the remote-controlled drones that the puppies use to solve and fight crimes on their home turf of Adventure Bay and beyond.
And, as is usually the case in the world of entertainment, PAW Patrol’s runaway success was not anticipated. “Nobody expected it to resonate the way it did,” admitted Harary, speaking recently in Toronto. And it’s a good thing it did, because, after a 16-year run of growth, the company hit a wall. “We grew too fast,” he added. “We weren’t diversified enough, and we started seeing brackets,” referring to the accounting convention of using parentheses to identify losses in balance sheets.
The Company Reorganizes
After a few rounds of corporate restructuring and belt tightening, Harary and his partners made the decision to strategically diversify their portfolio. “We went for a variety of things, some of which would provide us with recurring revenue,” Harary explained. Spin Master then went on to a spree of acquisitions, buying Meccano (the snap together toy company) in 2013, followed by Etch A Sketch, in 2016, and plush toy manufacturer Gund, in the spring of 2018. Along the way, it also picked up a 60-year-old puzzle company as well as an Italian board game maker.
Whichever way the winds would blow in the unpredictable world of kids’ entertainment, Spin Master was covered. And the portfolio strategy certainly paid off. In 2018, Spin Master is one of the world’s largest toy companies, rubbing shoulders with the likes of Lego, Hasbro and Mattel. In addition to the massive PAW Patrol franchise, one of the keys to its success is its foothold in the lower-priced end of the toy market, which is populated by items such as miniature action figures, puzzles and small plush toys. As reported by Bloomberg News earlier this year: “Sales growth in the $10-and-under category is outpacing the overall toy market, with social media-fuelled crazes such as a line of miniature collectibles based on Hatchimals, tiny stuffed animals that ‘hatch’ from plastic eggs.” Yes, Hatchimals is a Spin Master product too.
The importance of ‘Spinnovation’
The motto on the wall of Spin Master’s offices is ‘Spinnovation,’ a snap-together word that combines the company’s name with a reminder to always keep things fresh. While that may come across as a bit of a platitude, Harary insists that one of the company’s core values is to be open to ideas, wherever they come from, whether internally, at any and all staffing levels, or externally, i.e., from outside of the company. And much of Spin Master’s wealth has been built on ideas that originate elsewhere and are then finessed for global markets by the company. Its first product, in 1994, was the Earth Buddy, a creature inspired by the Chia Pets that sprouted ‘hair’ made of grass when watered. Harary received one as a gift from his grandmother who had visited Israel. The nylon-headed toy known as Grass Head had already sold a million units there, so she figured there could be an even bigger opportunity to be seized in the considerably larger Canadian market.
And just like that, Harary along with his University of Western Ontario friends, Anton Rabie and Ben Varadi, were in business. “My brother-in-law did the engineering and my sister did the manufacturing. We made 5,000 of them in time for Mother’s Day and sold them on the streets in Toronto. The problem was that we had about 4,500 left over.” Just as Harary was looking into transferring the unsold inventory to a closeout retailer, he managed to land a deal with K-Mart, which ordered half a million pieces. By the end of that year, 1 million Earth Buddies had been sold.
Partnerships pave the way for PAW Patrol
Now Spin Master was really in business and it charted its path by partnering with companies and inventors from around the globe, paying particular attention to Japan’s market, sometimes referred to as the ‘Silicon Valley of the toy business.’ Its first TV-related project was with the animated action adventure series Bakugan Battle Brawlers. For it, the company partnered with Japan’s Sega Toys and subsequently negotiated the licensing rights for the US market. The franchise—based on collectible metallic cards and magnetic marbles that shape shift into battling action figures—is aimed at 5- to 9-year-olds. Harary has estimated the value of the TV show and the toy line at about $1 billion. “What if we could do that for preschoolers?,” he wondered.
So, around 2011, he put out a call for ideas and one of those who answered the call was Keith Chapman, the creator of Bob the Builder. Chapman came up with the idea of a pack of dogs on rescue missions. Spin Master then put together a team of animators, writers, producers, directors and voice actors—using almost exclusively Canadian talent. The resulting show was originally broadcast on TVO in Ontario and Nickelodeon in the US. A subsequent deal with Netflix and an official PAW Patrol channel on YouTube took the show to kids around the world.
And it wasn’t just the kids who loved it. Parents loved it also. People tended to respond to the PAW Patrol pups’ distinct personalities, with different people relating to different pups. Harary believes the pacing of the show also contributed to making it stand out. “It’s different from other preschooler shows. It’s faster paced and more exciting, and it doesn’t talk down to kids.”
With a hit on their hands, Harary and his partners at Spin Master, all well versed in international licensing arrangements for toys and related items, got the PAW Patrol merchandizing machine fired up. Harary points out that licensed products make up 26% of the toy industry—a $20 billion annual industry in the US and a $2 billion industry in Canada. Not surprisingly, an extensive line of merchandise followed: everything from PAW Patrol pyjamas and bed sheets to piñatas and paper plates for birthday parties. “And we developed our own shows out of necessity, too, to capture some of that 26% market share,” revealed Harary.
When asked if the company perceived technology—particularly handheld technology—as posing a threat by taking a bite out of physical toy and merchandise market shares, he was quick to respond: “It hasn’t happened yet, and I don’t think it’s going to happen. There’s a power in physicality. What’s profound about technology is the way we use it to market to kids. They’re not watching TV. They’re watching YouTube, they’re watching influencer videos and unboxing videos, and that’s how we reach out to them now.”