Toys transcending
Digital play strategies among toymakers gets serious as tariffs loom
The SuperJoost Playlist is a weekly take on gaming, tech, and entertainment by business professor and author, Joost van Dreunen.
The wealthiest 10% of Americans now account for nearly half of all consumer spending.
According to The Wall Street Journal, the economy depends on the continued purchasing power of this elite segment while everyone else's spending barely keeps pace with inflation. In the US, the top 10 percent of earners—households making $250,000+—now contribute 49.7 percent of all consumer spending, up from 36 percent three decades ago, representing nearly one-third of GDP.
This concentration of spending power is evident in gaming, too.
First, despite initial backlash over Sony's $700 PlayStation 5 Pro, the company reported its best quarterly sales. Next, premium pricing has become normalized, with Electronic Arts successfully charging $100 for pre-orders of College Football 25—proving die-hard fans willingly pay more for their favorite releases. Finally, the discussions around Take-Two Interactive potentially pricing Grand Theft Auto 6 at $100 signals a clear market bifurcation.
With development costs rising and digital markets rife with uncertainty, the luxury pivot emerges as a strategic response. This trend focuses on premium-priced offerings for devoted players rather than expanding the overall market, raising the stakes and exacerbating the risk profile of game publishing.
Historically, entertainment companies respond by investing in their brand identity to signal quality to audiences. Beyond increasing marketing budgets, luxury now extends beyond price. It is about creating brand identity and relationship models that signal quality to overwhelmed consumers.
Sounds expensive.
On to this week’s update.
🎙 EVENTS — March
In case you’re in town for the New York Toy Fair next week, give me a shout. It’s one of the most fascinating growth areas in gaming right now (see below).
A fortnight from now I’ll be in Austin for SXSW 2025. I’m doing two talks: one featured talk on the state of play, and a panel on the next big generation of gamers.
Finally, GDC 2025 goes live in three weeks. I’m scheduled to do no fewer than three talks that week (one, two, and three). It’ll be busy, but paid subscribers to the SuperJoost Newsletter are automagically invited to my annual happy hour.
Come say hi!
BIG READ: Toys transcending
The short: As the line between physical toys and digital play blurs, major toymakers are strategically embracing video games to capture their evolving audience.
With Toy Fair here in New York less than a week away, now is an opportune moment to take a closer look at how major toy makers are future-proofing their respective business models. The recently reported full-year 2024 performances of Bandai Namco, Hasbro, Mattel, Spin Master, and Games Workshop provide a comprehensive snapshot of the industry's digital transformation trajectory.
Let’s start with earnings.
Bandai Namco represents perhaps the most advanced case of digital integration among major toymakers, reflecting its historical positioning at the intersection of physical collectibles and interactive entertainment. The company reported $6.4 billion in revenue for fiscal year 2024, with its Network Entertainment segment—comprising video games and related digital content—accounting for approximately 27% of total revenue. Its strategic balance between physical products and digital entertainment underscores Bandai Namco's early recognition of cross-medium synergies, particularly evident in its successful deployment of intellectual property across toys, arcade machines, console games, and mobile experiences.
Next, Hasbro generated $4.1 billion in total revenue for 2024, with its Wizards of the Coast and Digital Games segment contributing $1.1 billion—a 4% year-over-year growth that delivered an exceptional 41.8% operating margin despite challenging market conditions. This digital segment has become Hasbro’s primary growth engine, propelled by strong performances from Magic: The Gathering and particularly Monopoly Go!, which alone contributed $38 million in revenue in Q4.
Mattel reported $5.4 billion in 2024 revenue, with its digital gaming initiatives through Mattel163 exceeding $200 million in gross billings and experiencing “double-digit” growth. This represents a strategic pivot for the company, which historically has centered its business model around physical toys and collectibles.
Spin Master's financial performance presents a more complex picture, with $2.3 billion in total revenue for 2024 but challenges in its Digital Games segment, which declined by $9.4 million to $164.5 million for the full year despite a 13.5% increase in Q4. This mixed performance reflects the ongoing adjustment period as traditional toymakers navigate the digital transition.
And, finally, Games Workshop demonstrates yet another approach to digital integration, generating $379.4 million in revenue for the 26 weeks ended December 2024, with its licensing segment surging 149% to $38.1 million. This dramatic growth was largely driven by successful video game partnerships, including Warhammer 40,000: Space Marine 2, with the licensing model delivering an impressive 93% operating margin.
Video games first emerged in retail toy aisles and were long considered a derivative category, even as they eventually outpaced traditional toys in global consumer spending. The evolutionary context is crucial for understanding the strategic imperatives now facing traditional toymakers.
Navigating demographic shifts and global trade tensions
The toy industry faces two significant challenges that are accelerating its digital transformation.
First, consumer habits have dramatically shifted toward online play, especially among core demographic segments. Second, looming tariffs and global supply chain vulnerabilities threaten to compress margins on physical products.
The migration of younger consumers toward digital entertainment creates an existential challenge. Their core audience increasingly expects interactive, connected experiences that traditional physical toys alone cannot provide. This demographic reality has forced companies to develop multifaceted strategies that bridge physical and digital play experiences or risk obsolescence.
Simultaneously, the specter of global trade tensions—particularly between the US and China—presents immediate financial pressures. As noted in a Financial Times interview, Mattel has warned that US prices could rise to offset tariff impacts. This external economic pressure compounds the urgency of digital diversification strategies.
Both Hasbro and Mattel appear prepared with specific manufacturing diversification targets, aiming to reduce dependency on Chinese manufacturing from approximately 50% to under 40% over the coming years. Bandai Namco’s diversified manufacturing footprint, with significant production capacity in Japan and Southeast Asia, provides it with structural advantages in navigating potential tariff disruptions compared to its North American counterparts. By contrast, Spin Master and Games Workshop have adopted more cautious wait-and-see approaches, indicating they will assess the situation as policy details emerge.
