How These Dolls Blew Up the $92B Toy Industry

[00:00:00] Speaker 1: If you're like the estimated 74% of adults in the US who use YouTube, this might be what your home screen looks like. An algorithmically curated look into what you like to watch. Maybe some tips on how to prepare a new meal, or your favorite vlogger's latest video. But if you're a parent who shares your phone with your children, it probably looks a little more like this. Kids content on YouTube is huge. Views for videos can reach into the billions. Five of the top ten videos in all of YouTube's history are either music videos or kids videos, with Baby Shark having more views than people on the planet. [00:00:42] Speaker 2: YouTube has created a revolution, not an evolution, in the way kids and families consume video content. and that extends then into how they view toys and play and all of the associated things that go with that. [00:01:02] Speaker 1: Kids YouTube for the unaware can be adorable. It can be boring. It can also just be flat-out strange. [00:01:15] Speaker 3: Here I am, here I am, how do you do? [00:01:20] Speaker 1: But often it involves toys. And for toy makers who embraced the platform, it led to record success. [00:01:26] Speaker 4: And I think LOL Surprise, unquestionably, is the biggest phenomenon that has ever happened in the toy industry. [00:01:33] Speaker 1: This is the story of how YouTube changed kids' toys. [00:01:43] Speaker 5: Play patterns, the way children play, is timeless. But how we deliver on those play patterns through product and how we market that to children has changed quite a bit over the years. And I would say that the last five to ten years really ranks right up there with the 1950s when TV commercials directed to children was first launched by Mattel. [00:02:10] Speaker 1: This is Nancy's Weirs. She led the Barbie brand during the '90s and spent four years as the Chief Marketing Officer for Spin Master. [00:02:17] Speaker 5: It used to be that there would be a few play things that parents would bring into the home or that children would create themselves, like a stick and a ball becomes a play thing. And the industry was at a certain level of volume at that point. Mattel was very innovative and actually put the first product on TV and advertised it to children. Let's play home. This created a huge explosion in the toy industry that unfolded across decades. The hit of the day when you're ready to play everyone knows it's Slinky. Here he comes, here he comes, [00:02:57] Speaker 3: greatest toy you've ever seen and his name is Mr. Machine. D.I. Joe, D.I. Joe, fighting man for men to go on the land on the sea in the air. [00:03:11] Speaker 6: When you go back to the 1980s, what do you think of in terms of hit shows? You think of things like Masters of the Universe. You think of the original Transformers and Care Bears. The joke was they were 22-minute commercials. [00:03:23] Speaker 5: Just close your eyes and care. [00:03:27] Speaker 6: Let's make a TV show, which is really promotion for our property or IP, to help sell toys. There were a lot of those famous characters in which kids absolutely loved it. They were totally entertained, but there were huge toy lines behind them. [00:03:42] Speaker 1: This is Jim Silver, a 37-year veteran of the toys industry. In 1999, he started a consumer toy review magazine called Toy Wishes. And now, he's the CEO of an influencer talent management group, TTPM. [00:03:55] Speaker 6: Regulations changed through the years. And also, parents became aware that they were purely commercials. And you saw a lot of the new channels, the Disney Channel and Nickelodeon. They realized that wouldn't work anymore. And to them, entertainment came before licensing. [00:04:10] Speaker 5: What happened over time was that toys started to become designed for a 30-second commercial. [00:04:20] Speaker 7: So, if you couldn't explain it in a 30-second commercial, cost reduce it out of the product. [00:04:35] Speaker 5: And just stick with, you know, what you could say. And features of toys, magical features using electronics, lights and sounds, and mechanical movements. That magic, like they don't know how it happens. That became more and more important. [00:04:51] Speaker 3: The sound of power is heard. [00:04:53] Speaker 5: It's fire from Batman. [00:04:55] Speaker 3: See ya, Batman. Batman's turbo-powered Batmobile flies into high gear. [00:05:01] Speaker 5: Since 2000, with cable channels dedicated to kids. Disney Channel, Nickelodeon, Cartoon Network. There became the opportunity to reach kids in mass numbers every day of the week. And so, the toy industry has continued to grow. [00:05:20] Speaker 8: The toy industry, for the most part, was a pretty solid business. Just, you know, growing a couple percent a year here and there. There'd be big years here and there when there was maybe a hit movie. Like a Star Wars movie come out, you know, drive a lot of toy sales. [00:05:33] Speaker 1: From 2014 to 2019, the global toy industry would grow by 15%. At about the same time, those major cable networks of Nickelodeon, Disney Channel, and Cartoon Network would lose half their total audience. 