The battle over Bratz has been something of a Pyrrhic victory for Mattel (NYSE: MAT). While the jurors in the trial sided with the toymaker, ruling that the pouty-mouthed dolls were essentially made while their creator was on Mattel's payroll, the damage done to its own iconic Barbie brand has been substantial. Did it win the battle only to lose the war?
Certainly, MGA Entertainment isn't conceding too much. While its CEO surprised some by suggesting he'd be willing to talk settlement with Mattel -- changing his previous stance that he'd do no such thing -- he's also only willing to settle if it means sharing only revenue the dolls earned in the past. In other words, Mattel would have no exposure to any Bratz revenue earned in the future.
The jury, which rewarded $100 million to Mattel in damages and lost profits this summer, never actually determined which company ultimately holds the right to produce the doll. MGA argues that the damages should be limited to the first generation model, since substantial changes were made to the newer dolls.
The Bratz line is undoubtedly a successful line for MGA and a huge hit with its young customers. This year alone, the brand is expected to generate $350 million in sales. Meanwhile, Mattel's Barbie (Bratz's closest competitor) is sliding into a much weaker position. Domestic sales of Barbie fell 15 % in 2007 and another 12% in the first quarter of 2008. Internationally, the doll is doing better, though the rate of growth has slowed. Sales increased 6% so far this year as opposed to 12% last year.
As other toymakers like Hasbro (NYSE: HAS) and JAKKS Pacific (Nasdaq: JAKK) (who've have also battled it out in court recently) know, legal costs can be hefty. The scuffle with Mattel has been no different; MGA says it wants to resolve the conflict, move on, and continue to scrap in the marketplace before wasting any more money.
Still, it's questionable whether Mattel will eventually settle for what MGA is offering. With Disney (NYSE: DIS) bringing together divas such as Snow White, Belle, Mulan, and Cinderella into one Princess showcase, and Bratz expanding from its original handful of characters to more than 40, Mattel's iconic Barbie collection is falling behind the new wave of doll choices.
While we haven't seen Mattel give Barbie any collagen lip injections or more curves (well, from the waist down, anyway), the the operational Barbie team is undergoing some plastic surgery. It's shaking up the divisions that handled development and brand licensing, joining the two together under one roof in hopes of upping its game in the competitive doll marketplace. This suggests that the toymaker is hunkering down for a more determined battle going forward without the Bratz brand.
Although MGA may be dragged to the bargaining table because of legal costs and a judge's order, that doesn't mean it's not going to cost Mattel something, too. If Barbie can't wrangle a slice of future sales from the Bratz or control of the brand then this court battle will have amounted to little more than an expensive diversion for both sides. "Another such victory over the Romans," said King Pyrrhus, "and we are undone."
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