Are AI Companions a Threat to Toys? & The Kidult Economy is Booming

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0:42I'm Neil Freiman. And I'm Toby Howell. Today, strap into your Tonka trucks, we're going on a toy ride. Dust off those Legos and reassemble Mr. Potato Head. We're talking toys. It's Friday, November 28th. Let's ride.

1:00Hope you all had an amazing Thanksgiving and were able to sleep in today on an extra full stomach. As you dig into the leftovers, here is a special Black Friday interview episode all about toys. James Zahn is the editor-in-chief of the Toy Book, who also goes by The Rockfather. Ahead of the holiday gift-giving season, we wanted to pick his brain about the latest trends in toys, and you will not want to skip it or even bop it. This dude is a toy savant. He can solve a Rubik's Cube in negative 10 seconds. His Etz-A-Sketz drawings hang in the Louvre, and he's got a cool beard, too. Seriously, look it up.

1:34So even if you don't know a G.I. Joe from a glow stick or a Lego from a Lincoln log, you will feel like a toy connoisseur by the end of this episode. But first, a word from our sponsor, U.S. Bank. It's that time of the year again, pet parents. Your dogs and cats are surrounded by wrapping paper, seasonal treats, and other tasty temptations that could end up in unexpected trips to the vet. The last thing you want is to have to pay those emergency vet bills out of pocket. Introducing the U.S. Bank Split World MasterCard, a new type of card that lets you pay later on every purchase. With the split card, all purchases are automatically divided into three payments and placed into a payment plan to be paid back over three months.

2:10And if you're looking for additional flexibility, any purchase over$100 can be extended to six or 12 months with equal monthly payments for a low monthly fee. No matter what mischief your pets get into this season, you can pay later on every purchase with the U.S. Bank split card. Learn more at usbank.com slash split card. That's usbank.com slash split card. Now here's James Zahn. James, it's great to have you, and we are so excited to talk toys. Hey, it's great to be here, and I'm, of course, always willing to do some talking toys. All right, let's start here. You probably saw that the first trailer for Toy Story 5 dropped this month, and the plot line seems to revolve around an iPad-like tablet replacing Buzz and Woody as a child's toy.

2:53If you were making a movie about toys in 2025, would an iPad be the villain? Not necessarily. I would probably lean towards AI companion robots as the villain. The pad in Toy Story 5, they're calling it a lily pad. And if you look at it, it looks suspiciously like a leap pad, which is made by a company called Leapfrog. So they were definitely trying to tie the reality into the fiction there. but there is a stage in kids' lives and I'm not sure how old that little girl is supposed to be in the new movie but there is certainly a time now where kids start to go digital and how they're doing that just keeps evolving every year.

3:45Is there a right time for kids to go digital? Because I know there's a lot of discourse around iPad parents who bring their kids to restaurants and put an iPad in front of them Is that something that you have thoughts on as someone who, you know, talks about childhood development and toys and play in general? I think there's no one size fits all answer because every family is going to be different. And of course, the grownups in that family are going to do what they feel is right for them and their own kids. Personally, I think you should try to keep kids off of the handheld screens. And by handheld screens, I'm talking phones and tablets.

4:23It's video games. I don't put in that category because I myself grew up in the era of the Atari 2600 and the Nintendo Entertainment System and got through just fine. I think that the overall constantly being tethered to that screen, we have enough time for that as adults. So with my own daughters, who are teenagers now, we tried to keep them off of the handheld tablets for as long as we could, which ended up being much longer than most of the kids in their peer groups, which had a little bit of that created its own thing, too, because then other kids are like, well, why don't you have a phone?

5:05you don't really want to have it's like holding a television in your hands at all times of the day and I kind of see it as like a traditional childhood you grew up you watch tv then you went outside and you played sports or you rode your bike around the neighborhood I think that's some of like the active play is what we end up losing when the kids are always just looking at the thing. I want to go back to what you said about AI companions. We kind of skirted over that. Is that something that you believe is definitely coming? And is the toy industry viewing that as a threat to their business? I would say they're not viewing it as a threat to their business because all of the toy makers are carefully watching it and some of them are getting involved.