2017 also saw the bankruptcy of Toys R Us, as both parents and kids discovered and bought more toys online. [00:05:55] Speaker 8: If you think about kids, they're usually the first adopters of a new medium. Kids weren't watching things like Nickelodeon as much as they used to. They were watching things on YouTube. [00:06:05] Speaker 9: YouTube started in early 2005. And this was like, you know, the very early Web 2.0. This beginning of sort of like, what were the time was going to be known as user-generated content. Like, web blogging was really big. MySpace was the biggest thing on the internet back then. There was an early video of a Brazilian soccer legend doing stunt tricks that just exploded on the site. one of the first viral videos. Lazy Sunday, if you remember that SNL short. [00:06:39] Speaker 10: Ow, Charlie! Charlie bit me. [00:06:43] Speaker 9: Do you remember those earliest viral hits? [00:06:45] Speaker 2: YouTube in the early days was definitely comedy and music. It was a place of experimentation. I was the chief audience officer at Maker Studios. I oversaw, essentially, the creator partnerships all over the world. [00:07:03] Speaker 1: Maker Studios was one of the largest multi-channel networks on YouTube, and had partnered with some of the biggest YouTube channels of the time, before being sold to Disney in 2014. Chris is now the CEO of Pocket Watch, which represents some of the largest kids' stars on YouTube, including Ryan's World and Love Diana, who can amass over a couple billion views every month. [00:07:22] Speaker 2: The truth is, one of the very biggest and earliest videos on all of YouTube was by a creator and star named iJustine, where she unboxed her first mobile phone bill for her brand new iPhone, and it came in a box. And this ultimately morphed into many different formats associated with unboxing, and tech was actually really big. [00:07:49] Speaker 9: And those became fairly successful pretty early on on the platform. And, you know, you saw them expand from tech products to beauty products. And then around 2012 and 2013, we saw this explosion into toys. [00:08:06] Speaker 7: So here's the Furby inside right here. [00:08:08] Speaker 2: We used to call them hands channels, okay? And a hands channel was literally a top-down view of someone's hands unboxing typically a toy. And they'd unbox it, they'd show each component. [00:08:24] Speaker 5: We just got Uncle Scrooge. [00:08:27] Speaker 2: I would speak to many of those creators. We signed many of those creators at Maker Studios to be our partners. And it was fascinating in that it was this whole new genre and this whole new format. And that corresponded with a rise of kids and family viewership on YouTube that was stark, that was hard to miss. And you would see it in the data. And we had access to a lot of data at Maker Studios around YouTube. [00:08:59] Speaker 10: Let's see what's inside. First up, we have the Stormtrooper Pig. [00:09:05] Speaker 6: You saw the launch of Eventube, who I consider the first child, so to speak, unboxing star. And they would open toys and kids were just mesmerized by it. They loved watching it. And next thing you know, you had literally 50 unboxings. They were unboxing just about every toy, you know. And people were just really excited. You open the toy and you see a toy pop out. And kids just got excited seeing it piece by piece. [00:09:32] Speaker 2: Yeah, he's in a bathrobe, he's eating a lobster. [00:09:35] Speaker 8: You know, the early days of these unboxing videos, the videos were, you know, from an adult's perspective, just terrible. I mean, they were 10 minutes long. They were boring. There was a shaky camera. There was absolutely no production value. And if you think about these executives, you know, they're trying to figure out how to reach this new audience. And they brought these videos and say, well, look at this video. It has 200,000 views on it. And it's terrible. [00:10:00] Speaker 5: When I first heard of it, I thought it was the weirdest thing. It just seemed kind of bizarre. Who would want to watch someone opening a toy, taking it out of the box? But then when I started thinking about this idea of exploration and discovery as a core play pattern, the most fundamental play pattern there is, it started to make sense. And I think that I have to say that the company that really jumped on that in the most concerted way was MGA with their launch of LOL. [00:10:33] Speaker 8: LOL Surprise had three key elements. Doll play, which is basically the most popular play pattern there is. Collectible. So within each LOL Surprise, you'd get a little sheet that showed you all the other dolls you could collect. And then the surprise factor. You didn't know which doll you were getting. It was a blind pack, as they call it. And LOL was made by this company called MGA. Back then, you know, 2016, they were a small player in the toy industry. Founded by this guy named Isaac Larian. He's the CEO and founder. [00:11:06] Speaker 4: I have three adult kids and they were making fun of me that, oh, you're old, you don't know anything about what's happening in today's thing. And I said, like what? And they said, for example, there is, do you know about this iPhone unboxing videos that get millions and millions of views? So I thought they're