Ynon Kreiz

0:00The David Rubenstein podcast is sponsored by Wells Fargo. Virginia Housing is one of the top housing finance agencies across the United States, and we believe a home helps everyone. Having a partner like Wells Fargo that is consistent is so important. Together, we're serving the community. We're serving businesses coming to the Commonwealth. Discover how Wells Fargo is helping Virginia Housing and other clients reach the next horizon at Bloomberg.com slash The Next Horizon.

0:32Inan Krizz is the CEO of Mattel, one of the leading toy companies in the world. It's the manufacturer of, among other products, the Barbie doll. I had a chance to sit down with the CEO recently to talk about how he's trying to transform a traditional toy company into one that takes advantage of, among other technologies, artificial intelligence. Now, the toy world is not a world that I know that well. I do have some young grandchildren and get some toys from time to time, but I don't really pay attention to where the toys are manufactured. My assumption is that most toys in the United States are actually manufactured overseas, and maybe a large number of those in China.

1:06Is that a fair assumption? That's correct. The industry average is about 80 to 85 percent of toys being made in China. For Matteo, we've been reducing and rebalancing our manufacturing footprint so that no one country by the end of 2017 will represent more than 25 percent of our global manufacturing. China represents for us today around 35 % of our global manufacturing relative to industry average of 80 to 85%. But this journey was not about China. It was about balancing and diversifying our manufacturing footprint so that we're not dependent on any one country. As we talk today, President Trump is shortly going to meet with President Xi Jinping, presumably to deal with tariffs and other things.

1:53But to date, the tariffs that have been imposed on China, has it adversely affected toy companies and particularly Mattel? Well, at the start of the year, the issue was about cost impact of tariff on product. Then the question became, what about consumer reaction to price increase in response to tariff? Now what we're seeing is that companies have mitigated for the cost impact. consumer demand for toys is growing, has been growing every quarter in the US and overseas. What we have seen is that retailers have postponed their decision in making orders to the very back end of the year. But seeing that there is demand, there is consumer demand, people are buying product at retailers, we expect to see a good holiday season and a strong growth quarter for Mattel.

2:43Now, about 50 % of tariffs that have been imposed by the federal government have not been passed along to customers. They're being absorbed by the people that are paying the tariffs. Are you absorbing a large part of the tariffs, or are you passing along some of it? Well, we have several mitigating actions that we're taking. Much of it is about diversifying our manufacturing footprint and using the fact that we are making product in seven different countries so you can optimize and modulate and create a flexible model that responds to tariff and shifting market conditions. And this is very much part of our journey to create a flexible supply chain that is responsive.

3:20As the tariffs have now come in, and to some extent there might be increased, there might be a decrease, but how has that changed your relationship with retailers? Are they absorbing the tariffs, or are you absorbing the tariffs, or is it split? We work very closely with our retail partners. We are fundamentally a business-to-business company. We sell to the retailers, they sell to the consumers. But together, we are trying to create a holistic experience that drives demand, and we work with them to help them sell product. We spend significant resources on demand creation. We sell product as a company in 500 ,000 stores globally.

3:59This is just a brick-and-mortar business, not including online retail and e-commerce. So understanding the retail landscape and working in close collaboration with our retail partners is core competence to what we do. And we do that really well. The most famous toy you probably have, I assume it's Barbie doll. When was the Barbie doll actually invented and why is it so popular for such a long period of time? Barbie was invented in 1959. But Barbie is so much more than a doll. Barbie is a pop culture icon. And we as a company, what we do really well is we keep our brands fresh, relevant, current, and culturally relevant.

4:42A clear part of our playbook is infuse brand purpose and cultural relevance into everything we do. And Barbie is the poster child of that strategy. All right, so there's the Ken doll, there's the Barbie doll, and it still is your biggest selling toy? Actually, Hot Wheels right now is a bigger selling product than Barbie. Hot Wheels was created eight years, nine years, sorry, after Barbie. And Hot Wheels is very much about car culture. Hot Wheels as a toy is the number one selling item in the industry. So these cars are performance cars. They race in orange tracks. and around that we make content, video games, location-based entertainment, car shows, races, and it's a whole encompassing experience around cars.

5:32Let's talk about film. Barbie had a movie a few years ago which turned out to be spectacularly successful. It was nominated for Academy Awards and it did incredible at the box office. I assume you were behind that because you have a background in that area. Was that your idea to do a Barbie film? Well, it was part of our strategy. And yes, three weeks after I started, after I joined the company, we started that journey. The goal was not simply to create a movie. And it wasn't a movie that was designed to sell toys. It was about creating a cultural event. And this movie went on to become one of the most successful movies of all time, and in fact, became Warner Brothers' most successful movie at the box office ever in 100 years.