5:51You know, there was a big deal earlier this year when Mattel, they do Barbie and Hot Wheels and Masters of the Universe and Uno, they made a deal with OpenAI to start working with them on what they referred to as some experiences. And we don't quite know what that's going to be yet. Similarly, on the East Coast, you have Hasbro, you know, they do G.I. Joe and Star Wars and Marvel and Play-Doh. They have an AI studio that opened this year that is starting to actively develop things, but this is not new. There have been elements of AI in the toy business, starting with something as simple as packaging.

6:33You know, if you're using Adobe Photoshop and you're using the background removal tool, technically you're using a piece of AI as a tool in your daily job. Where it becomes a little weird is when you start to create this interactivity. and a couple years ago, I would say 2023 was the first real boom in these AI companion toys and we saw a number of robots. There was one called Play, but it was PLAI. There was like a Play the Storytime Bear. There was 2XL, which was by Mego and it was an AI version of a robot from the 70s. There used to be a 2XL robot that you put a tape in and he had like a little square head and he played a story for you.

7:21Those came out and they sort of failed spectacularly. This new stuff is like a video game. It's running as piggybacked on someone else's tech, whether that be a chat GPT or another LLM or some kind of server out there in the cloud. If that stuff shuts down or the company powering it shuts down, it's gone. And then I look at it like you're not in the toy business. You're basically, and you're not even selling something. You're in the rental business. It's like the parent buys a$300 robot for their kid, and if it ceases to work two years from now, did they really own it? No, they rented the service that it was going with.

8:06So I think there's a lot of complexity and nuance that the industry needs to figure out how to work around in a tactful way. And I also think there's a lot for parents and other grownups to know and be aware of as they're seeking these great play experiences for the kids in their life. Because the last thing you want to do is have a kid that becomes so attached and so in love with something and then just tell them, sorry, guess what? Tomorrow at 12 p.m., it's not going to talk to you anymore. It sounds like the next Toy Story villain should be a discarded sentient AI robot who was never updated and just has a bone to pick with his children.

8:48Shifting gears here a little bit, you talked about adults. You like that. Oh, you like that? All right. We're going to start developing that. I like that. Now I'm thinking, you know what? Disney's going to owe me a check here pretty soon if I start giving them ideas for their plots. We're in this together. All of us. All of us. You know what? The Hollywood Reporter story will be like these three guys were on a podcast, and that's where the screenplay came from. That's what I'm talking about. We're making money here. All right, now we're shifting gears. The number one growth driver in the industry right now is what's known as adults.

9:22People, Neil's age, he's an old man right here, buying toys. Why are these adults buying toys? And is this a new thing? Like in 2005, were adults buying toys in the same way that they are today? It's sort of like an onion, and we're going to unpeel it here. The idea of the adult collector or the adult enthusiast is not a new thing. For as long as the modern toy industry has existed, and even before that, adult enthusiasts have existed in some capacity. And I think that that gets missed when we see the headlines online about the kid old market and blah, blah, blah, and everybody's buying all the stuff.

10:03But go back to people with Russian dolls, like those little stackable dolls and stuff. Hundreds of years. Grownups collecting those, putting them on their shelves. Go back to the 50s and 60s when things like action figures or die-cast vehicles like Hot Wheels became popular, designed for kids. From the get-go, you had guys that were collecting Hot Wheels. And this continued. And I really think like the golden age of the North American toy industry especially is somewhere between 1960 to 1985. That's when like all the brands, their brands we're still talking about that still exist. Masters of the Universe, Rainbow Brite, Gem and the Holograms, Carabares.

