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The ruthless economic logic of Lego

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Lego’s global revenues (shown in blue bricks in the chart above from Wired) declined momentarily when the first dot-com bubble burst. Since then they have increased steadily, completely unaffected by the financial crisis of five years ago. Lego’s success is partly due to its expanding popularity in China, which made the company the world’s second largest and most profitable toymaker last year as Lego surpassed Hasbro in total revenue. The largest manufacturer, Mattel, has not managed to diversify geographically as Lego has. Mattel recently reported a decrease in fourth-quarter profit between 2012 and last year following weak sales in Europe and North America.

Much of Lego’s revenue has also come from lucrative licenses for characters such as Harry Potter, Spider-Man, and Indiana Jones, according to Wired. The cost of these deals, shown in white bricks in the chart above, is small compared to revenue. It would have cost a collector thousands of dollars to acquire the dozens of kits that resulted from Lego’s first two major deals, for the rights to construct the worlds of George Lucas and J.K. Rowling. More recently, the toymaker has offered only a few kits associated with each character, presumably since each kit is costly to design and few parents are willing to spend hundreds of dollars just so their children can play with SpongeBob.

Lego’s first toys were nothing but bricks, but the company has gradually supplied more and more of the narrative context for play that children once had to invent themselves. Toys that allow children to revisit familiar stories or characters are apparently more popular than those that require them to make up everything on their own. This conflict between imagination and economic logic drives the plot of The Lego Movie, according to reviews. The film is in theaters this month.

Read more: http://knowmore.washingtonpost.com/2014/02/10/the-ruthless-economic-logic-of-lego/

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