6:17Now, Hollywood is not famous for doing sequels, right? So I assume there will be a sequel of Barbie and Barbie 2, 3, and 4, right? Well, we always said we're looking to build film franchises. We haven't announced anything about a second live-action movie, but we have announced that we're developing an animated Barbie movie with Chris Mulladandri's Illumination, which is one of the most successful animated filmmakers of all time. So it's going to be a very exciting project that will reimagine Barbie in a new way. Now, in many companies, when there's a manufacturer product, the CEO tests the product and say this works or not.

6:56So how do you just say yes let's do this toy or we're not going to do this toy? Who's your expert in deciding to do this or not? This is what we do. As a company we make product that engages and connects with people and we have experts all over the world. We have people that specialize in different categories of product And of course we do a lot of testing, a lot of trials and testing in our own labs, innovation labs, play labs. One such example that just recently came to life is a reinvention of the Hot Wheels Orange tracks that have been around for decades. And we discovered through research that it's actually a little hard for young kids to connect parts.

7:41and we came up with a whole new system that is very simple and easy to connect with the snap, just to one hand, and at the same time is actually high performing in terms of speed, the speed of the car that the cars can drive on the tracks. So it was a way to reimagine a tried and tested play pattern in new and exciting ways through research. When you have advertisement for toys, are you doing the advertisement so it appeals to a child, four, five, six, seven, or to the adult? How do you make the advertisements appeal to both, if possible, or do you target just one age group, the children or the parent?

8:19We don't think of it in terms of advertising or even marketing. It's about demand creation. Children are the most sophisticated consumer out there. They can smell anything that is not authentic a mile away. So whatever we do has to be authentic and connect to the brand values. So let's talk about, most recently you had earnings, and your earnings didn't go quite what the analysts thought it was going to be. Is that always a problem when analysts always have higher expectations than the reality? You know, we don't manage the company quarter by quarter. We guide it for certain numbers for the full year, and we expect to meet those numbers.

8:56As I said at the beginning, part of what is shaping this year is shifting orders by retailers to delay some of their decisions. So we saw a lesser third quarter, and we expect a higher fourth quarter. So as people are getting ready to buy toys for Christmas season, what do you want them to know the most about what they should be buying in the toy world? You know, we are so proud of what we do. Every Christmas, we create product that we believe stands out in a very crowded aisle, the toy aisle. and our job is to continue to do things that will excite and delight fans and partner with our retailers to create an offering that will be very compelling.

9:40Of course, it's always about Barbie, Hot Wheels, American Girl, Fisher-Price, Uno, Monster High, endless collection across multiple price points. You can buy a Hot Wheels die-cast car for$1.25 or you can buy a collector set that we did together with Daniel Arsham, a famous artist, for$700 on Mattel Creation. And when you're dealing with Christmas, you have to figure out, do you get new toys designed so that that's something different or you get old reliable toys that you know the parent is going to say, yes, this kid will like it because it's been around for a while. It's a combination of both.

10:23And it's art and science. There's no playbook, and there's no predictable pattern that you try to follow. In many ways, you invent and you create product and create the demand. But what we are seeing in a world of unlimited shelf space and ubiquitous distribution, the big brands win. The big brands that have the awareness and built-in fan base always have the advantage. So, if I could ask you the obvious question, what is somebody who was born in Israel, educated to some extent in the United States, and really a media executive doing running a toy company? Well, the opportunity was to take a company that thought it's a toy manufacturing company and turn it into an IP company.

11:10We own one of the strongest portfolios in the world in children and family entertainment. And the opportunity that I saw that excited me was to come in and help the company capitalize and capture the full value of our intellectual properties outside of the toy aisle. Not instead of what we do in toys, but in addition to that. So when you recruited to run Mattel, they had already had a lot of CEOs who didn't last. So why would you take this job? Yes, being the fourth CEO in four years is a challenging start. But I always believed in the company. I believed in the brands. And I really saw the potential of taking a company that thought it's in the manufacturing business and turn it to become an IP company.