10:48You go down the list. They all came out in that area, even like Ninja Turtles and stuff. Transformers. huge amount of content that spawned toys or toys that spawned content that came out there and grown-ups were collecting it. I actually found, so our publication, the Toy Book, has been around since 1984. It's a trade publication covering the North American industry. And I found an article a couple years ago about Mattel in the 80s being very excited that they thought they had 5 ,000 adult female Barbie collectors out there. And this was a story from 35, 40 years ago. So it's existed, but then what really happened over the past 25 years, and then really accelerated in the last five, is generations of adults reconnecting with things that were popular when they were kids.

11:46And the reason I say 25 years ago is, if you look around the turn of the new millennium here, it was sort of first wave nostalgia. You had that first generation of adults that grew up on that content from the 70s and 80s. And these properties were starting to have anniversaries. Like I remember when He-Man had a 20th anniversary line from Mattel. I think that was 2002. And then a couple of years ago, well, it was the 40th anniversary. So you had that first wave of nostalgia kick in. And maybe it was even a little before that when Star Wars figures started coming out again in the late nineties and kids that played with it 20 years prior were picking it up.

12:32So they continued, but then the pandemic hit, you had all these adults that were stuck at home that were flush with cash. And they started just leaning into that comfort food of collecting things. And that's where it became that really trackable, quantifiable consumer cohort. And the term Kidult, also not new. Hong Kong Toys and Games Fair has had a Kidult World Pavilion since at least 2013. But that was an industry term. And a lot of people hate it. There are people that just think that it's childish because it's not necessarily adults acting like children. It's adults leaning into passion. And in some case, buying things as legitimate investments.

13:26Think of how trading cards, sports and non-sports, those are actually tracked as toys, quote. They're in the toy industry under explorative and other is how Sirkana tracks that. And that category alone this year, so the first six months of this year, sales were up 6 % for the U.S. toy industry, but 70 % of that growth was coming from trading cards. And when you see guys like Logan Paul walking around with a medallion with a$100 ,000 Pokemon on thing, that is toy collecting on a much higher level. So it's existed. So I guess that's the long way of getting around to not a new thing, but it's definitely an evolving thing that is a legitimate business.

14:18I mean, we've seen collectibles turn into an asset class that serious investors are allocating parts of their portfolio towards. I mean, Mr. Wonderful, the Shark Tank judge says is that he is literally amassing trading cards just like he would amass, you know, gold or Bitcoin or something like that. It's part of the portfolio at this point. It is. And then you also look at the fact, too, that that fuels more toy sales. Look at Pokemon as an example. So that brand is going to be coming up, I think it might be next year, actually, on its 30th anniversary in the U.S. And that was something kids played with.

14:54They traded it. the reason so many of those original cards are worth a fortune if they're in mint condition now is because they were played with. And that's also important too with the vintage toys. If you see people that are like, I have a mint in the package, Darth Vader figure from 1979. Well, the reason that's rare is because the bulk of those were played with. So you have this nuance now of the toy industry creating products for the adults and what could happen there is now everybody buys them they stay in the package forever and they actually lose value down the line because everybody keeps a mint but where you get it with that kind of sports car mentality is scarcity then it becomes limited drops super rares one of ones that type of thing so everybody is going after that adult audience and they're doing it in their own way.

15:52And I think that that's very, very interesting because it started as adults collecting toys that were designed, marketed, and sold for kids. All right, we're going to take a quick break and come back with more James right after this. Toby, do you have anything that's totally customized for you? Oh my goodness, yes. Here, let me show you my monogrammed bathrobe. I look amazing in it. Hard pass, but if you're looking for a customized online store and customer experience, look no further than WooCommerce. They're the open source commerce platform that helps you build a store as unique as your brand, from design to checkout to how you connect with customers.

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17:06That's one of the many reasons I have an Apple Card. The rewards are super straightforward. I earn up to 3 % daily cash back on my everyday purchases. There are no points to calculate, no limits or deadlines. Plus, it's super easy to access my card and make payments from the wallet app of my iPhone. If that sounds like the kind of simplicity you want in a credit card, apply for Apple Card in the wallet app on your iPhone. Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA Salt Lake City Brands. Terms and more at applecard.com. So we've seen this collectibles boom over the past few years, and then all of a sudden, who drops in but LaBubu?