pulling my leg, children do, to make fun of their parents. And then I did go and look one night and I was frankly shocked and flabbergasted that why would you, why would anybody buy an iPhone, take it home and open the box and show it on the camera and everybody would go and watch it. So I typed toy unboxing and my God, I saw so many different videos and people, kids and adults buying toys like an Apple and unboxing it and video and posting it. So that gave me an idea that why, why not come up with the ultimate. And that's the, that's the first LOL surprise. All right. [00:12:15] Speaker 5: Oh, yes. We've got a gold ball. [00:12:18] Speaker 6: LOL changed the way you open with toys and everybody saw that. And the packaging became part of the play, which became part of the entertainment. So normally if you get a package that you just open a package, you take the toy out. That's not exciting. You open up LOL, you peel it away, you open up inside, you have seven surprises. [00:12:39] Speaker 8: And it took off like wildfire and quickly became, you know, the top toy in the country. [00:12:45] Speaker 1: By December of 2018, eight of the top 10 toys sold were all LOL surprise brand. And according to MGA from 2016 to 2020, LOL would generate over $10 billion in retail sales worldwide. [00:12:58] Speaker 8: You know, LOL is bigger than Star Wars. It's bigger than Marvel. It's bigger than Barbie. These brands with huge advertising budgets are known basically by everyone. You don't have to, you know, figure out what Marvel or Star Wars is. And LOL eclipsed them all. [00:13:15] Speaker 1: In the toy world, blind bag or blind box toys have been growing in popularity. The most famous example in recent years is Pokemon cards, where you open packs in hopes of getting a Charizard, but more often wind up with something common like Bligar here. Two years before the launch of LOL, in 2014, the Australian toy company Moose Toys launched a blind bag collectible called Shopkins. And in 2016, Spin Master would launch a more expensive blind box toy it called Hatchimals. [00:13:46] Speaker 8: But the thing that sets LOL surprise apart is that it mainly focused on YouTube. And not putting ads on YouTube, but working with creators and influencers to get their products in the hands of these kids doing the unboxing videos. For MGA, actually, the move towards YouTube was kind of a bit lucky and almost out of necessity. [00:14:05] Speaker 1: In late 2015, Nickelodeon parent company Viacom would sue MGA for breach of contract after it failed to pay $3.5 million for the production of a TV series based on their La La Loopsie dolls. [00:14:16] Speaker 4: They tried to flex their muscle and they said, well, if you don't agree to our way of seeing things in the conflict that we had, except the conflict, we are going to stop your advertisement of toys. [00:14:34] Speaker 5: At the time, Nickelodeon was the number one ranked children's network and not to be able to advertise a Nickelodeon could have been a death knell. But MGA, necessity is the mother of invention, that caused them to lean into digital advertising far more than any big brand had ever done before because they had to. They had to find a new way to reach kids. [00:15:02] Speaker 1: The court would ultimately rule in favor of Viacom, both in L.A. Federal Court and on appeal in the Ninth Circuit. Larian blamed the court defeat on what he contends was judicial bias. Nickelodeon parent company Viacom didn't respond to a request for comment. [00:15:16] Speaker 4: So that by itself forced us to go and say, OK, the hell with Nickelodeon. Let's find another way to reach two children. And that's how we went and doubled up on YouTube, especially. And the rest, as they say, is history. [00:15:33] Speaker 8: So early on, MGA partnered with YouTube creators with huge audiences like Cookie Swirl C. [00:15:40] Speaker 2: Good morning, Chocolaty Chippy Cookies. We are going to be spending the morning with this LOL Surprise Baby Fancy. [00:15:47] Speaker 5: They took it another step further. They actually helped kids learn how to do their own unboxing videos. They gave them, you know, support and learning and tools. And so all these kids got to be kind of a little mini influencer themselves as they were unboxing their LOL products. [00:16:09] Speaker 8: So just to give you a flavor of how popular these videos are, go onto YouTube and search LOL Surprise. And you'll see videos with a million views, 10 million, 25 million, 50 million, and even 100 million. Lots of them. And kids are watching these videos and they're probably watching them over and over again. [00:16:28] Speaker 6: The old way toy manufacturers would do things is they buy TV, which was about 90% of their ad spend. And then traditional PR, get on the big morning shows. It's an entirely different formula. It's much harder for toy companies right now because the formula is so complicated. You have to really take a deep dive into each platform. Am I promoting on Twitter? Am I promoting on Instagram? Am I promoting on TikTok? What am I doing on YouTube? You have to look at every possible social channel. [00:16:57] Speaker 1: By 2017, big toy brands like Mattel had shifted nearly 50% of their marketing