11:56And today, we're evolving even further from being an IP company to being a brand management company. And in a world where everything revolves around big brands, this is a very exciting opportunity. Let's talk about your background for a moment. You don't have a Los Angeles accent where you live now, so let's talk about where you were born. Where were you born? I was born in Tel Aviv. Tel Aviv. And how long did you live there? I grew up in Israel. I lived there until I was 26. And then I came to America, went to Los Angeles to study business at UCLA. And I stayed in the U.S. and lived in Europe ever since.

12:36So when you were a boy, what was your ambition? to be a toy manufacturer or what? I was a very happy kid, into sports and outdoors, and always wanted to get into business. When I grew up, I always had a map of the world in my bedroom. My mother came from England, and her side of the family lived in the UK. And we used to have guests and friends from her side coming to Israel, and I was always fascinated meeting people from other countries, other places. And that probably formed part of my interest to do things that would be more global. But you were a champion athlete as a child. Is that true?

13:24I was an active athlete. I used to compete in swimming. I played soccer in the league. I got into water sports, so always did something to do with sports. Okay, so you went to university in Tel Aviv? Tel Aviv University, right. And what did you major in? Economics and management. Okay, so you get your degree and you say to your parents, thank you for raising me here, but I'm going to move all the way to the United States. In fact, so far in the United States, it's going to be in California, so you may not see me too much anymore. Is that what you said? Pretty much. And what did they say? They say, we'll support you.

13:59We're right behind you. It's what my mother did to her parents when she moved from London to Tel Aviv and ended up doing the same thing to her. All right, so you went to business school at UCLA. When you showed up at UCLA, were there a lot of Israeli students there then or not? There were no Israeli students, no. None. So, okay, you said to them, I want to break into the movie business, and they said to you, nobody Jewish is in the movie business, right? You know, back in the day, it was a lot about making, building connections and relationships. Of course, today, with the advent of the Internet and availability of information is a lot harder back in the day.

14:41You had to really find your way around, and I exactly did that. I interned at five different companies when I was a student at UCLA. With the calling card of an MBA student, you can open a few doors, but from then on it's about gaining the experience and building the relationships. You graduated. What did you do when you graduated from UCLA Business School? One of the things I did not want to do is to follow the beaten path of it. What MBA students used to do at the time, get a job in consulting or banking, I tried to, I said, I will find my own thing or do something unique and different that is not in line with the business school playbook.

15:23In other words, you didn't want to be something important like a private equity investor. That's a case. You decided not to do that. Okay. All right. And you didn't want to be a McKinsey consultant. And so what did you do? I ended up, as part of my networking, meeting Chaim Saban. A famous Israeli-born businessman in L.A. Right. And he just started to come out to the Power Rangers. He was not the Chaim Saban that you know today. He was actually an American friend who connected us. We spoke English in the beginning when we met. He was not looking to hire anyone, and I was not looking for a job.

16:00but within 15 minutes there was a physical click between us and he said to me why don't you join me I'll teach you everything about my company I always say that I got my BA from Tel Aviv University my MBA at UCLA and my PhD with Chaim Saban now Chaim Saban made a lot of money in cartoons I think it was at one point he sold it I think to Disney or was it Disney or to Fox I can't remember who he sold it to. He sold his cartoon company at a very good price and then stayed in the motion picture world and the communications world. So you went into that? He had a small production company in Los Angeles.

16:44We ended up creating a joint venture with Fox that was called Fox Kids or Fox Family at the time. I moved to London to build the European business. For him. for this joint venture, for him and Rupert Murdoch at the time. And the opportunity was to create and launch children's channels in local languages across paid television in Europe. This was the beginning of digital television in Europe. And we ended up building a company that broadcasted children's channels in over 50 countries in 17 languages that we took public and eventually sold the whole group to Disney. And what background did you have that qualified you to do all this?

17:30It's a question that I used to ask myself at the time, because the raison d 'etre for this joint venture was to take the success in the U.S. and export it to the world. I was actually looking for someone to run this business, to build this business from scratch and run it. And we couldn't find the right person. And I was going down the list of candidates with Chaim one day, and no one was quite right for the job. And he said to me, you know what? Why don't you do it? Why don't you do it? And I said, you know what? I will. When will you start? I just did. And I ended up, we were on our way to New York at the time.

18:11I continued from New York to London, rented an office on my way to the airport in London, went straight from the airport to the office and launched the business. So a headhunter presumably called you and said, what about running a toy company? And you said, I don't really know toys, or you didn't say that? The opportunity in Mattel and what I was doing back then is much broader than that. I was not a paid television executive per se, but we saw the opportunity of taking brands and building businesses around them and leveraging the fandom and the relationship we have with people to create commercial enterprises.