17:44How do you think about LaBubu? Toby was thinking of getting one. He wants to know whether it's a fad or not. But sort of what is your conceptualization of LaBubu? I think it would be funny to hear Yogi Bear say LaBubu because he's got his buddy, LaBubu, and it would be just kind of interesting. But Labubu is another example of an overnight success that took 10 years to happen. Labubu is 10 years old. And Labubu is one character in a bigger line called the Monsters. So Labubu comes from Popmart, which owns and manages the IP and sells it. They're a retailer, but they also own and market their own product, which is interesting in itself.

18:27but they're based in China and the Lububu craze is essentially done over there already. It just took a while to get here. So what we see now is a lot of the flippers are going after this. When you see a line outside a Pop Mart store and everybody is trying to get that latest drop, there's a good chance that the majority of people in that line are looking to make a quick buck and sell the stuff on eBay or another marketplace. Um, I think that La Boo Boo, like every craze, it's certainly going to have a peak and then it's going to crash. But for right now, folks are going to ride it, enjoy it. There's a balloon in the Macy's parade on Thanksgiving this year.

19:13Sony just went after a La Boo Boo movie. So we haven't seen the end of this yet. but I personally, when I think of LaBubu, I don't think of it as a toy as much as I think of it as an accessory. I mean, my own kids have little characters that they're in high school and they put them on their backpacks, their backpack clips. That's what I think of LaBubu. But then you see celebrities with like a really expensive LaBubu hanging on their purse. So it's a very interesting thing so i'm getting one that's what i've heard neil neil could look good on your purse for sure that's a great segue to what i want to talk about next which is movies and movies and toys their symbiotic relationship historically toys are made using ip from movies but we've also seen a reversal of that flow with toys specifically barbie comes to mind but now also the boo boo becoming movie stars themselves where do you see this movie toy synergy going movies and toys i'm have been linked like peanut butter and chocolate for decades.

20:21And when you look at that boom, too, it goes back to something we were talking about earlier, the 70s. Star Wars rewrote the game when it came to licensing IP. And we're actually seeing something very similar this year. So I'm glad that you asked about this. Here we are now, almost 50 years later, and we have K-pop Demon Hunters from Netflix, which is the biggest Netflix film of all time. It not only spawned from streaming, but it's now been theatrical. That property, which was developed by Sony Animation in partnership with Netflix, was solicited to all of the toy makers, and they looked at it and said, not sure.

21:05It goes on to be this smash, and there is no official product in stores right now in the toy department. It's going to take a while. So the first thing we're going to see, and they're being rushed to market, is some Funko Pops that should start arriving in December. They were originally slated for January, February. They're rushing those out. They're a relatively easy toy to make because of the form factor, and there's not a lot of moving parts. It's basically like the body and the head. The dolls and the action figures and all of that, But that's going to come later. And they just did what was kind of a landmark deal, a co-master toy partnership between the two biggest players here.

21:49We got Mattel and Hasbro. They inked it together and they're going to lean into their strengths. So the first fashion doll, think like Barbie, but maybe on a little of the higher end scheme of things, is coming from Mattel Creations. It's for pre-order right now. the three girls from K-pop Demon Hunters,$150. It's not going to ship until fall of 26. The kid-focused stuff you will start seeing, again, probably next fall, but these companies are going to split it. So Mattel, we know they do well in dolls and vehicles and stuff. They'll probably do that. We already know Hasbro is great with gaming, so they have a K-pop monopoly coming out and they're going to share it.

22:36You mentioned a lot of properties that have converted very well into toy sales. That IP has been monetized very well via toy sales. Are there any movies or IP that you thought would absolutely crush it as toys and just kind of filtered out that they didn't convert very well to the toy industry? There haven't been too many recent hard flops in that realm that really ring a bell, there certainly have been some. And I actually, in my past too, I worked in the retail side of the business for a while. And I remember Godzilla, the version from the late 90s, I think it was 97, flopped spectacularly. And I remember sitting on just cases and cases of action figures from that, which was from a company that doesn't exist anymore called Trendmasters.