budget to social platform advertising. Brands would help seed videos of their toys. And if they were lucky, that could kick off a wave of creators making their own content around the product. In 2020 alone, Tubular Labs estimated that LOL-related content had amassed 5.1 billion views. [00:17:18] Speaker 5: This idea of imitation. So when you see kids playing with product, it kind of excites the same neurons in your brain that happen when you do it yourself. The more we could show children having this experience, the more kids felt what it would be like to have it and then wanted to experience it themselves. [00:17:42] Speaker 8: You know, one of the criticisms of this whole influencer movement among kids is that kids are young. They don't understand what's necessarily an advertisement versus real content. And that's a big criticism of this industry is that a lot of kids are getting on YouTube at young ages, not being supervised by their parents and just watching these videos. And they don't realize that maybe that influencer is getting paid by the brand to do that video, or there's some other compensation. And that, you know, blurs the lines for kids as they're sort of developing and figuring out how to consume media. [00:18:17] Speaker 1: Questionable advertising concerns aside, kids' YouTube creators would take off. Channels like Ryan's World would grow to almost 30 million subscribers and a whole industry formed around them. [00:18:28] Speaker 5: When we first started working with influencers, they were very happy to work for free product. You give them the product and they do something for you. Then gradually, influencers got smarter and started, you know, charging for their services as they started building a following. Now, because it is such a big business, the dollars can be significant investing in big influencers. When Spin Master launched one of its new TV series and associated product, we made it a point to buy an advertising package with Ryan's World to ensure that we could get really quick, big reach right away. This is an advertisement for Spin Master. [00:19:19] Speaker 8: So from these unboxing videos, the content's gotten a lot more sophisticated. They're creating narratives around the toys with voices and meta universes, if you will. And it's really engaging content, even more so than the original unboxing videos for these kids. And, you know, the content's coming out maybe once a week or even daily. So if you think about it, what they've done is they've created basically like a TV show around a toy. It's not unlike what we saw back in the 80s, which was criticized back then, by the way, when you had toys like G.I. Joe turn into an animated series or Masters of the Universe or Transformers. So we've kind of seen this full circle now, right? So back to where we were content and basically mini television shows created around toys on YouTube. [00:20:03] Speaker 1: Kids content on YouTube is likely to face increased regulation in the coming years. In 2019, the company would agree on a $170 million settlement with the FTC for serving ads based on personal data to kids on YouTube. YouTube would put more emphasis behind its "Made for Kids" platform, YouTube Kids. And each video uploaded to YouTube must be flagged as either "Made for Kids" or not. In a statement outlining changes to the site, YouTube would say that responsibility is our number one priority at YouTube. And this includes protecting kids and their privacy. Still, the site is far less regulated than traditional television. [00:20:37] Speaker 2: I do think parents have a better understanding of YouTube now and the new genres and formats there that they didn't prior. And they now notice things like their kid isn't watching a toy unboxing that's a commercial for a toy. Their kid is watching other kids play with toys in an imaginative way, which inspires them to go play with things in the real world in an imaginative way. [00:21:05] Speaker 1: In just a few short years, YouTube had caused a transfer of power from toy and network executives to nine-year-olds and their families. The Kaji family may have started out as toy reviewers, but now Ryan has launched his own line of toys. A cartoon series. He was even a blimp in the 2020 Macy's Thanksgiving parade. [00:21:27] Speaker 8: You or I might think about Spider-Man or Snoopy, but today's kids see that blimp of Ryan and they relate to him. He's the character they want to grow up with. He's the character they want to engage with. And as we go forward, these influencers are becoming more and more like big, giant, global brands. And that has profound effects for entertainment going forward. He's the character they want to grow up with. [00:21:50] Speaker ?: He's the character they want to grow up with. He's the character they want to grow up with. He's the character they want to grow up with. He's the character they want to grow up with. He's the character they want to grow up with. He's the character they want to grow up with. He's the character they want to grow up with. He's the character they want to grow up with. He's the character they want to grow up with. He's the character they want to grow up with. He's the character they want to grow up with. Thank you.