In 1998, the Lego Company and Mega Bloks began construction on property licensing programs, and both companies attribute the onset of in-licensing to an overall effort to drive incremental growth and volume and capture new consumers. With portfolios that continue to build at the steady pace of a preschooler building a tower of blocks, both Lego and Mega Bloks see lucrative potential in licensing, in and out.

Within Lego’s play theme product segment, geared toward kids ages six to 12, a lot of interest is driven by the role-play dimension, which goes along with the building dimension to make a complete play package. ‘We thought that in addition to creating our own characters and stories, there was an opportunity to augment those with some very popular licenses,’ says Mike Moynihan, director of marketing for the Lego Company’s

Americas division, Lego Systems.

In April 1998, the company announced that it had entered into an exclusive agreement with Lucas Licensing to market Star Wars construction toys worldwide, based on the three prequels, as well as the original trilogy. Star Wars was chosen as Lego’s first property license because it had a few key characteristics that the company continues to measure potential licenses by.

‘One is that it is truly an evergreen. I don’t think, particularly with our first license, that we really wanted to get into the game of heavily betting on the next hot film or property.’ A second characteristic is that the values associated with Star Wars as a timeless epic saga mirrored Lego’s core values. The company’s website (www.lego.com) lists these as creativity, imagination, unlimited opportunity, self-fulfillment, development, quality and innovation.

In addition, says Moynihan, ‘many of the Star Wars characters, vehicles and settings really lend themselves to Lego building.’

They also lend themselves to an older consumer demo. In post-consumer research, Lego discovered that a considerable volume of Star Wars sets were going to the adult demo Lego calls the ‘shadow market.’ Star Wars is ‘by far the strongest play theme line we have ever had,’ adds Moynihan.

Also in 1998, Lego announced a deal with Disney Consumer Products to create a range of Lego Duplo and Lego System brand construction toys based on Disney characters. Moynihan claims that by adding the Disney license, the company was looking to apply licensed properties not just to one particular consumer segment, but across the entire Lego line. According to Moynihan, the Disney line is by far the strongest Duplo line Lego has ever had, and that, coupled with the success of the Star Wars line, has given Lego the confidence that it can make a great deal of impact and enjoy great success with licensed properties.

Lego expects its upcoming Harry Potter line to drive the same volume among its core base of users as Star Wars did.

In September 2000, Lego signed a worldwide deal with HIT Entertainment to build a line of Duplo sets based on the hit U.K. preschool series Bob the Builder.

Lego chose Bob the Builder as its newest license because the building theme was a perfect tie-in. The series is scheduled for a U.S. premiere on Nick Jr. in January 2001, and Lego Americas expects Bob the Builder will meet with similar success State-side as it has in the U.K.

‘We think that there’s definitely a good track record that we’ve established here,’ Moynihan muses. ‘And I know it seems as if there’s a flurry of activity in licensed properties with four over the last couple of years, but really the intention is for us to be very measured in how we go about it.’ Lego plans to expand its licensing program, but is currently focused on making the most of its four property licenses and has no short-term plans to acquire any new properties.

Lego outlicensing also continues to grow, with Kids Headquarters’ Lego Wear hitting the U.S. market in July 2000.

Mega Bloks started its licensing program in 1998 with construction/building sets based upon Sesame Street characters. ‘Prior to signing an agreement with Sesame Workshop, we did a lot of legwork to get an understanding of the preschool license business, including direct, consumer-focused research,’ says Steve Donahue, product manager at Ritvik Holdings (Mega Bloks). Sesame Street was chosen because the core attributes of the Mega Bloks preschool construction line-creative, fun, safe and educational-were ‘a perfect fit with the Sesame Street philosophy.’ In addition to looking for properties that fit in with Mega Bloks’ own brand values, the company looks for ‘mom-approved’ licenses that have broad, long-lasting appeal, ideally worldwide, says Donahue. ‘We are very selective, and we pass on the vast majority of properties we are asked to evaluate,’ Donahue adds.

Also that year, the company signed an agreement with the itsy bitsy Entertainment Company to create Mega Bloks sets based on the hit preschool series Teletubbies. ‘Our U.K. office had recommended this property to us well before it had a presence in the North American marketplace,’ says Donahue. ‘We were able to get a good preview of what this brand was all about, and we strongly believed that its overseas success would be repeated here.’ And, an existing Mega Bloks line of infant building blocks provided a natural product development platform for Teletubbies-branded building and stacking toys.

‘We have been exceptionally pleased with our licensing program to date,’ says Donahue. ‘All of our licenses have outperformed expectations, either in overall sales contribution or by allowing us to become a permanent fixture in new sales channels. Mega Bloks’ preschool licensed toys, based on Sesame Street and Teletubbies, opened a lot of doors for the company in specialty, regional and mid-tier accounts. These channels had viewed the Mega Bloks brand as being mass-merchant focused, and our ability to offer them preschool construction toys with such popular licenses was, for them, a welcome change,’ says Donahue.

‘We have since developed our relationships with these accounts, creating channel-exclusive products under the Mega Bloks brand that allow them to have differentiated product that does not go head-to-head with what’s offered at the mass-merchant level.’ The company extended its licensed preschool line in 2000 when it signed an agreement with Nelvana to create product based on Franklin.

Donahue expects that Mega Bloks’ Harley-Davidson license-also signed this year-will similarly create new avenues of business, particularly in non-traditional channels such as the H-D dealer network and collector catalogs. ‘We are continuing to expand our in-licensing program and are actively signing on new prospects,’ says Donahue. Mega Bloks also holds licenses to properties such as NASCAR (1999), Pokémon (1999) and Peanuts (2000). While the company’s outlicensing efforts have been modest to date, Mega Bloks is ‘evaluating the creation of such a program with a focus on complementary preschool and child-care categories,’ says Donahue.