23:33But almost every store had just aisles and aisles of that stuff. So it does happen. I think it ends up being a scenario, too, where retailers and manufacturers have become more cautious because things like that have happened, and even brought it up a couple times here, Star Wars, even that petered out after a while. we just have a few minutes left so i want to toss a real softball here for you give us your mount rushmore of toys you get to pick four to etch in stone as an eternal testament to toydom what are they it this is an extremely tough question i mean we're we're putting a very the plushy of jack black on there right that's making it's gonna be an interesting one too because when you think of Mount Rushmore, you're going to think about faces.

24:26And I'm going to have a couple up there that have no faces. So I'm going to go with the original Big Wheel, the original Big Wheel trike, specifically the Mark's Toys version that came out in the late 60s and sold well into the 90s. So the original Big Wheel, for sure. I would go with the original G.I. Joe from the early 60s, because that launched the action figure category. Similarly, I would go with the original Barbie from the late 50s for reinventing the doll aisle. And the fourth, I think I'm going to go with the old school Radio Flyer Little Red Wagon. I love that pick. Okay, so just to recap our Mount Rushmore, We got the original Big Wheel, original G.I.

25:23Joe, original Barbie, old school, little red wagon. And where are we putting this thing? It's not going to go in South Dakota. Like, where is the right place for the toy Mount Rushmore? I'm going to go in Manhattan. Whoa. And I'll tell you why. The original toy building was at 205th Avenue in Manhattan. And for roughly a century, that was the hub of the North American toy industry. That building is now a variety of things. I know there's like an Eataly restaurant there and some other things. You know, it's been converted. It's probably condos and offices. But nearly every toy company had some sort of space in that building.

26:09And even well before my time, the toy book had an office in that building for that very reason. And Toy Fair New York happens again in February. That is a big event that happens. There has been, the industry has seen a shift where there is a new toy building that's in El Segundo, California that opened this year. So there's sort of been a West Coast migration. But I think in terms of a spiritual home for the U.S. toy industry, that Mount Rushmore should be like a Times Square type installation right at the center of Manhattan because that's where it really began. And a lot of folks in the toy industry are essentially on what I say is all three coasts, New York, L.A., and Chicago, which I'm in Chicagoland right now.

27:03So, you know, plant the flag here. We got to go pay our respects. That is pretty close to our office. So we're going to make a little field trip there as well. OK, final question to hear. This podcast is coming out near the holidays. Shopping season is off to the races. There are a lot of parents that listen to this show. Give them one toy that will knock the socks off of their kids this year. You've thrown the dangerous questions at me because I always say that there is no one definitive toy because every kid and every family is different. And outside of the toy book, we have a consumer publication called the Toy Insider.

27:41And that is all about the greatest stuff for the kids in your life. And because of that question of the one toy, we have a hot 20 because within those 20, you can probably find something that's going to fit the kids. And so I'm going to decline to say one hot toy and just say, check out the list and see what you think is good for the kids on your own list. I love that. That was actually a very nice plug for your publication as well. So that is awesome. Man, I wish I was a kid, Neil. This got me nostalgic again. I think my toy of choice was a ball, though. I thought the ball was going to make it on the Mount Rushmore.

28:27But James, thank you. Big kid energy, man. Exactly. Thank you so much for joining us. We had a lot of fun talking to you. And we can't wait. Until the next holiday season, we'll probably pick your brain once more. Right on. Thank you very much. Rinse takes your laundry and hand delivers it to your door. Expertly cleaned and folded. So you could take the time once spent folding and sorting and waiting to finally pursue a whole new version of you. Like tea time you. Mmm. Or this tea time you. Or even this tea time you. So did you hear about Dave? Or even tea time, tea time, tea time you. So update on Dave.

29:06It's up to you. We'll take the laundry. Rinse. It's time to be great.