18:51You're a toy manufacturer, but what percentage of your revenues, let's say five years from now, would you like to actually have revenues and earnings coming from non-toys, let's say pictures or motion picture, television, things like that? We expect a significant amount of profit to come through entertainment. This is all of the activities around the brands and IP. Most of this business is royalty-driven. So you see most of the lift in profit, some in revenue, but mostly in profit. So much higher margin and better quality profit and growing at a significant rate. Our sponsor, Wells Fargo, recently spoke to Tammy Neal, CEO of Virginia Housing, about how the HFA leans into innovative partnerships to tackle the state's housing shortage.

19:41Right now, a lot of people are trying to solve the housing crisis that we're in. That's great. And it also means that a lot of people are coming up with answers that may or may not be the best fit. We have to get it right. Wells Fargo, they're willing to come to the table with us and think through ideas that we have. And it enables us to try and test things that some organizations frankly can't do. Workforce housing investment for middle-income Virginians, a discounted interest rate for first-generation homebuyers, grants that spur ideas for innovative housing. Discover how Wells Fargo is helping Virginia Housing and other clients reach the next horizon at Bloomberg.com slash The Next Horizon.

20:21The toy that I remember, a brand that I remember buying a lot of toys of, was called Fisher Price. And the theory was that these were educational toys, more than regular display toys. But is that what Fisher Price was about? Absolutely. Fisher Price is for obviously younger consumers, babies, toddlers, and infants, and this is about quality, trusted product that has deep educational and developmental value. We spend significant resources in defining and creating product that do exactly that. And we still have labs. The headquarter of Fisher Price is in East Aurora, upstate New York, and this is what the team does.

21:04This part of the industry is product driven, where you sell to the parents under the umbrella of the Fisher-Prize brand, which stands for trust, quality, and developmental values for the child. Now every parent I know always says when their child is about six months old, my child might be a genius, really brilliant. You know, there are many proofs that play is a very important part of developing children. And we think about it all the time in terms of what patterns, what engagement can we do to develop children through play. When I talk to somebody, the question you invariably want to ask is, how is artificial intelligence affecting your industry?

21:49We're very excited about AI. Hi, we just recently announced a partnership with OpenAI that has two parts. It's about how we work and how we do things in terms of infusing technology to accelerate innovation, invention, and do what we do even better and faster. The other part is infusing technology into product and experiences, and elevating the play pattern and creating something that would be even more attractive and more engaging to fans. What type of toys do you imagine would come out of a relationship with an artificial intelligence company? Yes, we're being very mindful of creating products that will leverage and benefit from the technology.

22:32Clearly thinking about safety, privacy, and other important issues. When we think about products that infuses AI, this is not about an AI-speaking Barbie. Right. We think of AI in other ways to elevate the play pattern and create experiences that are more engaging through technology. You had a Barbie movie, maybe you'll have another one. You have any other toys that might be made in the movies or theatrical presentations? Well, we are releasing next year in 2026, two big movies, Masters of the Universe, a big world creation superhero franchise that we are launching as a big movie in partnership with Amazon MGM.

23:17And right after that, a movie based on Matchbox, the cars together with Skydance. What will be interesting is for people to see the breadth of our offering from the Barbie Pink to the Dark World of Eternia and everything in between. But it's important to say This is not just about Barbie and not just about movies. It's about creating holistic experiences across multiple verticals, multiple entertainment verticals that are all looking for big brands to drive the business. Masters of the Universe is not about Wall Street investment bankers, right? It's about He-Man. And I promise you, you will enjoy this movie as much as you enjoyed Barbie.

23:59So today, what is your biggest single challenge? As the CEO of this important toy company, what is your biggest worry every night when you go to sleep? We're mostly about missing opportunities. There are so many opportunities out there, especially given the strength and appeal of our brands, that priority, prioritization becomes a key part of what we do. And you always think about how do we not miss on so many opportunities in front of us. There is so much to play with and so much to play for. The value creation is enormous for Mattel, given the strength of our brands and given what we do. Toys as an industry is growing, is not going anywhere.

24:45And the opportunity for Mattel is to continue to grow within the toy aisle and find so much more upside in all these other verticals in a world where everybody is looking for big IP and big brands to rise above the noise level and reach the consumer. Thanks for listening. To hear more of my interviews, you can subscribe and download my podcast on Spotify, Apple, or wherever you listen.