Beyond these immediate challenges lies the question of long-term sustainability. Blockbuster hits like Monopoly Go!, Baldur's Gate 3, and Warhammer 40,000: Space Marine 2 have generated record revenues, but maintaining this performance requires sophisticated audience engagement strategies and content pipelines that traditional toy manufacturers have not historically needed to develop.
Strategic differentiation in digital entertainment
Each major toymaker is leveraging its strengths, intellectual property, and risk appetite to navigate this transformation with distinct strategies.
Bandai Namco’s approach represents a deeply integrated model where physical and digital offerings are developed in concert rather than sequentially. The company’s “IP Axis Strategy” demonstrates how intellectual property can be systematically deployed across mediums to create mutually reinforcing ecosystems. Their successful franchises like Dragon Ball, Gundam, and PAC-MAN exemplify how physical collectibles can drive digital engagement while digital narratives simultaneously increase demand for tangible products. This bi-directional value flow represents the most mature integration model in the industry, having evolved over decades rather than being reactively implemented in response to recent market shifts.
Hasbro has embraced collaborative partnerships as exemplified by its success with Scopely, which developed and aggressively marketed Monopoly Go!. The approach has convinced the company to explore more joint ventures rather than building extensive in-house development capabilities. Hasbro CEO Chris Cocks attributes the sustainable success of their digital properties to "high levels of engagement" and innovative monetization approaches like the Tycoon Club, which captures greater spending from high-value players. For Baldur’s Gate 3, Cocks highlighted how Larian Studios' community-driven word-of-mouth marketing and high-quality content updates have helped the game significantly outperform initial projections, nearly doubling them in its second year.
Mattel is pursuing greater vertical integration, with CEO Ynon Kreiz emphasizing the company’s transition toward self-publishing to leverage its iconic brands and capture a larger share of the digital gaming market. Mattel163’s performance demonstrates the value of strong intellectual property in mobile gaming, particularly when combined with sophisticated live-operations strategies and frequent content updates. The company plans to launch its first self-published digital game in 2026, marking a strategic shift toward greater control over monetization and game design rather than continuing to rely exclusively on third-party developers.
Spin Master has adopted a more selective approach after facing challenges in its digital segment. CEO Max Rangel has emphasized a strategic retrenchment, discontinuing underperforming initiatives like Nørdlight Studios and Rubik’s Match due to unfavorable user acquisition costs. Instead, the company is doubling down on successful properties like Toca Boca and Piknik, with the latter's subscription model generating more profitable monthly recurring revenue from approximately 455,000 subscribers. This strategy prioritizes recurring revenue models and leveraging existing intellectual property rather than expansive new development.
Games Workshop exemplifies a licensing-focused approach, carefully selecting partners rather than developing games directly. CEO Kevin Rountree acknowledges that “success in video games is never a given,” but the company's strategy of focusing on premium, long-tail franchises has delivered exceptional results. Their recent Amazon partnership to adapt Warhammer 40,000 into films and television series demonstrates how licensing can extend beyond games to create a mutually reinforcing media ecosystem that drives engagement across formats.
As these major toymakers navigate their digital transformation journeys, they face the complex challenge of allocating resources across multiple platforms and monetization strategies while ensuring their intellectual property remains relevant in an increasingly saturated market. Their varied approaches—from Bandai Namco's deeply integrated IP axis strategy to Hasbro’s collaborative partnerships, Mattel’s self-publishing ambitions to Spin Master’s selective focus, and Games Workshop’s expansive licensing—provide a comprehensive case study in how companies with established physical product ecosystems can formulate digital entertainment strategies that align with their organizational capabilities and market positioning.
What begins as an adaptive necessity for toymakers may well establish the template for how brands across sectors—from fashion to food—approach gaming as a serious business opportunity rather than merely a marketing channel. The transformation underway in the toy industry represents the leading edge of a broader convergence between traditional consumer products and interactive digital experiences, with significant implications for how brands will engage with consumers in the coming decades. Bandai Namco's long-established integration model offers particularly valuable insights for this broader transition, demonstrating how sustained investment in cross-medium capabilities can create resilient business models that thrive amid technological disruption.
My take: The more pronounced entry into interactive entertainment by the world’s biggest toymakers is a case study of how we can expect non-gaming firms to formulate their strategies. Digital games present a new relationship model to intellectual property owners and brands. Supported by their existing marketing strategies and distribution channels, a growing number of so-called non-endemics have a chance to connect with audiences as game makers look for novel revenue models. What starts as a necessity for toymakers will soon become a blueprint for how brands—from fashion to food—treat gaming as a core business rather than just a marketing tool.
PLAY/PASS
In the absence of corporate risk-taking and cutbacks, it appears that it is up to us, the people, to fund and finance projects, as evidenced by the following.
Pass. Following the news of NetEase shutting down its North American studio, Warner Bros. must have felt it needed to keep up and promptly closed three of its studios. At what point does the pursuit of efficiencies become a clear over-correction?
Play. Raph Koster’s project, Stars Reach, is live on Kickstarter and broke its goal within minutes.
Play. ROMChip similarly blew right by its initial fundraising goal and is now staring down its second stretch goal to help pay for those under-appreciated video game historians who catalog how we got here for the rest of us.
UP NEXT
Next week, we'll examine the Epic Game Store's five-year journey through the digital marketplace—has its massive exclusivity investments and 12% revenue share model disrupted distribution as intended, or what? The answer may reshape how we think about platform economics in gaming's increasingly competitive landscape.
Fantastic analysis as always.