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Toys Based on Sequels Take Center Stage

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It's play time again for Hollywood, as the annual Toy Fair kicks off in New York on Sunday with the traditional slew of product tied to movies, TV shows and entertainment characters.

Among this year's hot properties: "Toy Story 3," "Iron Man 2," "How to Train Your Dragon," the latest installments of "Twilight" and "Harry Potter," and TV favorite "Dora the Explorer," who is celebrating her 10th anniversary. But overall, there are fewer movies than last year that are ripe for toy merchandising this year.

"There are fewer 3D films with toy opportunities, but there will be a lot of sequel or legacy film product," Toy Industry Assn. spokeswoman Reyne Rice said.

Some movies will cater to the core toy demo of kids, while others will skew more adult, providing the opportunity to sell product to toy collectors.

"Toys for sequels usually sell better," Rice said. "Retailers, for example, will support 'Iron Man 2' more, because they know how well product for the first one did." And "Shrek 4" merchandise will more easily fill retail shelves now that the franchise is proven, while retailers originally questioned the appeal of a green ogre.

About 25% of all toy dollars in a typical year are spent on products tied to a licensed or entertainment property.

NPD Group said licensed toys in 2009 represented 25%, or $5.4 billion, of total industry sales of $21.5 billion. That was down from 27% of the $21.65 billion registered in 2008.

Last year's figure excluded "Transformers," a Hasbro property that's become a boxoffice hit and was one of the top five toy properties of 2009, according to NPD.

This week, toy giant Hasbro said last year's "Transformers" sequel, distributed by Paramount, led to sales of toys in that franchise worth $592 million, up more than 20% from the first movie's year in 2007. Sales of its "G.I. Joe" toys brought in revenue of $125 million in 2009, driven by the Paramount summer tentpole release.

The symbiosis between toy companies and Hollywood has gone so far that Hasbro and others have increasingly pushed into film and TV to become branded entertainment firms.

"All the major toy companies are trying to become entertainment studios," said Steven Ekstract, group publisher of License! Global magazine.

But for studios, licensing also has been a very profitable business.

Licensors of entertainment properties generally get an upfront guarantee from a master toy licensee, which can be worth $1 million or more for top franchises. Then the studio typically gets a 10%-15% cut of wholesale receipts, which are about 50% of retail.

At Toy Fair, licensees will showcase their wares in hope of finding buyers among retailers. But like in the movie business, there is no guarantee.

"Sometimes, a movie is really hyped, and you go to the licensee's showroom and see a rather anemic line of toys," NPD analyst Anita Frazier said. "Other times, you find that they have pulled out all the stops."

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